<PAGE> 1
As filed with the Securities and Exchange Commission on November 16, 1999
Registration Nos. 333-85183
and 811-09547
- -------------------------------------------------------------------------------
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. [ ]
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [ ]
Amendment No.1 [X]
FARMERS ANNUITY SEPARATE ACCOUNT A
----------------------------------
(Exact Name of Registrant)
FARMERS NEW WORLD LIFE INSURANCE COMPANY
----------------------------------------
(Name of Depositor)
3003 - 77th Avenue, S.E., Mercer Island, Washington 98040
---------------------------------------------------------
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, including Area Code:
(206) 232-8400
<TABLE>
<CAPTION>
Name and Address of Agent for Service: Copy to:
<S> <C>
John R. Patton, FLMI, FLHC, CLU, ChFC Stephen E. Roth, Esq.
Assistant Vice President -- Staff Operations Sutherland Asbill & Brennan LLP
Farmers New World Life Insurance Company 1275 Pennsylvania Avenue, N.W.
3003 - 77th Avenue, S.E. Washington, D.C. 20004-2415
Mercer Island, Washington 98040
</TABLE>
Approximate date of proposed public offering:
As soon as practicable after effectiveness of the Registration Statement.
-------------------
Title of securities being registered:
Units of interest in a separate account under individual flexible premium
variable annuity contracts.
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),
shall determine.
<PAGE> 2
PROSPECTUS
____________, 2000
Please read this prospectus carefully before investing, and keep it for future
reference. It contains important information about the Farmers Variable
Annuity.
To learn more about the Contract, you may want to read the Statement of
Additional Information dated [___________], 2000 (known as the "SAI"). For a
free copy of the SAI, contact us at:
Farmers New World Life Insurance Company
SERVICE CENTER
P.O. Box 724208
Atlanta, GA 31139
1-877-376-8008 (toll free)
We have filed the SAI with the U.S. Securities and Exchange Commission ("SEC")
and have incorporated it by reference into this prospectus. The SAI's table of
contents appears at the end of this prospectus.
The SEC maintains an Internet website (http://www.sec.gov) that contains the
SAI, material incorporated by reference, and other information about us. You may
also read and copy these materials at the SEC's public reference room in
Washington, D.C. Call 1-800-SEC-0330 for information about the SEC's public
reference room.
VARIABLE ANNUITY CONTRACTS INVOLVE CERTAIN RISKS, AND YOU MAY LOSE SOME OR ALL
OF YOUR INVESTMENT.
- - The investment performance of the portfolios in which the subaccounts
invest will vary.
- - We do not guarantee how any of the portfolios will perform.
- - The Contract is not a deposit or obligation of any bank, and no bank
endorses or guarantees the Contract.
- - Neither the U.S. Government nor any federal agency insures your
investment in the Contract.
FARMERS VARIABLE ANNUITY
INDIVIDUAL FLEXIBLE PREMIUM VARIABLE ANNUITY
issued by
FARMERS NEW WORLD LIFE INSURANCE COMPANY
through the
FARMERS ANNUITY SEPARATE ACCOUNT A
HOME OFFICE
3003 - 77th Avenue, S.E.
Mercer Island, Washington 98040
Telephone: (206) 232-8400
The Farmers Variable Annuity Contract (the "Contract") has 13 funding choices
- -- one fixed account (paying a guaranteed minimum fixed rate of interest) and
12 subaccounts. The subaccounts invest in the following 12 mutual fund
portfolios:
JANUS ASPEN SERIES
- - Capital Appreciation Portfolio
KEMPER VARIABLE SERIES
- - Kemper Government Securities Portfolio
- - Kemper High Yield Portfolio
- - Kemper Small Cap Growth Portfolio
- - Kemper-Dreman High Return Equity Portfolio
PIMCO VARIABLE INSURANCE TRUST
- - PIMCO Low Duration Bond Portfolio
- - PIMCO Foreign Bond Portfolio
SCUDDER VARIABLE LIFE INVESTMENT FUND
- - Money Market Portfolio
- - Growth and Income Portfolio (Class A Shares)
- - International Portfolio (Class A Shares)
- - Bond Portfolio (Class A Shares)
TEMPLETON VARIABLE PRODUCTS SERIES FUND
- - Templeton Developing Markets Fund (Class 2 Shares)
THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY A CURRENT PROSPECTUS FOR
EACH OF THE PORTFOLIOS LISTED ABOVE.
THE SEC HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS. ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A
FEDERAL CRIME.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<S> <C>
GLOSSARY..................................................................................................................1
HIGHLIGHTS................................................................................................................3
THE CONTRACT...........................................................................................................3
HOW TO INVEST..........................................................................................................3
CANCELLATION -- THE RIGHT TO EXAMINE PERIOD............................................................................4
INVESTMENT OPTIONS.....................................................................................................4
TRANSFERS..............................................................................................................5
ACCESS TO YOUR MONEY...................................................................................................5
DEATH BENEFIT..........................................................................................................6
GUARANTEED MINIMUM DEATH BENEFIT.......................................................................................6
FEES AND CHARGES.......................................................................................................6
ANNUITY PROVISIONS.....................................................................................................8
GUARANTEED RETIREMENT INCOME BENEFIT...................................................................................8
FEDERAL TAX STATUS.....................................................................................................9
INQUIRIES..............................................................................................................9
FEE TABLE................................................................................................................10
EXAMPLES..............................................................................................................12
CONDENSED FINANCIAL INFORMATION.......................................................................................13
ABOUT FARMERS NEW WORLD LIFE INSURANCE COMPANY AND THE VARIABLE ACCOUNT..................................................14
FARMERS NEW WORLD LIFE INSURANCE COMPANY..............................................................................14
FARMERS NEW WORLD LIFE VARIABLE ANNUITY SEPARATE ACCOUNT A............................................................14
The Portfolios...........................................................................................................15
INVESTMENT OBJECTIVES OF THE PORTFOLIOS...............................................................................15
AVAILABILITY OF THE PORTFOLIOS........................................................................................16
The Pay-In Period........................................................................................................17
PURCHASING A CONTRACT.................................................................................................17
CANCELLATION -- THE 10 DAY RIGHT TO EXAMINE PERIOD....................................................................17
DESIGNATING YOUR INVESTMENT OPTIONS...................................................................................17
ADDITIONAL PREMIUM PAYMENTS...........................................................................................18
Your Contract Value......................................................................................................19
VARIABLE ACCOUNT VALUE................................................................................................19
Transfers Between Investment Options.....................................................................................20
Automatic Asset Rebalancing Program...................................................................................20
Asset Allocation Services.............................................................................................21
Excessive Trading Limits..............................................................................................21
Dollar Cost Averaging Program.........................................................................................21
TELEPHONE TRANSFERS AND WITHDRAWALS...................................................................................22
TRANSFER FEE..........................................................................................................22
Access to Your Money.....................................................................................................22
SURRENDERS............................................................................................................22
PARTIAL WITHDRAWALS...................................................................................................23
SYSTEMATIC WITHDRAWAL PLAN............................................................................................24
Death Benefits...........................................................................................................24
DEATH BENEFITS BEFORE THE ANNUITY START DATE..........................................................................24
GUARANTEED MINIMUM DEATH BENEFIT......................................................................................25
DISTRIBUTION UPON DEATH...............................................................................................26
DEATH BENEFITS AFTER THE ANNUITY START DATE...........................................................................26
Fees and Charges.........................................................................................................27
MORTALITY AND EXPENSE RISK CHARGE.....................................................................................27
ASSET-BASED ADMINISTRATION CHARGE.....................................................................................27
TRANSFER FEE..........................................................................................................27
SURRENDER CHARGE......................................................................................................27
Records Maintenance Charge............................................................................................29
PORTFOLIO FEES AND CHARGES............................................................................................29
PREMIUM TAXES.........................................................................................................30
OTHER TAXES...........................................................................................................30
THE PAYOUT PERIOD........................................................................................................30
THE ANNUITY START DATE................................................................................................30
ANNUITY OPTIONS.......................................................................................................30
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
DETERMINING THE AMOUNT OF YOUR ANNUITY PAYMENT........................................................................31
FIXED ANNUITY PAYMENTS................................................................................................31
ANNUITY TABLES........................................................................................................31
DESCRIPTION OF ANNUITY OPTIONS........................................................................................32
GUARANTEED RETIREMENT INCOME BENEFIT.....................................................................................32
The Fixed Account........................................................................................................34
FIXED ACCOUNT VALUE...................................................................................................34
FIXED ACCOUNT TRANSFERS...............................................................................................35
Investment Performance of the Subaccounts................................................................................35
Voting Rights............................................................................................................36
Federal Tax Matters......................................................................................................37
TAXATION OF NON-QUALIFIED CONTRACTS...................................................................................37
TAXATION OF QUALIFIED CONTRACTS.......................................................................................39
OTHER TAX ISSUES......................................................................................................40
OUR INCOME TAXES......................................................................................................40
POSSIBLE TAX LAW CHANGES..............................................................................................40
Other Information........................................................................................................40
PAYMENTS..............................................................................................................40
MODIFICATION..........................................................................................................41
DISTRIBUTION OF THE CONTRACTS.........................................................................................41
LEGAL PROCEEDINGS.....................................................................................................41
REPORTS TO OWNERS.....................................................................................................42
INQUIRIES.............................................................................................................42
YEAR 2000 MATTERS.....................................................................................................42
FINANCIAL STATEMENTS..................................................................................................43
STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS....................................................................44
</TABLE>
ii
<PAGE> 5
GLOSSARY
For your convenience, we are providing a glossary of the special terms
we use in this prospectus.
ACCUMULATION UNIT
An accounting unit we use to calculate subaccount values during the pay-in
period. It measures the net investment results of each of the subaccounts.
ANNUITANT
You are the annuitant, unless you state otherwise in your application. Before
any annuity payments begin, the annuitant is the person (or persons) on whose
life (or lives) the Contract is issued. When annuity payments begin, the
annuitant is a person during whose lifetime payments may be made under one of
the annuity options. You may select joint annuitants.
ANNUITY START DATE
The date when we will begin to pay annuity payments to you or a person you
designate.
BENEFICIARY
The person you select to receive the death benefit if you or the last surviving
annuitant die before the annuity start date.
CASH VALUE
The Contract Value minus any applicable surrender charge, records maintenance
charge, and premium tax.
COMPANY (WE, US, OUR, FARMERS)
Farmers New World Life Insurance Company.
CONTRACT MONTH, YEAR OR ANNIVERSARY
A month, year or anniversary as measured from the issue date.
CONTRACT VALUE
The sum of the amounts you have accumulated under the Contract. It is equal to
the money you have under the Contract in the variable account and the fixed
account.
FINAL ANNUITY DATE
The Contract anniversary when the oldest annuitant is age 95.
FIXED ACCOUNT
An option to which you can direct your money under the Contract. It provides a
guarantee of principal and interest. The assets supporting the fixed account are
held in our general account and are not part of, or dependent on, the investment
performance of the variable account.
FIXED ACCOUNT VALUE
Your Contract Value in the fixed account.
FREE WITHDRAWAL AMOUNT
An amount you can withdraw each Contract year as a partial withdrawal without
incurring surrender charges.
FUNDS
Investment companies that are registered with the SEC. This Contract allows you
to invest in the investment portfolios of the funds that are listed on the front
page of this prospectus.
GENERAL ACCOUNT
The account containing all of Farmers' assets, other than those held in its
separate accounts.
HOME OFFICE
The address of the Home Office is 3003-77th Avenue, S.E., Mercer Island,
Washington 98040.
ISSUE DATE
The later of the date on which the initial premium is received or the date that
the properly completed application is received at our Service Center. It is also
the date when, depending on your state of residence, we allocate your premium(s)
either entirely to the fixed account, or to the fixed account and the
subaccounts you selected on your application.
NET INVESTMENT FACTOR
The factor we use to determine the value of an accumulation unit at the end of
each valuation period. We determine the net investment factor separately for
each subaccount.
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<PAGE> 6
PAY-IN PERIOD
The period that begins when we issue your Contract and ends on the annuity
start date. During the pay-in period, earnings accumulate on a tax-deferred
basis.
PAYOUT PERIOD
The period beginning on the annuity start date during which you or the person
you designate will receive annuity payments.
PORTFOLIO
A separate investment portfolio of a fund. Each subaccount invests exclusively
in one portfolio of a fund.
PREMIUM PAYMENT
Amount you pay to us for the Contract. When we use the term "premium payment"
in this prospectus, it has the same meaning as "net premium payment" in the
Contract, and means a premium payment less any applicable premium taxes.
QUALIFIED CONTRACT
A Contract issued in connection with retirement plans that qualify for special
federal income tax treatment under the Tax Code.
SERVICE CENTER
The address of the Service Center is P.O. Box 724208, Atlanta, GA 31139.
McCamish Systems, L.L.C. is the administrator of the Contract. You can call
the Service Center office toll-free at 1-877-376-8008.
SUBACCOUNT
A subdivision of the variable account that invests exclusively in shares of a
single portfolio of a fund. The investment performance of each subaccount is
linked directly to the investment performance of the portfolio in which it
invests.
SURRENDER
The termination of a Contract at the option of the owner.
TAX CODE
The Tax Code of 1986, as amended.
VALUATION DAY
Each day that the New York Stock Exchange ("NYSE") is open for trading. Farmers
New World Life Insurance Company is open to administer the Contract on each day
the NYSE is open.
VALUATION PERIOD
The period of time over which we determine the change in the value of the
subaccounts in order to price accumulation units. Each valuation period begins
at the close of normal trading on the NYSE (currently 4:00 p.m. Eastern time, 1
p.m. Pacific Time) on each Valuation Day and ends at the close of normal
trading on the NYSE on the next Valuation Day.
VARIABLE ACCOUNT
Farmers Annuity Separate Account A. It is a separate investment account divided
into subaccounts, each of which invests in a corresponding portfolio of a
designated mutual fund.
VARIABLE ACCOUNT VALUE
The portion of the total value of your Contract that is allocated to the
subaccounts of the variable account.
WRITTEN NOTICE
The written notice you must sign and send to us to request or exercise your
rights as owner under the Contract. To be complete, it must: (1) be in a form
we accept; (2) contain the information and documentation that we determine is
necessary, and (3) be received at our Service Center.
YOU (YOUR, OWNER)
The person(s) entitled to exercise all rights as owner under the Contract.
2
<PAGE> 7
HIGHLIGHTS
These highlights provide only a brief overview of the more important
features of the Contract. More detailed information about the Contract appears
later in this prospectus. Please read the remainder of this prospectus
carefully.
THE CONTRACT
An annuity is a contract between you (the Contract owner) and an
insurance company (Farmers) in which you agree to make one or more payments to
us and, in return, we agree to pay a series of payments to you at a later date.
The Farmers Variable Annuity Contract is a special kind of annuity that is:
- FLEXIBLE PREMIUM - you may add premium payments at any time.
- TAX-DEFERRED - you do not have to pay taxes on earnings until
you take money out by surrender, partial cash withdrawals, or
we make annuity payments to you, or we pay the death benefit.
- VARIABLE - you can direct your premium into any of 12
subaccounts. Each subaccount invests exclusively in a single
portfolio of a fund. The money you invest in the subaccounts
will fluctuate daily based on the performance of the mutual
fund portfolios. You bear the investment risk on the amounts
you invest in the subaccounts.
You can also direct money to the fixed account. Amounts in the fixed
account earn interest annually at a fixed rate that is guaranteed by us never
to be less than 3%, and may be more. We guarantee the interest, as well as
principal, on money placed in the fixed account.
The Contract allows you to select on your application, for an
additional fee:
- the optional Guaranteed Minimum Death Benefit, and/or
- the optional Guaranteed Retirement Income Benefit.
Like all deferred annuities, the Contract has two phases: the "pay-in"
period and the "payout" period. During the pay-in period, you can allocate
money to any combination of investment alternatives. Any earnings on your
investments accumulate tax-deferred. The payout period begins once you start
receiving regular annuity payments from the Contract. Unless you opt for the
Guaranteed Retirement Income Benefit, the money you can accumulate during the
pay-in period will directly determine the dollar amount of any annuity payments
you receive.
HOW TO INVEST
You may obtain a Contract application from your Farmers agent who is
also a licensed registered representative. You may purchase the Contract with a
single payment of $500 or more. We will not issue a Contract if you are older
than age 90 on the issue date.
You can pay additional premiums of $500 or more ($50 or more if you
authorize us to draw on an account by check or electronic debit) at any time
before the annuity start date. You must send all premium payments to the Service
Office in Atlanta, Georgia at the address listed on the front cover of this
prospectus.
We may limit the total premium(s) paid to us during any Contract year.
3
<PAGE> 8
CANCELLATION -- THE RIGHT TO EXAMINE PERIOD
You may return your Contract to us for a refund within 10 days after
you receive it. In most states, the amount of the refund will be the total
premiums we have received, plus (or minus) any gains (or losses) in the amounts
you invested in the subaccounts. If state law requires a return of premium, we
will refund the greater of your original premium or the Contract Value on the
date we receive the returned Contract at our Home Office. In those states, we
will place your premium(s) in the fixed account for the number of days in your
state's right to examine period, plus 10 days. We will pay the refund within 7
days after we receive the Contract. The Contract will then be deemed void. In
some states you may have more than 10 days to return the Contract.
INVESTMENT OPTIONS
You may invest your money in any of 12 portfolios by directing it into
the corresponding subaccount. The portfolios now available to you under the
Contract are:
<TABLE>
<CAPTION>
JANUS ASPEN SERIES SCUDDER VARIABLE LIFE INVESTMENT FUND
<S> <C>
- Capital Appreciation Portfolio - Money Market Portfolio
- Growth and Income Portfolio (Class A Shares)
KEMPER VARIABLE SERIES - International Portfolio (Class A Shares)
- Kemper Government Securities Portfolio - Bond Portfolio (Class A Shares)
- Kemper High Yield Portfolio
- Kemper Small Cap Growth Portfolio
- Kemper-Dreman High Return TEMPLETON VARIABLE PRODUCTS SERIES FUND
Equity Portfolio - Templeton Developing Markets Fund
(Class 2 Shares)
PIMCO VARIABLE INSURANCE TRUST
- PIMCO Low Duration Bond Portfolio
- PIMCO Foreign Bond Portfolio
</TABLE>
EACH ALLOCATION TO A SUBACCOUNT OR THE FIXED ACCOUNT MUST BE AT LEAST
$500.
Each subaccount invests exclusively in shares of one portfolio of a
fund. Each portfolio's assets are held separately from the other portfolios and
each portfolio has separate investment objectives and policies. The portfolios
are described in their own prospectuses that accompany this prospectus. The
value of your investment in the subaccounts will fluctuate daily based on the
investment results of the portfolios in which you invest, and on the fees and
charges we deduct.
DEPENDING ON MARKET CONDITIONS, YOU CAN GAIN OR LOSE MONEY IN ANY OF
THE SUBACCOUNTS. WE RESERVE THE RIGHT TO OFFER OTHER INVESTMENT CHOICES IN THE
FUTURE.
You may also direct your money to the fixed account and receive a
guaranteed rate of return. Money you place in the fixed account will earn
interest for one-year periods at a fixed rate that we guarantee to be not less
than 3.0%.
4
<PAGE> 9
TRANSFERS
You have the flexibility to transfer assets within your Contract. At
any time during the pay-in period after the Right to Examine Period, you may
transfer amounts among the subaccounts and between the fixed account and the
subaccounts. Certain restrictions apply:
- transfers must be at least $100, or the total value in a
subaccount or fixed account, if less;
- Contract Value remaining in a subaccount or the fixed
account must be at least $500, or we will transfer the
total value;
- only one transfer may be made from the fixed account each
Contract year. The transfer must be made during the 30
days following a Contract anniversary; and
- transfers cannot be made from any subaccount to the fixed
account over the 6 months following any transfer from the
fixed account into one or more subaccounts.
You may make 12 free transfers each contract year. We impose a $25
charge per transfer on each transfer after the twelfth during a contract year.
Transfers made under the asset allocation or dollar cost averaging programs do
not count toward the 12 free transfers.
AUTOMATIC ASSET REBALANCING PROGRAM
Under the automatic asset rebalancing program, we will automatically
transfer amounts among the subaccounts on a quarterly basis so that the
allocation of your Contract Value matches the percentages you specify.
DOLLAR COST AVERAGING PROGRAM
The dollar cost averaging program permits you to systematically
transfer (on each monthly anniversary of the issue date) a set dollar amount
from the fixed account to up to 8 subaccounts. Dollar cost averaging is
available only during the pay-in period. The minimum transfer amount is $100.
ACCESS TO YOUR MONEY
During the pay-in period, you may receive a cash withdrawal of part of
your cash value. You may also fully withdraw all your value from the Contract
and receive its cash value. This is called a surrender.
Partial withdrawals are subject to the following conditions:
- the minimum amount you can withdraw is $100; and
- you may not make a partial withdrawal if the withdrawal
plus the surrender charge would cause the Contract Value
to fall below $500.
Surrenders and partial withdrawals may be subject to a surrender
charge. In any contract year, you may withdraw a portion of your Contract
Value, called the free withdrawal amount, without incurring a surrender charge.
We offer a systematic withdrawal plan whereby, after the first
Contract year, you may receive periodic payments of at least $100 on a monthly
basis during the pay-in period.
5
<PAGE> 10
You may have to pay federal income taxes and a penalty tax on any
money you withdraw from the Contract.
DEATH BENEFIT
We will pay the death benefit to the beneficiary on the death of
either any owner or the last surviving annuitant before the annuity start date.
If an annuitant (including an owner who is an annuitant) dies before
his or her 80th birthday, the death benefit equals the standard death benefit,
which is the greater of:
- the Contract Value on the later of the date that we
receive due proof of death and the date when we receive
the beneficiary's instructions on payment method; or
- the minimum death benefit. The minimum death benefit
equals the sum of all premiums paid, minus any
proportional reductions for each partial withdrawal.
In all other cases, the death benefit equals the Contract Value
determined on the later of the date that we receive due proof of death and the
date when we receive the beneficiary's instructions on payment method.
GUARANTEED MINIMUM DEATH BENEFIT
On your application, you may elect the Guaranteed Minimum Death
Benefit which provides an enhanced death benefit in the event of the death of
the last surviving annuitant before the annuity start date. We will deduct an
additional daily charge from the subaccounts at an annual rate of 0.25% for
this benefit.
On the death of the last surviving annuitant, the Guaranteed Minimum
Death Benefit will equal the greatest of the following:
- the standard death benefit described above;
- premiums you paid accumulated daily with interest at 4%
per year until the earlier of: (i) the date of death, or
(ii) the Contract anniversary on or next following the
annuitant's 80th birthday; minus proportional reductions
for withdrawals; or
- the Greatest Anniversary Value on any Contract
anniversary through the earlier of the date of death or
the Contract anniversary on or next following the
annuitant's 80th birthday, minus proportional reductions
for withdrawals.
A different death benefit calculation applies if the last surviving
annuitant dies after the Contract anniversary on or next following the
annuitant's 80th birthday.
FEES AND CHARGES
MORTALITY AND EXPENSE RISK CHARGE. We will deduct a daily mortality
and expense risk charge from your value in the subaccounts at an annual rate of
0.95% (1.20% if you select either the Guaranteed Minimum Death Benefit or the
Guaranteed Retirement Income Benefit; 1.45% if you choose both benefits.)
6
<PAGE> 11
ASSET-BASED ADMINISTRATIVE CHARGE. We will deduct a daily
administrative charge from your value in each subaccount at an annual rate of
0.20%.
RECORDS MAINTENANCE CHARGE. We deduct a Records Maintenance Charge of
$30 from your Contract Value on the last valuation day of each Contract year
during the pay-in period, on the date when the Contract is surrendered, and on
the annuity start date. We will waive this charge if your Contract Value is
$50,000 or more on the date the charge is assessed.
TRANSFER FEE. You may make 12 free transfers each Contract year. We
impose a $25 charge per transfer on each transfer after the twelfth during a
contract year before the annuity start date.
SURRENDER CHARGE. During the pay-in period, you may withdraw all or
part of your cash value before your death. Certain withdrawals may be made
without payment of any surrender charge. Other withdrawals are subject to
surrender charges.
We calculate the surrender charge from the date you made the premium
payment(s) being withdrawn. The surrender charge applies during the entire
seven year period following each premium payment, and will vary depending on
the number of years since you made the premium payment(s) being withdrawn.
<TABLE>
<CAPTION>
NUMBER OF COMPLETE YEARS
FROM DATE OF PREMIUM
PAYMENT: 0 1 2 3 4 5 6 7+
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SURRENDER CHARGE: 7% 6% 5% 5% 4% 3% 2% 0
</TABLE>
In determining surrender charges, we will treat your premium payments
as being withdrawn in the order in which we received them -- that is on a
first-in, first-out basis.
We do not assess a surrender charge on:
- the death benefit;
- on the withdrawal of premium payments you paid us more
than seven years ago;
- on withdrawals that qualify under
the waiver of surrender charge riders as extended
hospitalization or confinement to a skilled nursing
facility or terminal illness (see, "Surrender Charge");
or
- on the free withdrawal amount.
The free withdrawal amount equals the greater of:
- Contract Value minus total premiums and minus prior
withdrawals that were previously assessed a surrender
charge; or
- 10% of Contract Value determined at the time the current
withdrawal is requested.
PREMIUM TAXES. We will deduct state premium taxes, which currently
range from 0% up to 3.5%, if your state requires us to pay the tax. If
applicable, we will make the deduction either: (a) from premium payments as we
receive them, (b) from your Contract Value upon surrender or partial
withdrawal, (c) on the annuity start date, or (d) upon payment of a death
benefit.
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<PAGE> 12
PORTFOLIO FEES AND CHARGES. Each portfolio deducts portfolio management
fees and charges from the amounts you have invested in the portfolios. These
charges currently range from .44% to 1.91% annually. See the Fee Table in this
Prospectus and the prospectuses for the portfolios.
ANNUITY PROVISIONS
ANNUITY OPTIONS. The Contract allows you to receive income under one
of three fixed annuity payment options beginning on the annuity start date you
select. The latest annuity start date you may select is the Contract
anniversary when the oldest annuitant is age 95. You may receive income
payments for a specific period of time or for life, with or without a
guaranteed number of payments.
We will use your cash value (less any applicable premium taxes) on the
annuity start date to calculate the amount of your annuity payments under the
payment plan you choose.
GUARANTEED RETIREMENT INCOME BENEFIT
The Guaranteed Retirement Income Benefit provides a minimum guaranteed
lifetime fixed income benefit in the form of fixed monthly annuity payments,
once the Contract has been in force for at least 10 Contract years. You must
elect the guaranteed retirement income benefit on your Contract application. We
will deduct an additional daily charge from the subaccounts at an annual rate
of 0.25% for this benefit.
The amount of income payable under the Guaranteed Retirement Income
Benefit is determined by applying the income base (less applicable taxes) to
the guaranteed annuity table rates in your Contract for the annuity option you
select. On the annuity start date, the amount of income payments payable will
be the greater of:
- the dollar amount determined under the Guaranteed Retirement
Income Benefit; and
- the dollar amount determined by applying Contract Value to
the income benefits, annuity options and annuity tables in
your Contract.
The income base under the Guaranteed Retirement Income Benefit equals the
greater of:
(i) premiums you paid accumulated daily with interest at 5.00%
per year through the earlier of the annuity start date and
the Contract anniversary on or next following the annuitant's
80th birthday, with a proportional reduction for withdrawals;
and
(ii) the Greatest Anniversary Value for the anniversaries through
the earlier of the annuity start date and the Contract
anniversary on or next following the annuitant's 80th
birthday, with a proportional reduction for withdrawals
8
<PAGE> 13
FEDERAL TAX STATUS
Generally, a Contract's earnings are not taxed until you take them
out. For federal tax purposes, if you take money out during the pay-in period,
including a surrender, partial withdrawal or death benefit payment, earnings
come out first and are taxed as ordinary income. If you are younger than 59 1/2
when you take money out, you may be charged a 10% federal penalty tax on
earnings. The annuity payments you receive during the payout phase are
considered partly a return of your original investment so that part of each
payment is not taxable as income until the "investment in the contract" has
been fully recovered. Different tax consequences may apply for a qualified
Contract. For a further discussion of the federal tax status of variable
annuity contracts, see "Federal Tax Status."
INQUIRIES
If you need additional information, please contact us at:
the Service Center:
P.O. Box 724208
Atlanta, GA 31139
1-877-376-8008 (toll-free)
9
<PAGE> 14
FEE TABLE
The purpose of the Fee Table is to help you understand the various
costs and expenses that you will pay directly and indirectly by investing in the
subaccounts. The Fee Table shows the current expenses of the variable account as
well as the portfolios.
YOUR TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Charge Imposed on Premium Payments.....................................................................None
Maximum Surrender Charge
(as a percentage of your premium payment) (1)..............................................................7.0%
Transfer Fee.....................................................................No fee in the first 12 transfers
in a contract year then $25
per additional transfer
RECORDS MAINTENANCE CHARGE (2).........................................................................................$30
VARIABLE ACCOUNT ANNUAL EXPENSES
(as a percentage of average daily net assets in the subaccounts)
With Both the Guaranteed Minimum Death Benefit AND the Guaranteed Retirement Income Benefit
Mortality and Expense Risk Charge............................................................................1.45%
Administrative Expenses......................................................................................0.20%
Total Variable Account Annual Expenses.......................................................................1.65%
With Either the Guaranteed Minimum Death Benefit OR the Guaranteed Retirement Income Benefit
Mortality and Express Risk Charge............................................................................1.20%
Administrative Expenses......................................................................................0.20%
Total Variable Account Annual Expenses.......................................................................1.40%
With Standard Death Benefit Only
Mortality and Expense Risk Charge............................................................................0.95%
Administrative Expenses......................................................................................0.20%
Total Variable Account Annual Expenses.......................................................................1.15%
</TABLE>
ANNUAL PORTFOLIO EXPENSES
(as a percentage of average daily net assets in the subaccounts after fee
waivers and expense reimbursements)
<TABLE>
<CAPTION>
TOTAL ANNUAL
EXPENSES (AFTER
MANAGEMENT OTHER EXPENSES WAIVERS
FEES 12b-1 (AFTER AND
NAME OF PORTFOLIO (AFTER WAIVERS) FEES REIMBURSEMENT) REIMBURSEMENT)
- ----------------- --------------- ---- -------------- --------------
<S> <C> <C> <C> <C>
Janus Aspen Series
- ------------------
Capital Appreciation Portfolio(3) .70% -- % .22% .92%
Kemper Variable Series
- ----------------------
Kemper Government Securities Portfolio .55% -- % .11% .66%
Kemper High Yield Portfolio .60% -- % .05% .65%
</TABLE>
10
<PAGE> 15
<TABLE>
<S> <C> <C> <C> <C>
Kemper Small Cap Growth Portfolio .65% -- % .05% .70%
Kemper-Dreman High Return Equity
Portfolio(4)(5) .42% -- % .45% .87%
PIMCO Variable Insurance Trust(6)
- ------------------------------
Low Duration Bond Portfolio .63% -- % .02% .65%
Foreign Bond Portfolio .88% -- % .02% .90%
Scudder Variable Life Investment Fund
- -------------------------------------
Money Market Portfolio .37% -- % .07% .44%
Growth and Income Portfolio (Class A Shares) .47% -- % .09% .56%
International Portfolio (Class A Shares) .87% -- % .18% 1.05%
Bond Portfolio (Class A Shares) .47% -- % .09% .56%
Templeton Variable Products Series Fund
- ---------------------------------------
Templeton Developing Markets Fund 1.25% .25% .41% 1.91%
(Class 2 Shares)(7)
</TABLE>
1/ We do not assess a surrender charge on death benefit payments. We do assess
a surrender charge if you annuitize under the Contract.
2/ We will also deduct this fee on the annuity start date or the date you
surrender your Contract. We waive this fee for Contracts with a Contract Value
of $50,000 or more on the date the fee is assessed.
3/ The expense figures shown for the Janus Aspen Capital Appreciation Portfolio
are net of certain fee waivers or reductions from Janus Capital Corporation.
Without such waivers, the Management Fees, Other Expenses and Total Annual
Expenses for the Janus Aspen Capital Appreciation Portfolio for the fiscal year
ended December 31, 1998 would have been: .75%, .22% and .97%, respectively. See
the prospectus and Statement of Additional Information of Janus Aspen Series
for a description of these waivers.
4/ The Kemper-Dreman High Return Equity Portfolio commenced operations on
5/4/98. As a result, "Other Expenses" for fiscal year 1998 have been
annualized.
5/ Pursuant to their respective agreements with Kemper Variable Series, the
investment manager and the accounting agent have agreed, for the one year
period ending May 1, 2000, to limit their respective fees and to reimburse
other operating expenses to the extent necessary to limit total operating
expenses of the Kemper-Dreman High Return Equity Portfolio to the levels set
forth in the table above. Without taking into effect these expense caps, for
the High Return Equity Portfolio, the Management Fees are estimated to be .75%;
Other Expenses are estimated to be .45%; and Total Annual Expenses are
estimated to be 1.20%.
6/ For the PIMCO Variable Insurance Trust portfolios, management fees include
fixed advisory and administrative fees. The administrative fee covers most of
the expenses of these portfolios. However, the portfolios are responsible for
bearing certain expenses associated with their operations that are not covered
by the administrative fee. While it is expected that these expenses generally
will not have a material effect on the portfolio expense ratios, they may have a
material effect in certain circumstances, such as when the average net assets of
a portfolio are lower than anticipated. Pacific Investment Management Company
has agreed to reduce its administrative fee, subject to potential future
reimbursement, to the extent that Total Annual Expenses would exceed, due to
organizational expenses and the payment by the portfolio of its pro rata portion
of the Trust's Trustees' fees, 0.65% of average daily net assets of the PIMCO
Low Duration Bond portfolio and 0.90% of average daily net assets of the PIMCO
Foreign Bond portfolio. "Other Expenses" are based on estimates for the current
fiscal year. Without such reductions, Management Fees, Other Expenses and Total
Annual Expenses for the fiscal year ended December 31, 1998 would have been: for
the PIMCO Low Duration Bond Portfolio, .65%, .02% and .67%, respectively; and
for the PIMCO Foreign Bond Portfolio, .90%, .02% and .92%, respectively.
11
<PAGE> 16
7/ Class 2 of the Templeton Developing Market Portfolio has a distribution
plan or "Rule 12b-1 Plan" which is described in the portfolio's prospectus.
EXAMPLES
EXAMPLE 1
Example 1 below shows the dollar amount of expenses that you would bear
directly or indirectly if you:
- invested $1,000 in a subaccount;
- earned a 5% annual return on your investment;
- fully surrender your Contract, or began receiving
annuity payments, with applicable surrender charges
deducted; and
- elected both the optional Guaranteed Minimum Death
Benefit (with an annual charge of 0.25%) and the optional
Guaranteed Retirement Income Benefit (with an annual
charge of 0.25%), resulting in total variable account
expenses of 1.65%.
EXAMPLE 2
Example 2 has the same assumptions as Example 1, except that you elected
neither the Guaranteed Minimum Death Benefit nor Guaranteed Retirement Income
Benefit, resulting in total variable account expenses of 1.15%.
<TABLE>
<CAPTION>
ASSUMES YOU SURRENDER OR ANNUITIZE THE CONTRACT EXAMPLE 1 EXAMPLE 2
------------------------------------------------- --------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
SUBACCOUNT 1 YEAR 3 YEARS 1 YEAR 3 YEARS
------------------------------------------------- --------------- -------------- -------------- ---------------
JANUS ASPEN SERIES
------------------------------------------------- --------------- -------------- -------------- ---------------
Capital Appreciation $92 $133 $87 $118
------------------------------------------------- --------------- -------------- -------------- ---------------
KEMPER VARIABLE SERIES
------------------------------------------------- --------------- -------------- -------------- ---------------
Kemper Government Securities $90 $125 $85 $111
------------------------------------------------- --------------- -------------- -------------- ---------------
Kemper High Yield $89 $125 $85 $110
------------------------------------------------- --------------- -------------- -------------- ---------------
Kemper Small Cap Growth $90 $126 $85 $112
------------------------------------------------- --------------- -------------- -------------- ---------------
Kemper-Dreman High Return Equity $91 $131 $87 $117
------------------------------------------------- --------------- -------------- -------------- ---------------
PIMCO VARIABLE INSURANCE TRUST
------------------------------------------------- --------------- -------------- -------------- ---------------
PIMCO Low Duration Bond $89 $125 $85 $110
------------------------------------------------- --------------- -------------- -------------- ---------------
PIMCO Foreign Bond $92 $132 $87 $118
------------------------------------------------- --------------- -------------- -------------- ---------------
SCUDDER VARIABLE LIFE INVESTMENT FUND
------------------------------------------------- --------------- -------------- -------------- ---------------
Money Market $87 $119 $83 $104
------------------------------------------------- --------------- -------------- -------------- ---------------
Growth and Income $89 $122 $84 $108
------------------------------------------------- --------------- -------------- -------------- ---------------
International $93 $136 $88 $122
------------------------------------------------- --------------- -------------- -------------- ---------------
Bond $89 $122 $84 $108
------------------------------------------------- --------------- -------------- -------------- ---------------
TEMPLETON VARIABLE PRODUCT SERIES
------------------------------------------------- --------------- -------------- -------------- ---------------
Templeton Developing Markets Fund $101 $160 $97 $146
------------------------------------------------- --------------- -------------- -------------- ---------------
</TABLE>
12
<PAGE> 17
EXAMPLE 3
Example 3 has the same assumptions as Example 1, except that you decided not to
surrender your Contract or begin receiving annuity payments. Surrender charges
are not deducted. Like Example 1, we assume that you elected both the optional
Guaranteed Minimum Death Benefit (with an annual charge of 0.25%) and the
Guaranteed Retirement Income Benefit (with an annual charge of 0.25%),
resulting in total variable account expenses of 1.65%.
EXAMPLE 4
Example 4 has the same assumptions as Example 3, except that you elected
neither the optional Guaranteed Minimum Death Benefit nor the optional
Guaranteed Retirement Income Benefit, resulting in total variable annuity
expenses of 1.15%.
<TABLE>
<CAPTION>
ASSUMES YOU DO NOT SURRENDER OR ANNUITIZE THE
CONTRACT EXAMPLE 3 EXAMPLE 4
------------------------------------------------- ------------------------------ ------------------------------
<S> <C> <C> <C> <C>
SUBACCOUNT 1 YEAR 3 YEARS 1 YEAR 3 YEARS
------------------------------------------------- --------------- -------------- -------------- ---------------
JANUS ASPEN SERIES
------------------------------------------------- --------------- -------------- -------------- ---------------
Capital Appreciation $28 $84 $23 $69
------------------------------------------------- --------------- -------------- -------------- ---------------
KEMPER VARIABLE SERIES
------------------------------------------------- --------------- -------------- -------------- ---------------
Kemper Government Securities $25 $77 $20 $62
------------------------------------------------- --------------- -------------- -------------- ---------------
Kemper High Yield $25 $76 $20 $61
------------------------------------------------- --------------- -------------- -------------- ---------------
Kemper Small Cap Growth $25 $78 $20 $63
------------------------------------------------- --------------- -------------- -------------- ---------------
Kemper-Dreman High Return Equity $27 $83 $22 $68
------------------------------------------------- --------------- -------------- -------------- ---------------
PIMCO VARIABLE INSURANCE TRUST
------------------------------------------------- --------------- -------------- -------------- ---------------
PIMCO Low Duration Bond $25 $76 $20 $61
------------------------------------------------- --------------- -------------- -------------- ---------------
PIMCO Foreign Bond $27 $84 $22 $69
------------------------------------------------- --------------- -------------- -------------- ---------------
SCUDDER VARIABLE LIFE INVESTMENT FUND
------------------------------------------------- --------------- -------------- -------------- ---------------
Money Market $23 $70 $18 $55
------------------------------------------------- --------------- -------------- -------------- ---------------
Growth and Income $24 $74 $19 $58
------------------------------------------------- --------------- -------------- -------------- ---------------
International $29 $88 $24 $73
------------------------------------------------- --------------- -------------- -------------- ---------------
Bond $24 $74 $19 $58
------------------------------------------------- --------------- -------------- -------------- ---------------
TEMPLETON VARIABLE PRODUCT SERIES
------------------------------------------------- --------------- -------------- -------------- ---------------
Templeton Developing Markets Fund $37 $113 $32 $99
------------------------------------------------- --------------- -------------- -------------- ---------------
</TABLE>
The examples assume that you made no transfers. The examples also do
not take into account any premium taxes. The examples reflect the Records
Maintenance Charge of $30 as an annual charge of 0.15% which we calculated by
dividing the total Records Maintenance Charges expected to be collected during
a year by an assumed average investment of $20,000 in the Contract.
PLEASE REMEMBER THAT THE EXAMPLES ARE SIMPLY ILLUSTRATIONS AND DO NOT REPRESENT
PAST OR FUTURE EXPENSES. Your actual expenses may be higher or lower than those
shown in the examples. Similarly your rate of return may be more or less than
the 5% assumed in the examples.
CONDENSED FINANCIAL INFORMATION
Because the variable account had not commenced operations as of the
date of this prospectus, no condensed financial information is included in this
prospectus.
13
<PAGE> 18
ABOUT FARMERS NEW WORLD LIFE INSURANCE COMPANY
AND THE VARIABLE ACCOUNT
===============================================================================
FARMERS NEW WORLD LIFE INSURANCE COMPANY
Farmers New World Life Insurance Company ("Farmers") is the stock life
insurance company issuing the Contract. Farmers is located at 3003 - 77th
Avenue, S.E., Mercer Island, Washington 98040, and was incorporated under
Washington law on February 21, 1910. Farmers established the variable account
to support the investment options under this Contract and under other variable
annuity contracts Farmers may issue. Farmers' general account supports the
fixed account under the Contract.
Farmers is a direct wholly-owned subsidiary of Farmers Group, Inc.
("FGI"). FGI is a stock holding and management company. The ultimate controlling
parents of FGI are Allied Zurich p.l.c., a United Kingdom company and Zurich
Allied AG, a Swiss company. Allied Zurich p.l.c. and Zurich Allied AG are
traded in certain European markets, but are not publicly traded in the U.S.
Farmers markets a broad line of individual life insurance products,
including universal life, term life and whole life insurance and annuity
products (predominately flexible premium deferred annuities). Farmers currently
is licensed to sell insurance in 38 states and the District of Columbia. The
states where Farmers is not licensed are Alaska, Connecticut, Florida, Hawaii,
Louisiana, Maine, Massachusetts, New Hampshire, New Jersey, New York, North
Carolina, and Vermont.
FARMERS ANNUITY SEPARATE ACCOUNT A
We established the Farmers Annuity Separate Account A (the "variable
account") as a variable account under Washington insurance law on April 6,
1999. The variable account will receive and invest premium payments paid under
the Contracts and under other variable annuity contracts we may issue in the
future.
Although the assets in the variable account are our property, the
portion of the assets in the variable account that are attributable to
contracts are not chargeable with the liabilities arising out of any other
business that we may conduct. All obligations arising under the Contracts are
our general corporate obligations. Income, gains and losses, whether or not
realized, from assets allocated to the variable account are credited to or
charged against the variable account without regard to our other income, gains
or losses.
The variable account is divided into 12 subaccounts. Additional
subaccounts may be available in the future. Each subaccount invests exclusively
in shares of a single portfolio of a fund. The income, gains and losses,
whether or not realized, from the assets allocated to each subaccount are
credited to or charged against that subaccount without regard to income, gains
or losses from any other subaccount.
The variable account has been registered with the SEC as a unit
investment trust under the Investment Company Act of 1940 (the "1940 Act") and
meets the definition of a separate account under the federal securities laws.
Registration with the SEC does not involve supervision of the management or
investment practices or policies of the variable account, the funds or of us by
the SEC. The variable
14
<PAGE> 19
account is also subject to the laws of the State of Washington which regulate
the operations of insurance companies domiciled in Washington.
THE PORTFOLIOS
===============================================================================
Each subaccount of the variable account invests exclusively in shares
of a designated portfolio of a fund. Shares of each portfolio are purchased and
redeemed at net asset value, without a sales charge. Each fund available under
the Contract is registered with the SEC under the 1940 Act as an open-end,
management investment company.
The assets of each portfolio are separate from the assets of any other
portfolio, and each portfolio has separate investment objectives and policies.
As a result, each portfolio operates as a separate investment portfolio and the
income or losses of one portfolio has no effect on the investment performance
of any other portfolio.
Each of the portfolios is managed by an investment adviser registered
with the SEC under the Investment Advisers Act of 1940, as amended. Each
investment adviser is responsible for the selection of the investments of the
portfolio. These investments must be consistent with the investment objective,
policies and restrictions of that portfolio.
Some of the portfolios have been established by investment advisers
that manage publicly traded mutual funds having similar names and investment
objectives to the portfolios available under the Contract. While some of the
portfolios may be similar to, and may in fact be modeled after, publicly traded
mutual funds, you should understand that the portfolios are not otherwise
directly related to any publicly traded mutual fund. Consequently, the
investment performance of publicly traded mutual funds and any similarly named
portfolio may differ substantially from the portfolios available through this
Contract.
An investment in a subaccount, or in any portfolio, including the
Money Market Portfolio, is not insured or guaranteed by the U.S. Government and
there can be no assurance that the Money Market Portfolio will be able to
maintain a stable net asset value per share.
INVESTMENT OBJECTIVES OF THE PORTFOLIOS
The investment objective of each portfolio is summarized below. NO ONE
CAN PROMISE THAT ANY PORTFOLIO WILL MEET ITS INVESTMENT OBJECTIVES. Amounts you
have allocated to the subaccounts may grow in value, decline in value, or grow
less than you expect, depending on the investment performance of the portfolios
in which those subaccounts invest. You bear the investment risk that those
portfolios possibly will not meet their investment objectives.
You can find more detailed information, including a description of
risks, fees and expenses of each portfolio in the prospectuses for the funds
which accompany this prospectus.
CERTAIN PORTFOLIOS HAVE SIMILAR INVESTMENT OBJECTIVES. YOU SHOULD CAREFULLY
READ THE PROSPECTUSES FOR THE PORTFOLIOS BEFORE YOU INVEST.
15
<PAGE> 20
<TABLE>
<CAPTION>
- ------------------------------- ----------------------------------------------------------------------------
PORTFOLIO INVESTMENT OBJECTIVE AND INVESTMENT ADVISER
- ------------------------------- ----------------------------------------------------------------------------
<S> <C>
JANUS ASPEN CAPITAL seeks long-term growth of capital. It is a non-diversified fund.
APPRECIATION PORTFOLIO Investment adviser is Janus Capital Corporation.
- ------------------------------- ----------------------------------------------------------------------------
KEMPER GOVERNMENT SECURITIES seeks high current return consistent with preservation of capital.
PORTFOLIO Investment adviser is Scudder Kemper Investments, Inc.
- ------------------------------- ----------------------------------------------------------------------------
KEMPER HIGH YIELD seeks to provide a high level of current income. Investment adviser is
PORTFOLIO Scudder Kemper Investments, Inc.
- ------------------------------- ----------------------------------------------------------------------------
KEMPER SMALL CAP GROWTH seeks maximum appreciation of investors' capital. Investment adviser is
PORTFOLIO Scudder Kemper Investments, Inc.
- ------------------------------- ----------------------------------------------------------------------------
KEMPER-DREMAN HIGH seeks to achieve a high rate of total return. Investment adviser is
RETURN EQUITY PORTFOLIO Scudder Kemper Investments, Inc.; investment sub-adviser is Dreman Value
Management L.L.C.
- ------------------------------- ----------------------------------------------------------------------------
PIMCO LOW DURATION BOND seeks to maximize total return, consistent with preservation of capital
PORTFOLIO and prudent investment management. Investment adviser is Pacific
investment Management Company.
- ------------------------------- ----------------------------------------------------------------------------
PIMCO FOREIGN BOND seeks to maximize total return, consistent with preservation of capital
PORTFOLIO and prudent investment management. Investment adviser is Pacific
Investment Management Company.
- ------------------------------- ----------------------------------------------------------------------------
MONEY MARKET PORTFOLIO seeks stability of capital and consistent therewith, to maintain the
liquidity of capital and to provide current income. Investment adviser is
Scudder Kemper Investments, Inc.
- ------------------------------- ----------------------------------------------------------------------------
GROWTH AND INCOME PORTFOLIO seeks long-term growth of capital, current income and growth of income.
(CLASS A SHARES) Investment adviser is Scudder Kemper Investments, Inc.
- ------------------------------- ----------------------------------------------------------------------------
INTERNATIONAL PORTFOLIO seeks long-term growth of capital primarily through a diversified holdings
(CLASS A SHARES) of marketable foreign equity investments. Investment adviser is Scudder
Kemper Investments, Inc.
- ------------------------------- ----------------------------------------------------------------------------
BOND PORTFOLIO (CLASS A seeks a high level of income consistent with a high quality portfolio of
SHARES) debt securities. Investment adviser is Scudder Kemper Investments, Inc.
- ------------------------------- ----------------------------------------------------------------------------
TEMPLETON DEVELOPING MARKETS seeks long-term capital appreciation. Investment adviser is Templeton
FUND (CLASS 2 SHARES) Asset Management Ltd.
- ------------------------------- ----------------------------------------------------------------------------
</TABLE>
AVAILABILITY OF THE PORTFOLIOS
We cannot guarantee that each portfolio will always be available for
investment through the Contracts.
We reserve the right, subject to applicable law, to make additions to,
deletions from, or substitutions for the shares of a portfolio that are held in
the variable account. If the shares of a portfolio are no longer available for
investment or if, in our judgment, further investment in any portfolio should
become inappropriate, we may redeem the shares of that portfolio and substitute
shares of another portfolio. We will not substitute any shares without notice
and prior approval of the SEC and state insurance authorities, to the extent
required by the 1940 Act or other applicable law.
We also reserve the right in our sole discretion to establish
additional subaccounts, or eliminate or combine one or more subaccounts.
Subject to obtaining any approvals or consents required by law, the assets of
one or more subaccounts may also be transferred to any other subaccount if, in
our sole
16
<PAGE> 21
discretion, conditions warrant. Additional information regarding the
substitutions of investments and resolving conflicts among funds may be found
in the SAI.
THE PAY-IN PERIOD
===============================================================================
The pay-in period begins when we issue your Contract and continues
until the annuity start date. The pay-in period will also end if you surrender
your Contract, or a death benefit is payable, before the payout period.
PURCHASING A CONTRACT
You may purchase a Contract with a premium payment of $500 or more.
The first premium payment is the only one we require you to make.
To purchase a Contract, you must complete an application and send it
with your premium to us through one of our authorized agents who is also a
registered representative. Contracts may be sold to or in connection with
retirement plans that qualify for special tax treatment.
If you are purchasing the Contract through a tax favored arrangement,
including IRAs, Roth IRAs, and SIMPLE IRAs, you should carefully consider the
costs and benefits of the Contract (including annuity income benefits) before
purchasing the Contract, since the tax arrangement itself provides for tax
sheltered growth.
We will not issue you a Contract if you are older than age 90 on the
issue date.
CANCELLATION -- THE 10 DAY RIGHT TO EXAMINE PERIOD
You have the right to cancel the Contract for any reason within 10
days after you receive it. In some jurisdictions, this period may be longer
than 10 days. To cancel the Contract, you must send it to our Home Office at
Mercer Island, Washington, before the end of the right to cancel period.
In most states, the amount of the refund will be the total premiums we
have received, plus (or minus) any gains (or losses) in the amounts you
invested in the subaccounts. If state law requires a return of premium, we will
refund the greater of your original premium(s) or the Contract Value on the
date we receive the Contract at our Home Office. In those states, we will place
your premium(s) in the fixed account for the number of days in your state's
right to examine period, plus 10 days. We will credit your premium(s) we hold
in the fixed account with interest at the current fixed account interest rates.
We will pay the refund within 7 days after we receive the Contract. The
Contract will then be deemed void.
DESIGNATING YOUR INVESTMENT OPTIONS
When you complete your application, you will give us instructions on
how to allocate your first premium payment among the 12 subaccounts and the
fixed account. The amount you direct to a particular subaccount and/or to the
fixed account must be in whole percentages from 1% to 100% of the premium
payment, and must equal at least $500.
If your application is complete and your premium payment has been
received at the Service Center, we will issue your Contract within two business
days of its receipt, and credit your initial
17
<PAGE> 22
premium payment to your Contract. If your application is incomplete, we
will contact you and seek to complete it within five business days. If we
cannot complete your application within five business days after we receive it,
we will return your premium payment, unless you expressly permit us to keep it.
We will credit the payment as soon as we receive all necessary application
information.
The date we credit your initial premium payment to your Contract is
the issue date. In most states, on the issue date we will allocate your initial
premium to the subaccounts and the fixed account as you specified on your
application.
If your state requires us to return your initial premium in the event
you exercise your right to cancel the Contract, we will allocate the initial
premium to the fixed account on the issue date. While held in the fixed
account, your premium will be credited with interest at current fixed account
rates. The premium(s) will remain in the fixed account for the number of days
in your state's right to examine period, plus 10 days. On the first valuation
day on or after that period, we will reallocate all Contract Value from the
fixed account to the subaccounts and fixed account as you selected on the
application.
We may reject any application or premium payment for any reason
permitted by law.
ADDITIONAL PREMIUM PAYMENTS
There are no requirements on how many premium payments to make. You
determine the amount and timing of each additional premium payment, except that
premium payments must be at least $500 ($50 if you authorize us to draw on an
account by check or electronic debit). You may make premium payments at any
time until the earliest of: (a) the annuity start date; (b) the date you fully
withdraw all Contract Value; or (c) the date you reach age 70 1/2 for qualified
Contracts (other than Roth IRAs and rollovers and transfers).
We will not accept total premium payments in excess of the cumulative
premium limit that is specified on your Contract specification page. The Tax
Code may also limit the amount of premiums you may make.
We will credit any additional premium payments you make to your
Contract at the accumulation unit value next computed at the end of the
valuation day on which we receive them at the Service Center. Our valuation day
closes at 4:00 p.m. Eastern Time (1 p.m. Pacific Time). If we receive your
premium payments after the close of a valuation day, we will calculate and
credit them at the end of the next valuation day.
We will direct your premium payment to the subaccounts and/or the
fixed account according to your written instructions in effect at the time we
receive it at the Service Center. However, you may direct individual premium
payments to a specific subaccount and/or to the fixed account without changing
your instructions. You may change your instructions at any time by sending us a
written request or by telephone authorization. Changing your allocation
instructions will not change the way existing Contract Value is apportioned
among the subaccounts or the fixed account.
THE VALUE OF YOUR CONTRACT INVESTED IN A SUBACCOUNT WILL VARY WITH THE
INVESTMENT PERFORMANCE OF THAT SUBACCOUNT. YOU BEAR THE ENTIRE INVESTMENT RISK
FOR AMOUNTS YOU ALLOCATE TO THE SUBACCOUNTS. YOU SHOULD PERIODICALLY REVIEW
YOUR PREMIUM PAYMENT ALLOCATION INSTRUCTIONS IN LIGHT OF MARKET CONDITIONS AND
YOUR OVERALL FINANCIAL OBJECTIVES.
18
<PAGE> 23
YOUR CONTRACT VALUE
===============================================================================
VARIABLE ACCOUNT VALUE
Your variable account value will reflect the investment experience of
the selected subaccounts, any premium payments paid, any surrenders or partial
withdrawals, any transfers, and any charges assessed in connection with the
Contract. There is no guaranteed minimum variable account value.
CALCULATING VARIABLE ACCOUNT VALUE
Your variable account value is determined at the end of each valuation
day. The value will be the total of your Contract's value in each of the
subaccounts. We determine your Contract's value in each subaccount by
multiplying that subaccount's unit value for the relevant valuation period by
the number of accumulation units of that subaccount allocated to the Contract.
NUMBER OF ACCUMULATION UNITS
Any amounts you allocate or transfer to the subaccounts will be
converted into subaccount accumulation units. We determine the number of
accumulation units to be credited to your Contract by dividing the dollar amount
being allocated or transferred to a subaccount by the accumulation unit value
for that subaccount at the end of the valuation day during which the amount was
allocated or transferred. The number of accumulation units in any subaccount
will be increased at the end of the valuation day by:
- any premium payments allocated to the subaccount during
the current valuation day; and
- by any amounts transferred to the subaccount from
another subaccount or from the fixed
account during the current valuation day.
Any amounts transferred, surrendered or deducted from a subaccount will
be processed by canceling or liquidating accumulation units. The number of
accumulation units to be canceled is determined by dividing the dollar amount
being removed from a subaccount by the accumulation unit value for that
subaccount at the end of the valuation day during which the amount was removed.
The number of accumulation units in any subaccount will be decreased at the end
of the valuation day by:
- any amounts transferred (including any applicable
transfer fee) from that subaccount to another subaccount
or to the fixed account on that valuation day;
- any amounts withdrawn or surrendered (including any
applicable surrender charges and premium taxes) on that
valuation day; and
- the Records Maintenance Charge, if assessed on that
valuation day.
ACCUMULATION UNIT VALUE
The accumulation unit value for each subaccount's first valuation day
was set at $10. The accumulation unit value for each subaccount is recalculated
at the end of each valuation day by multiplying the accumulation unit value at
the end of the immediately preceding valuation day by the Net Investment Factor
for the valuation day for which the value is being determined. The new
accumulation unit value reflects the investment performance of the underlying
portfolio, and the daily deduction of: (i)
19
<PAGE> 24
the mortality and expense risk charge, (ii) any charge for enhanced benefit
riders, and (iii) the daily administrative charge.
We determine a separate accumulation unit value for each subaccount.
We will also determine separate sets of accumulation unit value reflecting the
costs of the Guaranteed Minimum Death Benefit and the Guaranteed Retirement
Income Benefit.
The formula for computing the Net Investment Factor is in the SAI.
TRANSFERS BETWEEN INVESTMENT OPTIONS
===============================================================================
After the right to examine period and before the annuity start date,
you may transfer all or part of the amount in a subaccount or the fixed account
to another subaccount or the fixed account, subject to the restrictions
described below.
The minimum amount that you may transfer is $100 or your total value
in that subaccount, if less. If you request a transfer that would reduce the
amount in a subaccount or fixed account below $500, we will transfer the entire
amount in the subaccount.
You may make one transfer from the fixed account to the subaccounts
each Contract year during the 30 days following a Contract anniversary. We
measure a Contract year from the anniversary of the issue date. You may not
make a transfer into the fixed account during the six months following any
transfer you make out of the fixed account to any subaccount(s).
Transfers will be processed based on the accumulation unit values
determined at the end of the valuation day on which we receive your written
request or telephone authorization to transfer, provided we receive the request
before the close of our valuation day, usually 4:00 p.m. Eastern Time (1 p.m.
Pacific Time). If we receive your request after the close of our valuation day,
we will process the transfer request using the accumulation unit value for the
next valuation day. There currently is no limit on the number of transfers that
you can make among subaccounts or to the fixed account.
We may suspend or modify this transfer privilege at any time.
AUTOMATIC ASSET REBALANCING PROGRAM
The automatic asset rebalancing program permits you to maintain the
percentage of the Contract Value allocated to each subaccount at a pre-set
level. Under the program, automatic transfers are made among the subaccounts on
a quarterly basis so that your Contract Value is reallocated to match the
percentages you specify. Asset rebalancing is consistent with maintaining your
allocation of investments among market segments, although it is accomplished by
reducing your Contract Value allocated to the better performing segments.
Transfers under this program are not subject to the $100 minimum
transfer limitation. We will not charge a transfer fee for asset rebalancing.
You may not include the fixed account in the asset rebalancing program. We may
change, terminate, limit or suspend automatic asset rebalancing at any time.
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<PAGE> 25
You may elect automatic asset rebalancing on your application or you
may enroll in automatic asset rebalancing at any time by completing a form and
return it to the Service Center. You may cancel your participation in the
program at any time.
ASSET ALLOCATION SERVICES
If you authorize a third party to transact transfers on your behalf,
we will reallocate your Contract Value pursuant to the authorized asset
allocation program. However, we do not offer or participate in any asset
allocation program and we take no responsibility for any third party asset
allocation program. We may suspend or cancel acceptance of a third party's
instructions at any time and may restrict the investment options available for
transfer under third party authorizations.
EXCESSIVE TRADING LIMITS
We reserve the right to limit transfers in any Contract year, or to
refuse any transfer request for a Contract owner if:
- we believe, in our sole discretion, that excessive trading by the
Contract owner, or a specific transfer request, or a group of
transfer requests, may have a detrimental effect on the
accumulation unit values of any subaccount or the share prices of
any portfolio or would be detrimental to other Contract owners;
or
- we are informed by one or more portfolios that they intend to
restrict the purchase or redemption of portfolio shares because
of excessive trading or because they believe that a specific
transfer or group of transfers would have a detrimental effect on
the price of portfolio shares.
We may apply the restrictions in any manner reasonably designed to prevent
transfer that we consider disadvantageous to other Contract owners.
DOLLAR COST AVERAGING PROGRAM
Under the dollar cost averaging program, you may authorize us to
transfer a fixed dollar amount at monthly intervals from the fixed account to
one or more subaccounts. You may designate up to eight subaccounts to receive
the transfers. The fixed dollar amount will purchase more accumulation units of
a subaccount when their value is lower and fewer units when their value is
higher. Over time, the cost per unit averages out to be less than if all
purchases of units had been made at the highest value and greater than if all
purchases had been made at the lowest value. The dollar cost averaging method
of investment reduces the risk of making purchases only when the price of
accumulation units is high. It does not assure a profit or protect against a
loss in declining markets.
Dollar cost averaging is only available during the pay-in period. You
may cancel your participation in the program at any time.
You may enroll in the dollar cost averaging program at any time by
completing our dollar cost averaging form and sending it to the Service Center.
We make transfers on the same day of every month as your issue date. We must
receive the form at least 5 valuation days before the transfer date, for your
transfers to begin on that date. When you enroll in the dollar cost averaging
program, your total Contract Value in an account must be at least equal to the
amount you designate to be transferred on each transfer
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<PAGE> 26
date, times the duration you select. Transfers from a subaccount or the fixed
account must be at least $100.
TELEPHONE TRANSFERS AND WITHDRAWALS
Unless you notify us on your application or in writing that you do not
want the ability to make transfers and partial withdrawals by telephone, you
will have the ability to make a transfer or a partial withdrawal by giving us
instructions over the telephone. You may use your telephone to authorize a
transfer from one subaccount or the fixed account to another subaccount or the
fixed account, to change the allocation instructions for future investments, to
change asset allocation and dollar cost averaging programs, and/or to request a
partial withdrawal.
We will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. If we follow such procedures we will not
be liable for any losses due to unauthorized or fraudulent instructions. We may
be liable for such losses if we do not follow those reasonable procedures.
The procedures that we may follow for telephone transfers include:
- providing you with a written confirmation of all transfers made
according to telephone instructions,
- requiring a form of personal identification prior to acting on
instructions received by telephone, and
- tape recording instructions received by telephone.
We reserve the right to modify, restrict, suspend or eliminate the
transfer privileges (including the telephone transfer facility) at any time,
for any class of Contracts, for any reason.
TRANSFER FEE
We will impose a transfer fee of $25 for the thirteenth and each
subsequent transfer request you make per contract year. Transfers you make
pursuant to the asset rebalancing and dollar cost averaging programs do not
count toward your 12 free transfers. See Fees and Charges.
ACCESS TO YOUR MONEY
===============================================================================
SURRENDERS
At any time before the annuity start date, you may surrender your
Contract for its cash value.
The cash value is equal to :
- the Contract Value; minus
- any applicable surrender charges; minus
- any premium taxes not previously deducted; minus
- the Records Maintenance Charge unless waived.
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<PAGE> 27
The cash value will be determined at the accumulation unit value next
determined as of the close of business on the day we receive your written
request for surrender at the Service Center, unless you specify a later date in
your request. The cash value will be paid in a lump sum unless you request
payment under a payout plan. A surrender may have adverse federal income tax
consequences, including a penalty tax. (See "Federal Tax Consequences.")
PARTIAL WITHDRAWALS
Once each calendar quarter before the annuity start date, you may
request a withdrawal of part of your cash value. Partial withdrawals are
subject to the following conditions:
- the minimum amount you can withdraw is $100; and
- you may not make a partial withdrawal if the withdrawal
plus the surrender charge would cause the Contract Value
to fall below $500.
We will withdraw the amount you request from the cash value as of the
valuation day on which we receive your written request for the partial
withdrawal. We will then reduce the amount remaining in the Contract by any
applicable surrender charge plus the dollar amount we sent to you.
You may specify how much you wish to withdraw from each subaccount
and/or the fixed account. If you do not specify, or if you do not have
sufficient assets in the subaccounts or fixed account you specified to comply
with your request, we will make the partial withdrawal on a pro rata basis from
the fixed account and those subaccounts in which you are invested. We will base
the pro rata reduction on the ratio that the value in each subaccount and the
fixed account has to the entire Contract Value before the partial withdrawal.
Remember, any partial withdrawal you take will reduce your Contract
Value, and will proportionally reduce the minimum death benefit.
If you elected the Guaranteed Minimum Death Benefit, a partial
withdrawal will proportionally reduce the Greatest Anniversary Value and the
amount of premiums being accumulated at 4%. Likewise, if you elected the
Guaranteed Retirement Income Benefit, a partial withdrawal will proportionally
reduce the Income Base. The impact of a proportional reduction on these
benefits depends, in part, upon the relative amount of your Contract Value at
the time of the withdrawal. Under proportional reductions, if the amount of the
death benefit or Income Base is greater than the Contract Value at the time of
the partial withdrawal, then the reduction in the death benefit or Income Base
will be greater than the dollar amount of the withdrawal. For this reason, if a
death benefit is paid, or the Income Base is calculated, after you have taken a
partial withdrawal, the possibility exists that the total amount of the death
benefit or Income Base will be less than the total premium payments you have
paid. (See "Death Benefit" and "Guaranteed Retirement Income Benefit".)
INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY
WITHDRAWAL YOU MAKE.
Your right to make surrenders and partial withdrawals is also subject
to any restrictions imposed by applicable law or employee benefit plan.
See "Surrender Charges" for an explanation of the surrender charges
that may apply.
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<PAGE> 28
SYSTEMATIC WITHDRAWAL PLAN
After your first Contract year, you can elect to receive regular
payments from your Contract Value during the pay-in period. You instruct us to
withdraw selected amounts from the fixed account or any of the subaccounts. We
will make these withdrawals on a monthly basis. You must complete an enrollment
form and send it to the Service Center. You may terminate the systematic
withdrawal plan at any time.
There are some limitations to the systematic withdrawal plan:
- Withdrawals must be at least $100.
- You must have a minimum balance at least equal to the amount
you want to withdraw.
- We will deduct a surrender charge from any amount you
withdraw in excess of your free withdrawal amount.
Income taxes and tax penalties may apply to the amount withdrawn. We
may suspend or modify the systematic withdrawal plan at any time.
DEATH BENEFITS
===============================================================================
Only one death benefit will be payable under this Contract. Upon
payment of the death benefit proceeds, the Contract will terminate.
DEATH BENEFITS BEFORE THE ANNUITY START DATE
We will pay a death benefit to the beneficiary if any of the following
occurs during the pay-in period:
- the owner or any joint owner dies, or
- the last surviving annuitant dies.
If any owner is a non-natural person, then the death ofany annuitant
will be treated as the death of an owner.
STANDARD DEATH BENEFIT
If an annuitant (including an owner who is an annuitant) dies before
his or her 80th birthday, the death benefit equals the greater of:
- the Contract Value on the later of the date that we
receive due proof of death and the date when we receive
the beneficiary's instructions on payment method at the
Service Center; or
- the minimum death benefit. The minimum death benefit
equals the sum of all premiums, minus any proportional
reductions for each partial withdrawal.
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<PAGE> 29
In all other cases, the death benefit equals the Contract Value
determined on the later of the date that we receive due proof of death and the
date when we receive the beneficiary's instructions on payment method. Such
other cases include, the death of an annuitant who has attained his or her 80th
birthday, or death of an owner who is not an annuitant.
The proportional reduction in the minimum death benefit equals:
- the minimum death benefit immediately prior to the
withdrawal; multiplied by
- the ratio of the amount you withdraw (including any
charges) to the Contract Value immediately before the
withdrawal.
GUARANTEED MINIMUM DEATH BENEFIT
On your Contract application, you may elect the Guaranteed Minimum
Death Benefit. Under this benefit, the death benefit payable in the event of
the last surviving annuitant's death is enhanced as described below. This death
benefit is only payable during the pay-in period and is not available after the
annuity start date. If you select this option, we will deduct an additional
charge equal, on an annual basis, to 0.25% of the average net assets you have
invested in the subaccounts.
The death benefit payable upon the death of the last surviving
annuitant is the greatest of the following:
1. the standard death benefit as described above;
2. premiums you paid accumulated daily with interest at a rate
of 4% per year through the earlier of (i) the date of death,
or (ii) the Contract anniversary on or next following the
annuitant's 80th birthday, minus proportional reductions for
withdrawals; or
3. the Greatest Anniversary Value for the anniversaries through
the earlier of the date of death or the Contract anniversary
on or next following the annuitant's 80th birthday, minus
proportional reductions of withdrawals.
The Greatest Anniversary Value is calculated as follows: an
anniversary value is defined for each eligible Contract
anniversary as the Contract Value on that anniversary,
increased by premiums accepted since that anniversary and
proportionately reduced for withdrawals since that
anniversary. The largest such anniversary value is the
Greatest Anniversary Value.
If the last surviving annuitant dies after the Contract anniversary
coincident with or next following the annuitant's 80th birthday and before the
annuity start date, the amounts calculated under 2. and 3. will be increased by
premiums received and proportionately reduced by withdrawals since that
anniversary.
If the last surviving annuitant was older than 80 on the issue date,
then no death benefit will be payable under 2. or 3. above.
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<PAGE> 30
The proportional reductions for withdrawals are determined
independently for 2. and 3. above. The proportional reduction for each
withdrawal is equal to the product of:
- the death benefit available under the item being
considered (either 2. or 3.) immediately prior to the
withdrawal, and
- the ratio of the amount withdrawn (including any charges)
to the Contract Value immediately before the withdrawal.
The Guaranteed Minimum Death Benefit will end when the Contract ends
or you send a signed request to terminate it to the Service Center.
In determining the death benefit, we will also subtract any applicable
premium and withholding taxes not previously deducted.
DISTRIBUTION UPON DEATH
If a death benefit is payable before the Annuity Start Date, we will
pay the death benefit in a lump sum, unless we consent to another arrangement
within 90 days of receiving due proof of death.
In all events, death benefit distributions will be made from the
Contract in accordance with Section 72(s) of the Tax Code.
If any owner dies before the annuity start date, the death benefit must
be distribution to the beneficiaries within five years after the date of death
or distributed over the life (or period not exceeding the life expectancy) of
the beneficiary, provided that such distribution begin within one year of the
owner's death.
If the sole beneficiary is the surviving spouse of the deceased owner,
the Contract may be continued (in lieu of paying the death benefit) with the
surviving spouse as the sole owner.
If the owner is a non-natural person, then each annuitant will be
treated as an owner for purposes of distributing the death benefit, and any
death of an annuitant will be treated as the death of the owner for purposes of
these requirements. Moreover, if the annuitant is also an owner, then the death
of such annuitant will also be treated as the death of an owner.
DEATH BENEFITS AFTER THE ANNUITY START DATE
If an annuitant dies on or after the annuity start date, we will pay
any remaining guaranteed payments to the beneficiary as provided in the annuity
option selected. If you are not the annuitant and you die while an annuitant is
still living, we will continue to pay the income payments for the annuitant's
lifetime in the same manner as before your death.
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<PAGE> 31
FEES AND CHARGES
===============================================================================
MORTALITY AND EXPENSE RISK CHARGE
As compensation for assuming mortality and expense risks, we deduct a
daily mortality and expense risk charge from your net assets in the
subaccounts. The charge is equal, on an annual basis, to 0.95%. of average
daily net assets you have invested in the subaccounts.
The mortality risk we assume is that annuitants may live for a longer
period of time than estimated when we established the guarantees in the
Contract. Because of these guarantees, each annuitant is assured that longevity
will not have an adverse effect on the annuity payments received. The mortality
risk that we assume also includes a guarantee to pay a death benefit if the
annuitant dies before the annuity start date. The expense risk that we assume
is the risk that the administrative fees and transfer fees (if imposed) may be
insufficient to cover actual future expenses. We may use any profits from this
charge to pay the costs of distributing the Contracts.
If you choose either the Guaranteed Minimum Death Benefit or the
Guaranteed Retirement Income, we will deduct an additional daily fee from your
value in the subaccounts at an annual rate of 0.25%. of average daily net
assets you have invested in the subaccounts. If you choose both benefits, the
additional daily fee will increase to an annual rate of 0.50%.
ASSET-BASED ADMINISTRATION CHARGE
We deduct a daily asset-based administration charge from each
subaccount to reimburse us for our administrative costs, such as owner
inquiries, changes in allocations, owner reports, Contract maintenance costs
and data processing costs. This charge is equal, on an annual basis, to 0.20%
of your average daily net assets in the subaccounts. This charge is designed to
compensate us for the cost of administering the Contracts and the variable
account.
TRANSFER FEE
A transfer fee of $25 will be imposed for the thirteenth and each
subsequent transfer during a contract year. Any unused free transfers do not
carry over to the next Contract year. Each written or telephone request would
be considered to be one transfer, regardless of the number of subaccounts
affected by the transfer. Transfers you make through our asset rebalancing and
dollar cost averaging programs do not count toward your twelve free transfers.
We deduct the transfer fee from the amount transferred.
SURRENDER CHARGE
We do not deduct a charge for sales expenses from premium payments at
the time premium payments are paid to us. However, we will deduct a surrender
charge, if applicable, if you surrender your Contract or partially withdraw
cash value before the annuity start date, or if you annuitize your Contract. We
do not assess a surrender charge on withdrawals made if the Contract terminates
due to your death or the death of the annuitant.
As a general rule, the surrender charge equals a percentage of the
premium payments withdrawn that: (a) we have held for less than seven years;
and (b) are not eligible for a free withdrawal. The
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<PAGE> 32
surrender charge applies during the entire seven year period following each
premium payment. The applicable percentage depends on the number of years since
you made the premium payment being withdrawn, as shown on this chart:
<TABLE>
<CAPTION>
NUMBER OF COMPLETED
YEARS FROM THE DATE OF SURRENDER CHARGE
PREMIUM PAYMENTS PERCENTAGE
----------------------------------------- ---------------------------------
<S> <C>
0.............................. 7%
1.............................. 6%
2.............................. 5%
3.............................. 5%
4.............................. 4%
5.............................. 3%
6.............................. 2%
7 and later.................... 0%
</TABLE>
In determining surrender charges, we will deem premiums to be
surrendered in the order in which they were received -- that is, on a first-in,
first-out basis.
Because surrender charges are based on the date each premium payment
is made, you may be subject to a surrender charge, even though the Contract may
have been issued many years earlier.
When you request a withdrawal, you will be sent a check in the amount
you requested, less applicable tax withholding. If a surrender charge applies,
your Contract Value will be reduced by the dollar amount we send you, plus the
surrender charge. We subtract the surrender charge pro-rata from the Contract
Value remaining after your withdrawal. If the remaining subaccount or fixed
account value is not enough to pay the charge, the surrender charge is deducted
pro-rata from all subaccounts and the fixed account in which the Contract is
invested based on the remaining Contract Value in each subaccount and the fixed
account.
FREE WITHDRAWAL AMOUNT
In any Contract year before the annuity start date, you may withdraw a
portion of your Contract Value without incurring a surrender charge. This
amount is called the free withdrawal amount. The free withdrawal amount is
equal to the greater of:
(i) your Contract Value, MINUS your total premium payments, and
MINUS prior withdrawals from which we previously deducted a
surrender charge; or
(ii) 10% of your Contract Value at the time the current withdrawal
is requested.
In addition, you may withdraw, free of surrender charge, any premium that has
been held by us for more than seven years.
EXAMPLE OF SURRENDER CHARGE CALCULATION VARIABLE ANNUITY
This example is for a policy issued on 7/1/00 with a $10,000 premium
paid on the issue date. No subsequent premiums are paid.
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<PAGE> 33
The policyholder wishes to withdraw $4,000 on 9/15/03. Suppose the contract
value is $12,700 on that date, before the withdrawal.
The free withdrawal amount is the larger of (a) and (b):
(a) $12,700 - 10,000 = $2,700
(b) (10%)(12,700) = $1,270
The free withdrawal amount is $2,700. The remaining portion of the withdrawal
is subject to a surrender charge. Since this amount represents the withdrawal
of premium paid between 3 and 4 years ago, the surrender charge percentage is
5%. The surrender charge is calculated as follows:
($4,000 - $2,700)(5%) = $65
Free withdrawals may be subject to the 10% federal penalty tax if made before
you reach age 59 1/2. They also may be subject to federal income tax.
WAIVER OF SURRENDER CHARGE
If state law permits and subject to certain restrictions, and as
further described in the rider, we will waive the surrender charge:
- after an annuitant (who is under age 75) has been confined in a
hospital or skilled heath care facility continuously for at least
90 days; or
- if the annuitant is diagnosed with a terminal illness after we
issue the Contract and is expected to live for 12 months or less,
up to an aggregate maximum withdrawal of $250,000.
RECORDS MAINTENANCE CHARGE
At the end of each Contract year before the annuity start date, we
will deduct a records maintenance charge of $30 from your Contract Value as
reimbursement for our administrative expenses relating to the Contract. We will
deduct the fee from each subaccount and the fixed account based on the
proportion that the value in each such subaccount and the fixed account bears
to the total Contract Value. We will also deduct this charge on the annuity
start date, or the date you surrender the Contract.
We will not deduct this fee after annuity payments have begun. We also
currently waive deduction of the charge for Contracts whose Contract Value is
$50,000 or more on the date of assessment.
PORTFOLIO FEES AND CHARGES
Each portfolio deducts investment fees and expenses from the amounts
you have invested in the portfolios. In addition, one portfolio deducts 12b-1
fees. Total portfolio fees and expense range from .44% to 1.91%. See the Fee
Table in this Prospectus and the prospectuses for the portfolios.
We may receive compensation from the investment advisers, administrators,
distributors (and/or an affiliate thereof) of the portfolios in connection with
administrative, distribution, or other services and cost savings experienced by
the investment advisers, administrators or distributors. It is anticipated that
such compensation will be based on assets of the particular portfolios
attributable to the Contract. Some advisers, administrators or distributors may
pay us more than others.
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<PAGE> 34
PREMIUM TAXES
Various states and other governmental entities charge a premium tax on
annuity contracts issued by insurance companies. Premium tax rates currently
range up to 3.5%, depending on the state. We are responsible for paying these
taxes. If applicable, we will deduct the cost of such taxes from the value of
your Contract either:
- from premium payments as we receive them,
- from Contract Value upon surrender or partial withdrawal,
- on the annuity start date, or
- upon payment of a death benefit.
OTHER TAXES
Currently, no charge is made against the variable account for any
federal, state or local taxes (other than premium taxes) that we incur or that
may be attributable to the variable account or the Contracts. We may, however,
deduct such a charge in the future, if necessary.
THE PAYOUT PERIOD
===============================================================================
THE ANNUITY START DATE
The annuity start date is the day that annuity payments start under
the Income Plan you have selected. If you own a Contract that is not a
qualified Contract, you must select the annuity start date on which you will
begin to receive annuity payments. The annuity start date can be no later than
the Final Annuity Date (the Contract anniversary when the oldest annuitant is
age 95).
In the case of an IRA that satisfies Tax Code section 408, the annuity
start date must be no later than April 1 of the calendar year following the year
in which you reach age 70 1/2, and the payment must be made in a specified
form or manner. Roth IRAs under Section 408A of the Tax Code do not require
distributions at any time prior to your death; the annuity start date for Roth
IRAs can be no later than the final annuity date.
ANNUITY OPTIONS
The payout option you select will affect the dollar amount of each
annuity payment you receive. You may elect or change your annuity payout plan at
any time before the annuity start date while the annuitant is living by sending
a written request signed by you and/or your beneficiary, as appropriate to our
Home Office. You may choose one of the payout plans described below or any other
plan being offered by us as of the annuity start date. The payout plans we
currently offer provide for fixed annuity payments.
You may elect to receive annuity payments on a monthly, quarterly,
semi-annual or annual basis. If you do not specify the frequency of payment, we
will pay you monthly. The first payment under any
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<PAGE> 35
option will be made on the day of the month you request (subject to our
agreement) and will begin in the month immediately following the annuity start
date. We will make subsequent payments on the same day of each subsequent
period in accordance with the payment interval and annuity option you select.
If you do not select an annuity payout plan by the Final Annuity Date,
we will apply the Contract Value under the Second Option, Life Income with a 10
year guarantee period, as described below.
A beneficiary may have the death benefit paid as an annuity under one
of the payout plans.
DETERMINING THE AMOUNT OF YOUR ANNUITY PAYMENT
On the annuity start date, we will use the cash value to calculate
your annuity payments under the payout plan you select. Cash value is your
contract value minus any applicable surrender charges, records maintenance fee,
and premium tax.
For qualified Contracts, distributions must satisfy certain
requirements specified in the Tax Code.
FIXED ANNUITY PAYMENTS
Fixed annuity payments are periodic payments that we make to the
annuitant. The amount of the fixed annuity payment is fixed and guaranteed by
us.
The amount of each payment depends on:
- the form and duration of the payout plan you choose;
- the age of the annuitant;
- the sex of the annuitant (if applicable);
- the amount of your Contract Value on the annuity start
date; and
- the applicable annuity tables in the Contract.
The annuity tables in the Contract are based on a minimum guaranteed
interest rate of [3.0%]. We may, in our sole discretion, make annuity payments
in an amount based on a higher interest rate.
ANNUITY TABLES
The annuity tables in your Contract show the minimum dollar amount of
the first monthly payment for each $1,000 applied under the first, second and
third annuity options. Under the first or second options, the amount of each
payment will depend upon the adjusted age and sex of the annuitant at the time
the first payment is due. Under the third option, the amount of each payment
will depend upon the sex of both annuitants and their adjusted ages at the time
the first payment is due.
The adjusted age of the annuitant is determined by calculating the age
at the nearest birthday of the annuitant on the annuity start date and
subtracting a number that depends on the year in which the annuity start date
belongs:
<TABLE>
<CAPTION>
annuity start date Adjusted Age is Age Minus
------------------ -------------------------
<S> <C>
Before 2001 0
2001 to 2010 1
</TABLE>
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<PAGE> 36
<TABLE>
<S> <C>
2011 to 2020 2
2021 to 2030 3
2031 to 2040 4
After 2040 5
</TABLE>
Once you have elected an annuity option, you may not change that
election with respect to any annuitant if annuity payments have begun.
After the annuity start date, the Contract no longer participates in
the Variable Account.
DESCRIPTION OF ANNUITY OPTIONS
FIRST OPTION -- LIFE INCOME.* We will make payments for the
annuitant's lifetime. We will stop making monthly payments with the last
payment due prior to the annuitant's death.
SECOND OPTION -- LIFE INCOME WITH A GUARANTEE PERIOD. We will make
payments for the annuitant's lifetime, with the guarantee that we will make
payments for at least 10 or 20 years. You select either the 10 or 20 year
guarantee period.
THIRD OPTION -- JOINT AND SURVIVOR LIFE ANNUITY.* Under this option, we
will make annuity payments so long as two annuitants are alive. After the death
of one of the annuitants, we will continue to make payments for the lifetime of
the surviving annuitant. We will stop making monthly payments with the last
payment due before the last surviving annuitant's death.
- ---------------
* IT IS POSSIBLE UNDER THIS OPTION TO RECEIVE ONLY ONE ANNUITY PAYMENT IF THE
ANNUITANT DIES (OR ANNUITANTS DIE) BEFORE THE DUE DATE OF THE SECOND PAYMENT OR
TO RECEIVE ONLY TWO ANNUITY PAYMENTS IF THE ANNUITANT DIES (OR ANNUITANTS DIE)
BEFORE THE DUE DATE OF THE THIRD PAYMENT, AND SO ON.
The amount of each payment will be determined from the tables in the
Contract that apply to the particular option using the annuitant's age (and if
applicable, sex or adjusted age).
Other options may be available.
GUARANTEED RETIREMENT INCOME BENEFIT
===============================================================================
We offer an optional Guaranteed Retirement Income Benefit ("GRIB")
under this Contract. Here are some terms you will need to know before reading
this section:
- THE GUARANTEED ANNUITY RATES are the rates contained in your
Contract. (See "Annuity Tables" above.)
- INCOME BASE equals the greater of:
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(i) premiums you paid accumulated daily with interest at 5.00%
per year through the earlier of the annuity start date and
the Contract anniversary on or next following the annuitant's
80th birthday, with a proportional reduction for withdrawals;
and
(ii) the Greatest Anniversary Value for the anniversaries through
the earlier of the annuity start date and the Contract
anniversary on or next following the annuitant's 80th
birthday, with a proportional reduction for withdrawals.
In determining the income base when the annuitant is over 80 on the
annuity start date, the income base on the contract anniversary coincident with
or next following the annuitant's 80th birthday is increased by premiums
received and proportionately reduced by withdrawals since that anniversary.
- PROPORTIONAL REDUCTION (for purposes of the GRIB) equals:
- the income base under either (i) or (ii) above immediately
prior to the withdrawal; MULTIPLIED BY
- the ratio of the amount withdrawn (including charges) to the
Contract Value immediately prior to the withdrawal.
* * *
GRIB provides a minimum fixed annuity guaranteed lifetime income to
the annuitant. You must elect GRIB on your initial Contract application. You
may discontinue GRIB at any time by sending notice to the Service Center. Once
you discontinue GRIB, you may not elect it again.
You may choose to receive the GRIB on the annuity start date, if all of
the following conditions are met:
- You choose an annuity option that provides payments for the
lifetime of one or more annuitants with payments for a period not
to exceed 10 years;
- You elect an annuity start date that is on or after the 10th
Contract anniversary;
- You elect an annuity start date that occurs within 30 days
following a Contract anniversary;
- The annuity start date is before the annuitant's 91st birthday
and after the annuitant's 60th birthday. If the annuitant is
younger than 44 on the issue date, the annuity start date must be
after the 15th Contract anniversary.
The amount of income payable under the GRIB is determined by applying
the income base (less applicable taxes) to the guaranteed annuity table rates
in your Contract for the annuity option you select. On the annuity start date,
the amount of income payments payable will be the greater of:
- the dollar amount determined under the GRIB; and
- the dollar amount determined by applying Contract Value to
the income benefits, annuity options and annuity tables in
your Contract.
We will pay GRIB for the life of a single annuitant, or the lifetimes
of two annuitants. If we pay GRIB for the life of two annuitants, then we will
use the age of the older annuitant to determine the income base.
THE GRIB IS BASED ON CONSERVATIVE ACTUARIAL FACTORS, THEREFORE THE
INCOME GUARANTEED BY GRIB MAY OFTEN BE LESS THAN THE INCOME PROVIDED BY APPLYING
CONTRACT VALUE TO CURRENT ANNUITY FACTORS.
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THE FIXED ACCOUNT
===============================================================================
You may allocate some or all of your premium payments and transfer
some or all of your Contract Value to the fixed account. The fixed account
offers a guarantee of principal, after deductions for fees and expenses. We
also guarantee that you will earn interest at a rate of a least 3% per year on
amounts in the fixed account. The fixed account is part of our general account.
Our general account supports our insurance and annuity obligations. Because the
fixed account is part of the general account, we assume the risk of investment
gain or loss on this amount. All assets in the general account are subject to
our general liabilities from business operations. The fixed account may not be
available in all states.
The fixed account is not registered with the SEC under the Securities
Act of 1933 (the "1933 Act"). Neither the fixed account nor our general account
have been registered as an investment company under the 1940 Act. Therefore,
neither our general account, the fixed account, nor any interests therein are
generally subject to regulation under the 1933 Act or the 1940 Act. The
disclosures relating to the fixed account which are included in this prospectus
are for your information and have not been reviewed by the SEC. However, such
disclosures may be subject to certain generally applicable provisions of
federal securities laws relating to the accuracy and completeness of statements
made in prospectuses.
FIXED ACCOUNT VALUE
On each valuation period (before the annuity start date), the fixed
account value is equal to:
- the total of premiums allocated to the fixed account; MINUS
- any applicable premium taxes; PLUS
- amounts transferred from the subaccounts; INCREASED BY
- any credited interest; and DECREASED BY
- any transfers and withdrawals from the fixed account, and by any
charges deducted from the fixed account.
We intend to credit the fixed account with interest at current rates
in excess of the minimum guaranteed rate of 3%, but we are not obligated to do
so. We have no specific formula for determining current interest rates.
The fixed account value will not share in the investment performance
of our general account. Because we, in our sole discretion, anticipate changing
the current interest rate from time to time, different allocations you make to
the fixed account will be credited with different current interest rates. You
assume the risk that interest credited to amounts in the fixed account may not
exceed the minimum 3% guaranteed rate.
We reserve the right to change the method of crediting interest from
time to time, provided that such changes do not reduce the guaranteed rate of
interest below 3% per year or shorten the period for which the interest rate
applies to less than one calendar year (except for the year in which such
amount is received or transferred).
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FIXED ACCOUNT TRANSFERS
GENERAL
A transfer charge of $25 will be imposed for the thirteenth and each
subsequent request you make to transfer Contract Value from one or more
subaccounts to the fixed account (or to one or more subaccounts) during a
single contract year before the annuity start date.
Before the annuity start date, you may make one transfer each contract
year during the 30 days following a contract anniversary from the fixed account
to one or more of the subaccounts.
You may not make transfers from any subaccount to the fixed account
during the six months following any transfer you make from the fixed account to
any subaccount, or after you begin to receive annuity payments.
PAYMENT DEFERRAL
We have the right to defer payment of any surrender, partial
withdrawal, or transfer from the fixed account for up to six months from the
date we receive your written request at the Service Center. During such
deferral, we will continue to credit interest at the current guaranteed
interest rate for the fixed account.
INVESTMENT PERFORMANCE OF THE SUBACCOUNTS
===============================================================================
The Company periodically advertises performance of the subaccounts and
investment portfolios. We may disclose at least four different kinds of
performance.
First, we may disclose standard total return figures for the
subaccounts that reflect the deduction of all charges under the Contract,
including the mortality and expense charge, any charge for optional benefits,
the annual records maintenance charge and the surrender charge. These figures
are based on the actual historical performance of the subaccounts since their
inception.
Second, we may disclose total return figures on a non-standard basis.
This means that the data may be presented for different time periods and
different dollar amounts. The data will not be reduced by the surrender charge
currently assessed under the Contract. We will only disclose non-standard
performance data if it is accompanied by standard total return data.
Third, we may present historic performance data for the portfolios
since their inception reduced by some or all fees and charges under the
Contract. Such adjusted historic performance includes data that precedes the
inception dates of the subaccounts, but is designed to show the performance
that would have resulted if the Contract had been available during that time.
Fourth, we may 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.
In advertising and sales literature (including illustrations), the
performance of each subaccount may be compared with the performance of other
variable annuity issuers in general or to the performance
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<PAGE> 40
of particular types of variable annuities investing in mutual funds, or
investment portfolios of mutual funds with investment objectives similar to the
subaccount. Lipper Analytical Services, Inc. ("Lipper"), CDA Investment
Technologies ("CDA"), Variable Annuity Research Data Service ("VARDS") and
Morningstar, Inc. ("Morningstar") are independent services which monitor and
rank the performance of variable annuity issuers in each of the major
categories of investment objectives on an industry-wide basis.
Lipper's and Morningstar's rankings include variable life insurance
issuers as well as variable annuity issuers. VARDS rankings compare only
variable annuity issuers. The performance analyses prepared by Lipper, CDA,
VARDS and Morningstar rank or illustrate such issuers on the basis of total
return, assuming reinvestment of distributions, but do not take sales charges,
redemption fees, or certain expense deductions at the variable account level
into consideration. In addition, VARDS prepares risk rankings, which consider
the effects of market risk on total return performance. This type of ranking
provides data as to which funds provide the highest total return within various
categories of funds defined by the degree of risk inherent in their investment
objectives.
Advertising and sales literature may also compare the performance of
each subaccount to the Standard & Poor's Index of 500 Common Stocks, a widely
used measure of stock performance. This unmanaged index assumes the
reinvestment of dividends but does not reflect any "deduction" for the expense
of operating or managing an investment portfolio. Other independent ranking
services and indices may also be used as a source of performance comparison.
We may also report other information including the effect of
systematic withdrawals, systematic investments and tax-deferred compounding on
a subaccount's investment returns, or returns in general. We may illustrate
this information by using tables, graphs, or charts. All income and capital
gains derived from subaccount investments are reinvested and can lead to
substantial long-term accumulation of assets, provided that the subaccount
investment experience is positive.
VOTING RIGHTS
===============================================================================
We are the legal owner of the portfolio shares held in the
subaccounts. However, when a portfolio is required to solicit the votes of its
shareholders through the use of proxies, we believe that current law requires
us to solicit you and other contract owners as to how we should vote the
portfolio shares held in the subaccounts. If we determine that we no longer are
required to solicit your votes, we may vote the shares in our own right.
When we solicit your vote, the number of votes you have will be
calculated separately for each subaccount in which you have an investment. The
number of your votes is based on the net asset value per share of the portfolio
in which the subaccount invests. It may include fractional shares. Before the
annuity start date, you hold a voting interest in each subaccount to which the
Contract Value is allocated. If you have a voting interest in a subaccount, you
will receive proxy materials and reports relating to any meeting of
shareholders of the portfolio in which that subaccount invests.
If we do not receive timely voting instructions for portfolio shares
or if we own the shares, we will vote those shares in proportion to the voting
instructions we receive. Instructions we receive to abstain on any item will
reduce the total number of votes being cast on a matter. For further details as
to how we determine the number of your votes, see the SAI.
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<PAGE> 41
FEDERAL TAX MATTERS
===============================================================================
The following discussion is general in nature and is not intended as
tax advice. Each person concerned should consult a competent tax advisor. No
attempt is made to consider any applicable state tax or other tax laws.
We believe that our Contracts will qualify as annuity contracts for
federal income tax purposes and the following discussion assumes that they will
so qualify. Further information on the tax status of the Contract can be found
in the SAI under the heading "Tax Status of the Contracts."
When you invest in an annuity contract, you usually do not pay taxes
on your investment gains until you withdraw the money -- generally for
retirement purposes. In this way, annuity contracts have been recognized by the
tax authorities as a legitimate means of deferring tax on investment income.
If you invest in a variable annuity as part of an IRA, Roth IRA or
SIMPLE IRA program, your Contract is called a Qualified Contract. If your
annuity is independent of any formal retirement or pension plan, it is called a
Non-Qualified Contract.
TAXATION OF NON-QUALIFIED CONTRACTS
We believe that if you are a natural person you will not be taxed on
increases in the Contract Value of your Contract until a distribution occurs or
until annuity payments begin. (The agreement to assign or pledge any portion of
a Contract's accumulation value generally will be treated as a distribution.)
When annuity payments begin, you will be taxed only on the investment gains you
have earned and not on the payments you made to purchase the Contract.
Generally, withdrawals from your annuity should only be made once the annuitant
reaches age 59 1/2, dies or is disabled, otherwise a tax penalty of ten percent
of the amount treated as income could be applied against any amounts included in
income, in addition to the tax otherwise imposed on such amount.
NON-NATURAL PERSON
If a non-natural person owns a non-qualified annuity contract, the
owner generally must include in income any increase in the excess of the
accumulation value over the investment in the contract (generally, the premiums
or other consideration paid for the contract) during the taxable year. There
are some exceptions to this rule and a prospective owner that is not a natural
person should discuss these with a tax adviser.
The following discussion generally applies to Contracts owned by
natural persons.
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<PAGE> 42
WITHDRAWALS
When a withdrawal from a Non-Qualified Contract occurs, the amount
received will be treated as ordinary income subject to tax up to an amount
equal to the excess (if any) of the accumulation value immediately before the
distribution over the Owner's investment in the contract (generally, the
premiums or other consideration paid for the Contract, reduced by any amount
previously distributed from the Contract that was not subject to tax) at that
time. In the case of a surrender under a Non-Qualified Contract, the amount
received generally will be taxable only to the extent it exceeds the Owner's
investment in the contract.
PENALTY TAX ON CERTAIN WITHDRAWALS
In the case of a distribution from a Contract, there may be imposed a
federal tax penalty equal to ten percent of the amount treated as income. In
general, however, there is no penalty on distributions:
- made on or after the taxpayer reaches age 59 1/2;
- made on or after the death of an Owner;
- attributable to the taxpayer's becoming disabled; or
- made as part of a series of substantially equal periodic
payments for the life (or life expectancy) of the taxpayer.
Other exceptions may apply under certain circumstances and special
rules may apply in connection with the exceptions enumerated above. Additional
exceptions apply to distributions from a Qualified Contract. You should
consult a tax adviser with regard to exceptions from the penalty tax.
ANNUITY PAYMENTS
Although tax consequences may vary depending on the payout option
elected under an annuity contract, a portion of each annuity payment is
generally not taxed and the remainder is taxed as ordinary income. The
non-taxable portion of an annuity payment is generally determined in a manner
that is designed to allow you to recover your investment in the contract
ratably on a tax-free basis over the expected stream of annuity payments, as
determined when annuity payments start. Once your investment in the contract
has been fully recovered, however, the full amount of each annuity payment is
subject to tax as ordinary income.
TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from a Contract because of your death or the
death of the annuitant. Generally, such amounts are includible in the income of
the recipient as follows: (i) if distributed in a lump sum, they are taxed in
the same manner as a surrender of the Contract, or (ii) if distributed under a
payout option, they are taxed in the same way as annuity payments.
TRANSFERS, ASSIGNMENTS OR EXCHANGES OF A CONTRACT
A transfer or assignment of ownership of a Contract, the designation of
an annuitant, the selection of certain annuity start dates, or the exchange of
a Contract may result in certain tax consequences to you that are not discussed
herein. An Owner contemplating any such transfer, assignment or exchange,
should consult a tax advisor as to the tax consequences.
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WITHHOLDING
Annuity distributions are generally subject to withholding for the
recipient's federal income tax liability. Recipients can generally elect,
however, not to have tax withheld from distributions.
MULTIPLE CONTRACTS
All annuity contracts that are issued by us (or our affiliates) to the
same Owner during any calendar year are treated as one annuity contract for
purposes of determining the amount includible in such Owner's income when a
taxable distribution occurs.
FURTHER INFORMATION
We believe that the contracts will qualify as annuity contracts for
Federal income tax purposes and the above discussion is based on that
assumption. Further details can be found in the Statement of Additional
Information under the heading "Tax Status of the Contracts."
TAXATION OF QUALIFIED CONTRACTS
The tax rules that apply to Qualified Contracts vary according to the
type of retirement plan and the terms and conditions of the plan. Your rights
under a Qualified Contract may be subject to the terms of the retirement plan
itself, regardless of the terms of the Qualified Contract. Adverse tax
consequences may result if you do not ensure that contributions, distributions
and other transactions with respect to the Contract comply with the law.
INDIVIDUAL RETIREMENT ANNUITIES (IRAs), as defined in Section 408 of
the Tax Code, permit individuals to make annual contributions of up to the
lesser of $2,000 or 100% of the compensation included in your income for the
year. The contributions may be deductible in whole or in part, depending on the
individual's income. Distributions from certain pension plans may be "rolled
over" into an IRA on a tax-deferred basis without regard to these limits.
Amounts in the IRA (other than nondeductible contributions) are taxed when
distributed from the IRA. A 10% penalty tax generally applies to distributions
made before age 59 1/2, unless certain exceptions apply. The Internal Revenue
Service has not reviewed the Contract for qualification as an IRA, and has not
addressed in a ruling of general applicability whether a death benefit provision
such as the optional Guaranteed Minimum Death Benefit provision in the Contract
comports with IRA qualification requirements.
SIMPLE IRAS, permit certain small employers to establish SIMPLE plans
as provided by Section 408(p) of the Tax Code, under which employees may elect
to defer to a SIMPLE IRA a percentage of compensation up to $6,000 (as increased
for cost of living adjustments). The sponsoring employer is required to make
matching or non-elective contributions on behalf of the employees. Distributions
from SIMPLE IRAs are subject to the same restrictions that apply to IRA
distributions and are taxed as ordinary income. Subject to certain exceptions,
premature distributions prior to age 59 1/2 are subject to a 10% penalty tax,
which is increased to 25% if the distribution occurs within the first two years
after the commencement of the employee's participation in the plan.
ROTH IRAS, as described in Tax Code section 408A, permit certain
eligible individuals to contribute to make non-deductible contributions to a
Roth IRA in cash or as a rollover or transfer from another Roth IRA or other
IRA. A rollover from or conversion of an IRA to a Roth IRA is generally subject
to tax and other special rules apply. The Owner may wish to consult a tax
adviser before combining any converted amounts with any other Roth IRA
contributions, including any other conversion amounts from other tax years.
Distributions from a Roth IRA generally are not taxed, except that, once
aggregate distributions exceed contributions to the Roth IRA, income tax and a
10% penalty tax may apply to distributions made (1) before age 59 1/2 (subject
to certain exceptions) or (2) during the five taxable years starting with the
year in which the first contribution is made to any Roth IRA. A 10% penalty tax
may apply to amounts attributable to a conversion from an IRA if they are
distributed during the five taxable years beginning with the year in which the
conversion was made.
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<PAGE> 44
OTHER TAX ISSUES
Qualified Contracts have minimum distribution rules that govern the
timing and amount of distributions. You should consult a tax advisor for more
information about these distribution rules.
Distributions from Qualified Contracts generally are subject to
withholding for the Owner's federal income tax liability. The withholding rate
varies according to the type of distribution and the Owner's tax status. The
Owner will be provided the opportunity to elect to not have tax withheld from
distributions.
OUR INCOME TAXES
At the present time, we make no charge for any federal, state or local
taxes (other than the charge for state and local premium taxes) that we incur
that may be attributable to the investment divisions (that is, the subaccounts)
of the variable account or to the Contracts. We do have the right in the future
to make additional charges for any such tax or other economic burden resulting
from the application of the tax laws that we determine is attributable to the
investment divisions of the variable account or the Contracts.
Under current laws in several states, we may incur state and local
taxes (in addition to premium taxes). These taxes are not now significant and
we are not currently charging for them. If they increase, we may deduct charges
for such taxes.
POSSIBLE TAX LAW CHANGES
Although the likelihood of legislative changes is uncertain, there is
always the possibility that the tax treatment of the Contracts could change by
legislation or otherwise. Consult a tax adviser with respect to legislative
developments and their effect on the Contract.
We have the right to modify the Contract in response to legislative
changes that could otherwise diminish the favorable tax treatment that annuity
contract owners currently receive. We make no guarantee regarding the tax
status of any contract and do not intend the above discussion as tax advice.
OTHER INFORMATION
===============================================================================
PAYMENTS
We will usually pay you any surrender, partial withdrawal, or death
benefit payment within seven days after we receive all the required information.
The required information includes your written request, any information or
documentation we reasonably need to process your request, and, in the case of a
death benefit, receipt and filing of due proof of death.
However, we may be required to suspend or postpone payments during any
period when:
- the New York Stock Exchange is closed, other than customary
weekend and holiday closings;
- trading on the New York Stock Exchange is restricted as
determined by the SEC;
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<PAGE> 45
- the SEC determines that an emergency exists that would make the
disposal of securities held in the variable account or the
determination of the value of the variable account's net assets
not reasonably practicable; or
- the SEC permits, by order, the suspension or postponement of
payments for your protection.
If a recent check or draft has been submitted, we have the right to
delay payment until we have assured ourselves that the check or draft has been
honored.
We have the right to defer payment for a surrender, partial withdrawal
or transfer from the fixed account for up to six months from the date we
receive your written request.
MODIFICATION
Upon notice to you, we may modify the Contract to:
- permit the Contract or the variable account to comply with any
applicable law or regulation issued by a government agency;
- assure continued qualification of the Contract under the Tax
Code or other federal or state laws relating to retirement
annuities or variable annuity contracts;
- reflect a change in the operation of the variable account; or
- provide additional investment options.
In the event of most such modifications, we will make appropriate
endorsement to the Contract.
DISTRIBUTION OF THE CONTRACTS
The Contracts are sold by licensed insurance agents in those states
where the Contract may be lawfully sold. The agents are also registered
representatives of registered broker-dealers that are members of the National
Association of Securities Dealers, Inc. ("NASD"). Sales commissions will be
paid to broker-dealers who sell the Contracts. Sales commissions may vary, but
are expected not to exceed 7.0% of premium payments. The broker-dealers are
expected to compensate sales representatives in varying amounts from these
commissions. In addition, we may pay additional promotional incentives, in the
form of cash or other compensation, such as production incentive bonuses,
agent's insurance and pension benefits, and agency expense allowances. These
distribution expenses do not result in any additional charges against the
Contracts other than those described under "Fees and Charges."
Investors Brokerage Services, Inc. ("IBS"), 1 Kemper Drive, Long Grove,
IL 60049-0001, acts as the principal underwriter for the Contracts. IBS is
affiliated with Farmers. IBS is registered with the SEC under the Securities
Exchange Act of 1934 as a broker-dealer, and is a member of the NASD.
LEGAL PROCEEDINGS
Like other life insurance companies, we are involved in lawsuits. These
actions are in various stages of discovery and development, and some seek
punitive as well as compensatory damages. While it is not possible to predict
the outcome of such matters with absolute certainty, we believe that the
ultimate disposition of these proceedings should not have a material adverse
effect on the financial position for Farmers New World Life Insurance Company.
In addition, we are, from time to time, involved as a party to various
governmental and administrative proceedings. There are no pending or threatened
lawsuits that will materially impact the variable account.
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REPORTS TO OWNERS
Before the annuity start date, we will mail a report to you at least
annually at your last known address of record. The report will state the
Contract Value (including the Contract Value in each subaccount and the fixed
account) of the Contract, and any further information required by any
applicable law or regulation.
INQUIRIES
Inquiries regarding your Contract may be made by calling or writing to
us at the Service Center.
YEAR 2000 MATTERS
In 1995, Farmers Group, Inc. ("FGI"), our parent company, initiated
the "Year 2000 Project" in order to prepare for the information processing
problems presented by the approach of the new millennium. Significant
efforts have been expended to gain a complete understanding of Year 2000
implications and to develop a strategy to make FGI's and our systems Year 2000
compliant. As of September 30, 1999, FGI has completed its remediation plans
related to the Year 2000 Project. Although these plans have been completed, FGI
continues to monitor its preparedness for unforeseen Year 2000 issues that may
impact FGI. The costs associated with the Year 2000 Project were expensed as
incurred, and, through September 30, 1999, the cumulative costs totaled $23.0
million, of which $2.0 million was allocated to Farmers. Total costs of the
project are expected to be approximately $23.3 million, of which approximately
$2.2 million is expected to be allocated to Farmers.
To remedy the Year 2000 issue, FGI devised a three-phase plan:
Phase I - "Awareness and Initial Impact Assessment". This phase was
completed in May 1996. During this phase, Year 2000 "Impact Assessment" was
performed using a mainframe analysis tool to determine which areas were at
risk.
Phase II - "Year 2000 Workpackage and Development Blueprint Project".
This phase was completed in November 1996 and consisted of creating a
comprehensive master plan which included establishing and prioritizing clusters
(groups of similar computer programs) and agreeing upon a definition of what
would be acceptable Year 2000 compliance. In addition, a timeframe was
established for the conversion, compliance testing and the implementation of
Year 2000 compliant programs into production.
Phase III - "Year 2000 Conversion and Implementation". This phase was
completed in July 1999. During this phase the process of converting,
implementing and testing these Year 2000 conversion programs were performed.
In addition, FGI evaluated its relationships with third parties with
which FGI has a direct and material relationship to determine whether they are
Year 2000 compliant. FGI sent out questionnaires and warranty requests to all
third party vendors and performed compliance testing with all vendors to
validate the vendors' claims regarding Year 2000 compliance. All compliance
testing related to third party relationships has been completed. However, it is
not possible to state with certainty that the operations of third parties will
not be materially impacted in turn by other parties with whom they themselves
have a relationship.
The Year 2000 issue may not only affect FGI's information technology
("IT") systems but also its non-IT systems. FGI has assessed the readiness of
its non-IT systems and, in the event of an
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<PAGE> 47
interruption of these systems, contingency plans have been established such
that no major disruptions will occur.
FGI's Year 2000 contingency plans were completed in June 1999. These
plans include contingency measures which will be followed in the event that
certain key vendors experience difficulties related to the Year 2000 issue. As
new information becomes available, the contingency plans will be reviewed to
determine whether they are adequate or if they need to be further enhanced. The
operations of FGI are such that in the event all electronic communications are
down, FGI could continue to operate until an alternative communication source is
acquired.
FINANCIAL STATEMENTS
Our audited balance sheets as of December 31, 1998 and 1997, and the
related statements of income, shareholder's equity, and cash flows for each of
the three years in the period ended December 31, 1998, as well as the Report of
the Independent Auditors, are contained in the SAI. Our financial statements
should be considered only as bearing on our ability to meet our obligations
under the Contracts. They should not be considered as bearing on the investment
performance of the assets held in the variable account.
There are no financial statements for the variable account, because it
has not commenced operations as of the date of this prospectus.
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STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ADDITIONAL CONTRACT PROVISIONS................................................................................ 2
The Contract......................................................................................... 2
Incontestability..................................................................................... 2
Incorrect Age or Sex................................................................................. 2
Nonparticipation..................................................................................... 2
Waiver of Surrender Charge Riders.................................................................... 2
Tax Status of the Contracts.......................................................................... 3
CALCULATION OF SUBACCOUNT AND ADJUSTED HISTORIC PORTFOLIO PERFORMANCE DATA.................................... 3
Money Market Subaccount Account Yields............................................................... 3
Other Subaccount Yields.............................................................................. 5
Average Annual Total Returns for the Subaccounts..................................................... 6
Non-Standard Subaccount Total Returns................................................................ 6
Adjusted Historic Portfolio Performance Data......................................................... 7
Effect of the Records Maintenance Charge on Performance Data......................................... 7
HISTORIC PERFORMANCE DATA..................................................................................... 7
General Limitations.................................................................................. 7
Time Periods Before the Date the Variable Account Commenced Operations............................... 7
Tables of Adjusted Historic Total Return Quotations.................................................. 8
NET INVESTOR FACTOR...........................................................................................11
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS.............................................................11
Resolving Material Conflicts.........................................................................11
VOTING RIGHTS.................................................................................................12
SAFEKEEPING OF VARIABLE ACCOUNT ASSETS........................................................................12
DISTRIBUTION OF THE CONTRACTS.................................................................................12
LEGAL MATTERS.................................................................................................13
EXPERTS.......................................................................................................13
OTHER INFORMATION.............................................................................................13
FINANCIAL STATEMENTS..........................................................................................13
</TABLE>
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STATEMENT OF ADDITIONAL INFORMATION
for the
FARMERS VARIABLE ANNUITY
Individual Flexible Premium Variable Annuity Contract
-----------------------------------------------------
Issued Through
FARMERS ANNUITY SEPARATE ACCOUNT A
Offered by
FARMERS NEW WORLD LIFE INSURANCE COMPANY
3003 - 77th Avenue, S.E.
Mercer Island, Washington 98040
(206) 232-8400
SERVICE CENTER:
P.O. Box 724208
Atlanta, GA 31139
1-877-376-8008 (toll free)
This Statement of Additional Information expands upon subjects
discussed in the current Prospectus for the Farmers Variable Annuity individual
flexible premium variable annuity contract offered by Farmers New World Life
Insurance Company. You may obtain a copy of the Prospectus for the Contract
dated _______________, 2000 by calling 1-877-376-8008 or by writing to our
SERVICE CENTER at P.O. Box 724208, Atlanta, GA 31139.
This Statement incorporates terms used in the current Prospectus for
each Contract.
- --------------------------------------------------------------------------------
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
ONLY IN CONJUNCTION WITH THE PROSPECTUSES FOR YOUR CONTRACT AND THE FUNDS.
The date of this Statement of Additional Information is
________________, 2000.
<PAGE> 50
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ADDITIONAL CONTRACT PROVISIONS....................................................................................2
The Contract.............................................................................................2
Incontestability.........................................................................................2
Incorrect Age or Sex.....................................................................................2
Nonparticipation.........................................................................................2
Waiver of Surrender Charge Riders........................................................................2
Tax Status of the Contracts..............................................................................3
CALCULATION OF SUBACCOUNT AND ADJUSTED HISTORIC PORTFOLIO PERFORMANCE DATA........................................3
Money Market Subaccount Yields...........................................................................4
Other Subaccount Yields..................................................................................5
Average Annual Total Returns for the Subaccounts.........................................................6
Non-Standard Subaccount Total Returns....................................................................7
Adjusted Historic Portfolio Performance Data.............................................................7
Effect of the Records Maintenance Charge on Performance Data.............................................7
HISTORIC PERFORMANCE DATA.........................................................................................8
General Limitations......................................................................................8
Time Periods Before the Date the Variable Account Commenced Operations...................................8
Tables of Adjusted Historic Total Return Quotations......................................................8
NET INVESTMENT FACTOR............................................................................................11
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS................................................................12
Resolving Material Conflicts............................................................................12
VOTING RIGHTS....................................................................................................13
SAFEKEEPING OF VARIABLE ACCOUNT ASSETS...........................................................................13
DISTRIBUTION OF THE CONTRACTS....................................................................................13
LEGAL MATTERS....................................................................................................14
EXPERTS..........................................................................................................14
OTHER INFORMATION................................................................................................14
FINANCIAL STATEMENTS.............................................................................................14
</TABLE>
<PAGE> 51
ADDITIONAL CONTRACT PROVISIONS
THE CONTRACT
The entire contract consists of the Contract, the signed application
attached at issue, any attached amendments and supplements to the application,
and any attached riders and endorsements. In the absence of fraud, we consider
all statements in the application to be representations and not warranties. We
will not use any statement to contest a claim unless that statement is in an
attached application or in an amendment or supplement to the application
attached to the Contract.
Any change in the Contract or waiver of its provisions must be in
writing and signed by one of our officers. No other person -- no agent or
registered representative -- has authority to change or waive any provision of
this Contract.
Upon notice to you, we may modify the Contract if necessary to:
- permit the Contract or the variable account to comply with
any applicable law or regulation that a governmental agency
issues; or
- assure continued qualification of the Contract under the Tax
Code or other federal or state laws relating to retirement
annuities or variable annuity contracts; or
- effect a change in the operation of the variable account or
to provide additional investment options.
In the event of such modifications, we will make the appropriate
endorsement to the Contract.
INCONTESTABILITY
We will not contest the Contract after the issue date.
INCORRECT AGE OR SEX
We may require proof of age, sex, and right to payments before making
any life annuity payments. If the age or sex (if applicable) of the annuitant
has been stated incorrectly, then we will determine the annuity start date and
the amount of the annuity payments by using the correct age and sex. After the
annuity start date, any adjustment for underpayment will be paid immediately.
Any adjustment for overpayment will be deducted from future payments. We will
make adjustments for overpayments or underpayments with interest at the rate
then in use to determine the rate of payments.
NONPARTICIPATION
The Contract does not participate in our surplus earnings or profits.
We will not pay dividends on this Contract.
WAIVER OF SURRENDER CHARGE RIDERS
On issuance we will automatically issue riders that waive surrender
charges if:
- the annuitant is confined in a hospital or skilled
health care facility continuously for at least 90 days
and remains confined at the time of the surrender
request; or
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<PAGE> 52
- the annuitant is diagnosed with a terminal illness after
the Contract is issued and is expected to live for 12
months or less, and the aggregate maximum withdrawal is
$250,000, or less.
There is no additional charge for the issuance of the waiver of
surrender charge riders. These riders may not be available in all states.
TAX STATUS OF THE CONTRACTS
Tax law imposes several requirements that variable annuities must
satisfy in order to receive the tax treatment normally accorded to annuity
contracts.
Diversification Requirements. The Tax Code requires that the
investments of each investment division of the variable account underlying the
Contracts be "adequately diversified" in order for the Contracts to be treated
as annuity contracts for Federal income tax purposes. It is intended that each
investment division, through the fund in which it invests, will satisfy these
diversification requirements.
Owner Control. In certain circumstances, owners of variable annuity
contracts have been considered for Federal income tax purposes to be the owners
of the assets of the variable account supporting their contracts due to their
ability to exercise investment control over those assets. When this is the
case, the contract owners have been currently taxed on income and gains
attributable to the variable account assets. There is little guidance in this
area, and some features of our Contracts, such as the flexibility of an owner
to allocate premiums and transfer amounts among the investment divisions of the
variable account, have not been explicitly addressed in published rulings.
While we believe that the Contracts do not give Owners investment control over
variable account assets, we reserve the right to modify the Contracts as
necessary to prevent an Owner from being treated as the Owner of the variable
account assets supporting the Contract.
Required Distributions. In order to be treated as an annuity contract
for Federal income tax purposes, section 72(s) of the Tax Code requires any
Non-Qualified Contract to contain certain provisions specifying how your
interest in the Contract will be distributed in the event of the death of a
holder of the Contract. Specifically, section 72(s) requires that (a) if any
Owner dies on or after the annuity starting date, but prior to the time the
entire interest in the Contract has been distributed, the entire interest in the
Contract will be distributed at least as rapidly as under the method of
distribution being used as of the date of such Owner's death; and (b) if any
owner dies prior to the annuity start date, the entire interest in the
Contract will be distributed within five years after the date of such Owner's
death. These requirements will be considered satisfied as to any portion of a
Owner's interest which is payable to or for the benefit of a designated
beneficiary and which is distributed over the life of such designated
beneficiary or over a period not extending beyond the life expectancy of that
beneficiary, provided that such distributions begin within one year of the
Owner's death. The designated beneficiary refers to a natural person designated
by the owner as a beneficiary and to whom ownership of the Contract passes by
reason of death. However, if the designated beneficiary is the surviving spouse
of the deceased Owner, the Contract may be continued with the surviving spouse
as the new owner.
The Non-Qualified Contracts contain provisions that are intended to
comply with these Tax Code requirements, although no regulations interpreting
these requirements have yet been issued. We intend to review such provisions
and modify them if necessary to assure that they comply with the applicable
requirements when such requirements are clarified by regulation or otherwise.
Other rules may apply to Qualified Contracts.
CALCULATION OF SUBACCOUNT AND ADJUSTED HISTORIC PORTFOLIO PERFORMANCE
DATA
We may advertise and disclose historic performance data for the
subaccounts, including yields, standard annual total returns, and nonstandard
measures of performance of the subaccounts. Such performance data will be
computed, or accompanied by performance data computed, in accordance with the
SEC defined standards.
3
<PAGE> 53
MONEY MARKET SUBACCOUNT YIELDS
Advertisements and sales literature may quote the current annualized
yield of the Money Market subaccount for a seven-day period in a manner that
does not take into consideration any realized or unrealized gains or losses, or
income other than investment income, on shares of the Money Market Portfolio.
We compute this current annualized yield by determining the net change
(not including any realized gains and losses on the sale of securities,
unrealized appreciation and depreciation, and income other than investment
income) at the end of the seven-day period in the value of a hypothetical
subaccount under a Contract having a balance of one unit of the Money Market
subaccount at the beginning of the period. We divide that net change in
subaccount value by the value of the hypothetical subaccount at the beginning
of the period to determine the base period return. Then we annualize this
quotient on a 365-day basis. The net change in account value reflects (i) net
income from the Money Market portfolio in which the hypothetical subaccount
invests; and (ii) charges and deductions imposed under the Contract that are
attributable to the hypothetical subaccount.
These charges and deductions include the per unit charges for the
records maintenance charge, the mortality and expense risk charge for the
standard death benefit (and the mortality and expense risk charge for the
Guaranteed Minimum Death Benefit and the Guaranteed Retirement Income Benefit)
and the asset-based administration charge. For purposes of calculating current
yields for a Contract, we use an average per unit records maintenance charge
based on the $30 records maintenance charge.
We calculate the current yield by the following formula:
Current Yield = ((NCS - ES)/UV) X (365/7)
Where:
NCS = the net change in the value of the Money Market
Portfolio (not including any realized gains or
losses on the sale of securities, unrealized
appreciation and depreciation, and income other than
investment income) for the seven-day period
attributable to a hypothetical subaccount having a
balance of one subaccount unit.
ES = per unit charges deducted from the hypothetical
subaccount for the seven-day period.
UV = the unit value for the first day of the seven-day
period.
We may also disclose the effective yield of the Money Market
subaccount for the same seven-day period, determined on a compounded basis. We
calculate the effective yield by compounding the unannualized base period
return by adding one to the base return, raising the sum to a power equal to
365 divided by 7, and subtracting one from the result.
365/7
Effective Yield = (1 + ((NCS-ES)/UV)) - 1
Where:
NCS = the net change in the value of the Money Market
portfolio (not including any realized gains or
losses on the sale of securities, unrealized
appreciation and depreciation, and income other than
investment income) for the seven-day
4
<PAGE> 54
period attributable to a hypothetical subaccount
having a balance of one subaccount unit.
ES = per unit charges deducted from the hypothetical
subaccount for the seven-day period.
UV = the unit value for the first day of the seven-day
period.
The Money Market subaccount yield is lower than the Money Market
portfolio's yield because of the charges and deductions that the Contract
imposes.
The current and effective yields on amounts held in the Money Market
subaccount normally fluctuate on a daily basis. THEREFORE, THE DISCLOSED YIELD
FOR ANY GIVEN PAST PERIOD IS NOT AN INDICATION OR REPRESENTATION OF FUTURE
YIELDS OR RATES OF RETURN. The Money Market subaccount's actual yield is
affected by changes in interest rates on money market securities, average
portfolio maturity of the Money Market Portfolio, the types and quality of
securities held by the Money Market Portfolio and that Portfolio's operating
expenses. We may also present yields on amounts held in the Money Market
subaccount for periods other than a seven-day period.
Yield calculations do not take into account the Surrender Charge that
we assess on certain withdrawals of Contract Value.
OTHER SUBACCOUNT YIELDS
Sales literature or advertisements may quote the current annualized
yield of one or more of the subaccounts (except the Money Market subaccount)
under the Contract for 30-day or one-month periods. The annualized yield of a
subaccount refers to income that the subaccount generates during a 30-day or
one-month period and is assumed to be generated during each period over a
12-month period.
We compute the annualized 30-day yield by:
1. dividing the net investment income of the portfolio
attributable to the subaccount units, less
subaccount expenses attributable to the Contract for
the period, by the maximum offering price per unit
on the last day of the period;
2. multiplying the result by the daily average number
of units outstanding for the period;
3. compounding that yield for a 6-month period; and
4. multiplying the result by 2.
Expenses of the subaccount include the records maintenance charge, the
asset-based administration charge and the mortality and expense risk charge for
the standard death benefit (and the mortality and expense risk charge for the
Guaranteed Minimum Death Benefit and the Guaranteed Retirement Income Benefit).
The yield calculation assumes that we deduct the records maintenance charge at
the end of each Contract Year. For purposes of calculating the 30-day or
one-month yield, we divide an average records maintenance charge collected by
the average Contract Value in the subaccount to determine the amount of the
charge attributable to the subaccount for the 30-day or one-month period. We
calculate the 30-day or one-month yield by the following formula:
5
<PAGE> 55
6
Yield = 2 X (((NI - ES)/(U X UV)) + 1) - 1)
Where:
NI = net income of the portfolio for the 30-day or
one-month period attributable to the subaccount's
units.
ES = charges deducted from the subaccount for the 30-day
or one-month period.
U = the average number of units outstanding.
UV = the unit value at the close of the last day in the
30-day or one-month period.
The yield for the subaccount is lower than the yield for the
corresponding portfolio because of the charges and deductions that the Contract
imposes.
The yield on the amounts held in the subaccounts normally fluctuates
over time. THEREFORE, THE DISCLOSED YIELD FOR ANY GIVEN PAST PERIOD IS NOT AN
INDICATION OR REPRESENTATION OF FUTURE YIELDS OR RATES OF RETURN. The types and
quality of securities that a portfolio holds and its operating expenses affect
the corresponding subaccount's actual yield.
Yield calculations do not take into account the Surrender Charge that
we assess on certain withdrawals of Contract Value.
AVERAGE ANNUAL TOTAL RETURNS FOR THE SUBACCOUNTS
Sales literature or advertisements may quote average annual total
returns for one or more of the subaccounts for various periods of time. If we
advertise total return for the Money Market Subaccount, then those
advertisements and sales literature will include a statement that yield more
closely reflects current earnings than total return.
When a subaccount has been in operation for 1, 5, and 10 years,
respectively, we will provide the average annual total return for these
periods. We may also disclose average annual total returns for other periods of
time.
Standard average annual total returns represent the average annual
compounded rates of return that would equate an initial investment of $1,000
under a Contract to the redemption value of that investment as of the last day
of each of the periods. Each period's ending date for which we provide total
return quotations will be for the most recent calendar quarter-end practicable,
considering the type of the communication and the media through which it is
communicated.
We calculate the standard average annual total returns using
subaccount unit values that we calculate on each valuation day based on the
performance of the subaccount's underlying portfolio, the deductions for the
mortality and expense risk charge for the standard death benefit (and in some
cases, the mortality and expense risk charge for the Guaranteed Minimum Death
Benefit and the Guaranteed Retirement Income Benefit), the asset-based
administration charge and the records maintenance charge. The calculation
assumes that we deduct a records maintenance charge of $ 30.00 at the end of
each Contract year. For purposes of calculating average annual total return, we
use an average per-dollar per-day records maintenance charge attributable to
the hypothetical subaccount for the period. The calculation also assumes total
surrender of the Contract at the end of the period for the return quotation and
will take into account the Surrender Charge applicable to the Contract that we
assess on surrenders of Contract Value.
6
<PAGE> 56
We calculate the standard total return by the following formula:
1/N
TR = ((ERV/P) ) - 1
Where:
TR = the average annual total return net of subaccount
recurring charges.
ERV = the ending redeemable value (minus any applicable
Surrender Charge) of the
P = hypothetical subaccount at the end of the period. a
hypothetical initial payment of $1,000.
N = the number of years in the period.
NON-STANDARD SUBACCOUNT TOTAL RETURNS
Sales literature or advertisements may quote average annual total
returns for the subaccounts that do not reflect any Surrender Charges. We
calculate such nonstandard total returns in exactly the same way as the average
annual total returns described above, except that we replace the ending
redeemable value of the hypothetical subaccount for the period with an ending
value for the period that does not take into account any Surrender Charges.
We may disclose cumulative total returns in conjunction with the
standard formats described above. We calculate the cumulative total returns
using the following formula:
CTR = (ERV/P) - 1
Where:
CTR = the cumulative total return net of subaccount
recurring charges for the period.
ERV = the ending redeemable value of the hypothetical
investment at the end of the period.
P = a hypothetical single payment of $1,000.
ADJUSTED HISTORIC PORTFOLIO PERFORMANCE DATA
Sales literature or advertisements may quote adjusted yields and total
returns for the portfolios since their inception reduced by some or all of the
fees and charges under the Contract. Such adjusted historic portfolio
performance may include data that precedes the inception dates of the
subaccounts. This data is designed to show the performance that would have
resulted if the Contract had been in existence during that time.
We will disclose nonstandard performance data only if we disclose the
standard performance data for the required periods.
EFFECT OF THE RECORDS MAINTENANCE CHARGE ON PERFORMANCE DATA
The Contract provides for the deduction of a $30.00 records
maintenance charge at the end of each Contract year from the fixed account and
the subaccounts. We will waive this charge if your Contract Value is $50,000 or
more on the date the charge is assessed. We base it on the proportion that the
value of each such account bears to the total Contract Value. For purposes of
reflecting the records
7
<PAGE> 57
maintenance charge in yield and total return quotations, we convert the records
maintenance charge into a per-dollar per-day charge based on the average
Contract Value in the subaccount for all Contracts on the last day of the
period for which quotations are provided. Then, we adjust the per-dollar
per-day average charge to reflect the basis upon which we calculate the
particular quotation.
HISTORIC PERFORMANCE DATA
GENERAL LIMITATIONS
The funds have provided the portfolios' performance data. We derive
the subaccount performance data from the data that the funds provide. In
preparing the tables below, we relied on the funds' data. While we have no
reason to doubt the accuracy of the figures provided by the funds, we have not
verified those figures.
TIME PERIODS BEFORE THE DATE THE VARIABLE ACCOUNT COMMENCED OPERATIONS
The variable account may disclose non-standardized total return for
time periods before the variable account commenced operations. This performance
data is based on the actual performance of the portfolios since their
inception, adjusted to reflect the effect of the current level of charges that
apply to the subaccounts under the Contract.
TABLES OF ADJUSTED HISTORIC TOTAL RETURN QUOTATIONS
The tables below set out the adjusted historic total returns for the
portfolios for various periods as of December 31, 1998. This performance data
is based on the actual performance of the portfolios since their inception,
adjusted to reflect the effect of the current level of charges that apply to
the subaccounts under the Contract.
<TABLE>
<CAPTION>
TABLE 1
ADJUSTED HISTORIC PORTFOLIO TOTAL RETURN AS OF DECEMBER 31, 1998(2)
ASSUMING CONTRACT IS SURRENDERED OR ANNUITIZED
AVERAGE ANNUAL TOTAL RETURN(3)
- ------------------------------------------------------------------------------------------------------------------------
WITH STANDARD DEATH BENEFIT
(TOTAL VARIABLE ACCOUNT ANNUAL EXPENSES: 1.15%)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Inception
PORTFOLIO Date(2) 1 Year (%) 5 Year (%) 10 Year (%) Since Inception (%)
- ------------------------------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES
- ------------------------------------------------------------------------------------------------------------------------
Capital Appreciation
- ------------------------------------------------------------------------------------------------------------------------
KEMPER VARIABLE SERIES
- ------------------------------------------------------------------------------------------------------------------------
Kemper High Yield
- ------------------------------------------------------------------------------------------------------------------------
Kemper Government Securities
- ------------------------------------------------------------------------------------------------------------------------
Kemper-Dreman High Return Equity
- ------------------------------------------------------------------------------------------------------------------------
Kemper Small Cap Growth
- ------------------------------------------------------------------------------------------------------------------------
PIMCO VARIABLE INSURANCE TRUST
- ------------------------------------------------------------------------------------------------------------------------
PIMCO Low Duration Bond
- ------------------------------------------------------------------------------------------------------------------------
PIMCO Foreign Bond
- ------------------------------------------------------------------------------------------------------------------------
SCUDDER VARIABLE LIFE INVESTMENT FUND
- ------------------------------------------------------------------------------------------------------------------------
International
- ------------------------------------------------------------------------------------------------------------------------
Growth and Income
- ------------------------------------------------------------------------------------------------------------------------
Bond
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Money Market(1)
- ------------------------------------------------------------------------------------------------------------------------
TEMPLETON VARIABLE PRODUCTS SERIES FUND
- ------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Fund
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
WITH EITHER GUARANTEED MINIMUM DEATH BENEFIT OR GUARANTEED RETIREMENT INCOME BENEFIT
(TOTAL VARIABLE ACCOUNT ANNUAL EXPENSES: 1.40%)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Inception
PORTFOLIO Date(2) 1 Year (%) 5 Year (%) 10 Year (%) Since Inception (%)
- ------------------------------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES
- ------------------------------------------------------------------------------------------------------------------------
Capital Appreciation
- ------------------------------------------------------------------------------------------------------------------------
KEMPER VARIABLE SERIES
- ------------------------------------------------------------------------------------------------------------------------
Kemper High Yield
- ------------------------------------------------------------------------------------------------------------------------
Kemper Government Securities
- ------------------------------------------------------------------------------------------------------------------------
Kemper-Dreman High Return Equity
- ------------------------------------------------------------------------------------------------------------------------
Kemper Small Cap Growth
- ------------------------------------------------------------------------------------------------------------------------
PIMCO VARIABLE INSURANCE TRUST
- ------------------------------------------------------------------------------------------------------------------------
PIMCO Low Duration Bond
- ------------------------------------------------------------------------------------------------------------------------
PIMCO Foreign Bond
- ------------------------------------------------------------------------------------------------------------------------
SCUDDER VARIABLE LIFE INVESTMENT FUND
- ------------------------------------------------------------------------------------------------------------------------
International
- ------------------------------------------------------------------------------------------------------------------------
Growth and Income
- ------------------------------------------------------------------------------------------------------------------------
Bond
- ------------------------------------------------------------------------------------------------------------------------
Money Market(1)
- ------------------------------------------------------------------------------------------------------------------------
TEMPLETON VARIABLE PRODUCTS SERIES FUND
- ------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Fund
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
WITH BOTH GUARANTEED MINIMUM DEATH BENEFIT AND GUARANTEED RETIREMENT INCOME BENEFIT
(TOTAL VARIABLE ACCOUNT ANNUAL EXPENSES: 1.65%)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Inception
PORTFOLIO Date(2) 1 Year (%) 5 Year (%) 10 Year (%) Since Inception (%)
- ------------------------------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES
- ------------------------------------------------------------------------------------------------------------------------
Capital Appreciation
- ------------------------------------------------------------------------------------------------------------------------
KEMPER VARIABLE SERIES
- ------------------------------------------------------------------------------------------------------------------------
Kemper High Yield
- ------------------------------------------------------------------------------------------------------------------------
Kemper Government Securities
- ------------------------------------------------------------------------------------------------------------------------
Kemper-Dreman High Return Equity
- ------------------------------------------------------------------------------------------------------------------------
Kemper Small Cap Growth
- ------------------------------------------------------------------------------------------------------------------------
PIMCO VARIABLE INSURANCE TRUST
- ------------------------------------------------------------------------------------------------------------------------
PIMCO Low Duration Bond
- ------------------------------------------------------------------------------------------------------------------------
PIMCO Foreign Bond
- ------------------------------------------------------------------------------------------------------------------------
SCUDDER VARIABLE LIFE INVESTMENT FUND
- ------------------------------------------------------------------------------------------------------------------------
International
- ------------------------------------------------------------------------------------------------------------------------
Growth and Income
- ------------------------------------------------------------------------------------------------------------------------
Bond
- ------------------------------------------------------------------------------------------------------------------------
Money Market(1)
- ------------------------------------------------------------------------------------------------------------------------
TEMPLETON VARIABLE PRODUCTS SERIES FUND
- ------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Fund
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) An investment in the Money Market Portfolio is neither insured nor
guaranteed by the U.S. Government and there can be no assurance that the Money
Market Portfolio will maintain a stable $1.00 share price. Yield more closely
reflects current earnings of the Money Market Portfolio than its total return.
(2) The variable account has not yet commenced operations. Once available,
standardized performance data for the periods after the inception of Contract
sales will reflect the actual performance of the Contracts.
(3) Total return includes changes in share price, reinvestment of dividends, and
capital gains. The performance figures: (1) represent past performance and
neither guarantee nor predict future investment results; (2) assume an initial
hypothetical investment of $1,000 as required by the SEC for the standardized
returns; (3) reflects the deduction of either 1.15% (for the Standard Death
Benefit), 1.40% (for the election of either the Guaranteed Minimum Death
Benefit or the Guaranteed Retirement Income Benefit), or 1.65% (for the
election of both Guaranteed Minimum Death Benefit and the Guaranteed Retirement
Income Benefit) in annual variable account charges and a $30 records
maintenance charge, and (4) the applicable Surrender Charge. The
9
<PAGE> 59
impact of the records maintenance charge on investment returns will vary
depending on the size of the Contract and is reflected as an annual charge of
0.15% of subaccount assets based on an assumed average investment of $20,000 in
the Contract. The investment return and value of a Contract will fluctuate so
that a Contract, when surrendered, may be worth more or less than the amount of
the purchase payments.
(4) Total returns reflect that certain investment advisers waived all or part
of the advisory fee or reimbursed the portfolio for a portion of its expenses.
Otherwise, total returns would have been lower.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
TABLE 2
ADJUSTED HISTORIC PORTFOLIO TOTAL RETURN AS OF DECEMBER 31, 1998(2)
ASSUMING CONTRACT IS NOT SURRENDERED OR ANNUITIZED
AVERAGE ANNUAL TOTAL RETURN(3)
- ------------------------------------------------------------------------------------------------------------------------
WITH STANDARD DEATH BENEFIT
(TOTAL VARIABLE ACCOUNT ANNUAL EXPENSES: 1.15%)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Inception
PORTFOLIO Date(2) 1 Year (%) 5 Year (%) 10 Year (%) Since Inception (%)
- ------------------------------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES
- ------------------------------------------------------------------------------------------------------------------------
Capital Appreciation
- ------------------------------------------------------------------------------------------------------------------------
KEMPER VARIABLE SERIES
- ------------------------------------------------------------------------------------------------------------------------
Kemper High Yield
- ------------------------------------------------------------------------------------------------------------------------
Kemper Government Securities
- ------------------------------------------------------------------------------------------------------------------------
Kemper-Dreman High Return Equity
- ------------------------------------------------------------------------------------------------------------------------
Kemper Small Cap Growth
- ------------------------------------------------------------------------------------------------------------------------
PIMCO VARIABLE INSURANCE TRUST
- ------------------------------------------------------------------------------------------------------------------------
PIMCO Low Duration Bond
- ------------------------------------------------------------------------------------------------------------------------
PIMCO Foreign Bond
- ------------------------------------------------------------------------------------------------------------------------
SCUDDER VARIABLE LIFE INVESTMENT FUND
- ------------------------------------------------------------------------------------------------------------------------
International
- ------------------------------------------------------------------------------------------------------------------------
Growth and Income
- ------------------------------------------------------------------------------------------------------------------------
Bond
- ------------------------------------------------------------------------------------------------------------------------
Money Market(1)
- ------------------------------------------------------------------------------------------------------------------------
TEMPLETON VARIABLE PRODUCTS SERIES FUND
- ------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Fund
- ------------------------------------------------------------------------------------------------------------------------
<CAPTION>
WITH EITHER GUARANTEED MINIMUM DEATH BENEFIT OR GUARANTEED RETIREMENT INCOME BENEFIT
(TOTAL VARIABLE ACCOUNT ANNUAL EXPENSES: 1.40%)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Inception
PORTFOLIO Date(2) 1 Year (%) 5 Year (%) 10 Year (%) Since Inception (%)
- ------------------------------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES
- ------------------------------------------------------------------------------------------------------------------------
Capital Appreciation
- ------------------------------------------------------------------------------------------------------------------------
KEMPER VARIABLE SERIES
- ------------------------------------------------------------------------------------------------------------------------
Kemper High Yield
- ------------------------------------------------------------------------------------------------------------------------
Kemper Government Securities
- ------------------------------------------------------------------------------------------------------------------------
Kemper-Dreman High Return Equity
- ------------------------------------------------------------------------------------------------------------------------
Kemper Small Cap Growth
- ------------------------------------------------------------------------------------------------------------------------
PIMCO VARIABLE INSURANCE TRUST
- ------------------------------------------------------------------------------------------------------------------------
PIMCO Low Duration Bond
- ------------------------------------------------------------------------------------------------------------------------
PIMCO Foreign Bond
- ------------------------------------------------------------------------------------------------------------------------
SCUDDER VARIABLE LIFE INVESTMENT FUND
- ------------------------------------------------------------------------------------------------------------------------
International
- ------------------------------------------------------------------------------------------------------------------------
Growth and Income
- ------------------------------------------------------------------------------------------------------------------------
Bond
- ------------------------------------------------------------------------------------------------------------------------
Money Market(1)
- ------------------------------------------------------------------------------------------------------------------------
TEMPLETON VARIABLE PRODUCTS SERIES FUND
- ------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Fund
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 60
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
WITH BOTH GUARANTEED MINIMUM DEATH BENEFIT AND GUARANTEED RETIREMENT INCOME BENEFIT
(TOTAL VARIABLE ACCOUNT ANNUAL EXPENSES: 1.65%)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Inception
PORTFOLIO Date(2) 1 Year (%) 5 Year (%) 10 Year (%) Since Inception (%)
- ------------------------------------------------------------------------------------------------------------------------
JANUS ASPEN SERIES
- ------------------------------------------------------------------------------------------------------------------------
Capital Appreciation
- ------------------------------------------------------------------------------------------------------------------------
KEMPER VARIABLE SERIES
- ------------------------------------------------------------------------------------------------------------------------
Kemper High Yield
- ------------------------------------------------------------------------------------------------------------------------
Kemper Government Securities
- ------------------------------------------------------------------------------------------------------------------------
Kemper-Dreman High Return Equity
- ------------------------------------------------------------------------------------------------------------------------
Kemper Small Cap Growth
- ------------------------------------------------------------------------------------------------------------------------
PIMCO VARIABLE INSURANCE TRUST
- ------------------------------------------------------------------------------------------------------------------------
PIMCO Low Duration Bond
- ------------------------------------------------------------------------------------------------------------------------
PIMCO Foreign Bond
- ------------------------------------------------------------------------------------------------------------------------
SCUDDER VARIABLE LIFE INVESTMENT FUND
- ------------------------------------------------------------------------------------------------------------------------
International
- ------------------------------------------------------------------------------------------------------------------------
Growth and Income
- ------------------------------------------------------------------------------------------------------------------------
Bond
- ------------------------------------------------------------------------------------------------------------------------
Money Market(1)
- ------------------------------------------------------------------------------------------------------------------------
TEMPLETON VARIABLE PRODUCTS SERIES FUND
- ------------------------------------------------------------------------------------------------------------------------
Templeton Developing Markets Fund
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) An investment in the Money Market Portfolio is neither insured nor
guaranteed by the U.S. Government and there can be no assurance that the Money
Market Portfolio will maintain a stable $1.00 share price. Yield more closely
reflects current earnings of the Money Market Portfolio than its total return.
(2) The variable account has not yet commenced operations. Once available,
standardized performance data for the periods after the inception of Contract
sales will reflect the actual performance of the Contracts.
(3) Total return includes changes in share price, reinvestment of dividends, and
capital gains. The performance figures: (1) represent past performance and
neither guarantee nor predict future investment results; (2) assume an initial
hypothetical investment of $1,000 as required by the SEC for the standardized
returns; and (3) reflects the deduction of either 1.15% (for the Standard
Death), 1.40% for the election of either the Guaranteed Minimum Death Benefit
or the Guaranteed Retirement Income Benefit, or 1.65% (for the election of both
the Guaranteed Minimum Death Benefit and the Guaranteed Retirement Income
Benefit) in annual variable account charges and a $30 records maintenance
charge. The applicable Surrender Charge is not deducted. The impact of the
records maintenance charge on investment returns will vary depending on the
size of the Contract and is reflected as an annual charge of 0.15% of
subaccount assets based on an assumed average investment of $20,000 in the
Contract. The investment return and value of a Contract will fluctuate so that
a Contract, when surrendered, may be worth more or less than the amount of the
purchase payments.
(4) Total returns reflect that certain investment advisers waived all or part of
the advisory fee or reimbursed the portfolio for a portion of its expenses.
Otherwise, total returns would have been lower.
NET INVESTMENT FACTOR
The net investment factor is an index that measures the investment
performance of a subaccount from one valuation day to the next. Each subaccount
has its own net investment factor, which may be greater or less than one. The
net investment factor for each subaccount equals the fraction obtained by
dividing (X) by (Y) minus (Z) where:
(X) is the net result of:
1. the net asset value per portfolio share held in the
subaccount at the end of the current valuation day;
plus
2. the per share amount of any dividend or capital gain
distribution on portfolio shares held in the
subaccount during the current valuation day; less
11
<PAGE> 61
3. the per share amount of any capital loss, realized
or unrealized, on portfolio shares held in the
subaccount during the current valuation day.
(Y) equals the net asset value per portfolio share held in the
subaccount as of the end of the immediately
preceding valuation day.
(Z) equals charges and fees deducted from the subaccount. These
consist of:
1. the amount charged for mortality and expense risk on
that valuation day;
2. the amount charged for administrative costs on that
valuation day; and
3. the amount charged for any other charges, fees and
expenses for riders, endorsements, or supplemental
benefits attached to your Contract, including the
Guaranteed Minimum Death Benefit Rider and the
Guaranteed Retirement Income Benefit Rider.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
In the event of any such substitution or change, we may (by
appropriate endorsement, if necessary) change the Contract to reflect the
substitution or change. If we consider it to be in the best interest of Owners
and Annuitants, and subject to any approvals that may be required under
applicable law, the variable account may be operated as a management investment
company under the 1940 Act, it may be deregistered under that Act if
registration is no longer required, it may be combined with other of our
variable accounts, or the assets may be transferred to another variable
account. In addition, we may, when permitted by law, restrict or eliminate any
voting rights you have under the Contracts.
RESOLVING MATERIAL CONFLICTS
The funds currently sell shares to registered separate accounts of
insurance companies other than us to support other variable annuity contracts
and variable life insurance contracts. In addition, our other separate accounts
and separate accounts of other affiliated life insurance companies may purchase
some of the funds to support other variable annuity or variable life insurance
contracts. Moreover, qualified retirement plans may purchase shares of some of
the funds. As a result, there is a possibility that an irreconcilable material
conflict may arise between your interests as a Contract owner and the interests
of persons owning other contracts investing in the same funds. There is
also the possibility that a material conflict may arise between the interests of
Owners generally, or certain classes of Owners, and participating qualified
retirement plans or participants in such retirement plans.
We currently do not foresee any disadvantages to you that would arise
from the sale of fund shares to support variable life insurance contracts or
variable annuity contracts of other companies or to qualified retirement plans.
However, the management of each fund will monitor events related to its fund in
order to identify any material irreconcilable conflicts that might possibly
arise as a result of such fund offering its shares to support both variable
life insurance contracts and variable annuity contracts, or support the
variable life insurance contracts and/or variable annuity contracts issued by
various affiliated and unaffiliated insurance companies.
In addition, the management of the funds will monitor the funds in
order to identify any material irreconcilable conflicts that might possibly
arise as a result of the sale of its shares to qualified retirement plans, if
applicable. In the event of such a conflict, the management of the appropriate
fund would
12
<PAGE> 62
determine what action, if any, should be taken in response to the conflict. In
addition, if we believe that the response of the funds to any such conflict
does not sufficiently protect you, then we will take our own appropriate
action, including withdrawing the variable account's investment in such funds,
as appropriate.
VOTING RIGHTS
We determine the number of votes you may cast by dividing your
Contract Value in a subaccount by the net asset value per share of the
portfolio in which that subaccount invests. We determine the number of votes
available to you as of the same date that the fund establishes for determining
shareholders eligible to vote at the relevant meeting of the portfolio's
shareholders. We will solicit voting instructions by sending you written
materials before the fund's meeting in accordance with the fund's procedures.
SAFEKEEPING OF VARIABLE ACCOUNT ASSETS
We hold the title to the assets of the variable account. The assets
are kept physically segregated and held separate and apart from our general
account assets and from the assets in any other separate account. We maintain
records of all purchases and redemptions of portfolio shares held by each of
the subaccounts. Additional protection for the assets of the variable account
is provided by a blanket fidelity bond issued by Federal Insurance Company to
Farmers Group, Inc., providing aggregate coverage of $30,000,000 (subject to a
$500,000 deductible) for all officers and employees of Farmers Group, Inc.
DISTRIBUTION OF THE CONTRACTS
Investors Brokerage Services, Inc. ("IBS"), 1 Kemper Drive, Long
Grove, IL 60049-0001, acts as principal underwriter for the Contracts. IBS is
registered with the SEC under the Securities Exchange Act of 1934 as a
broker-dealer and is a member of the National Association of Securities
Dealers, Inc.
We offer the Contracts to the public on a continuous basis. We
anticipate continuing to offer the Contracts, but we reserve the right to
discontinue the offering. Agents who sell the Contracts are licensed by
applicable state insurance authorities to sell the Contracts and are registered
representatives of IBS or broker-dealers having selling agreements with IBS or
broker-dealers having selling agreements with such broker-dealers.
We may pay sales commissions to broker-dealers up to an amount equal
to 7% of the Premiums paid under a Contract. We expect the broker-dealers to
compensate sales representatives in varying amounts from these commissions. We
may pay other distribution expenses such as production incentive bonuses, an
agent's insurance and pension benefits, and agency expense allowances. These
distribution expenses do not result in any additional charges against the
Contracts other than those described in the prospectus under "Fees and
Charges."
13
<PAGE> 63
LEGAL MATTERS
M. Douglas Close, Vice President and General Counsel, Farmers New
World Life Insurance Company, has passed upon all matters relating to
Washington law pertaining to the Contracts, including the validity of the
Contracts and the Company's authority to issue the Contracts. Sutherland Asbill
& Brennan LLP of Washington, D.C. has provided advice on certain matters
relating to the federal securities laws.
EXPERTS
Deloitte & Touche LLP, 1700 Fifth Avenue, Suite 4500, Seattle,
Washington 98104-5044, independent auditors, have audited the balance sheets of
Farmers New World Life Insurance Company as of December 31, 1998 and 1997 and
the related statements of income, comprehensive income, stockholder's equity
and cash flows for each of the three years in the period ended December 31,
1998, appearing in this Statement of Additional Information and Registration
Statement. These are set forth in their reports thereon appearing elsewhere
herein, and are included in reliance upon such reports given upon the authority
of such firm as experts in accounting and auditing. There are no financial
statements available for the Variable Account, because the Variable Account has
not commenced operations as of the date of this prospectus.
OTHER INFORMATION
We have filed a registration statement with the SEC under the
Securities Act of 1933, as amended, with respect to the Contracts discussed in
this Statement of Additional Information. The Statement of Additional
Information does not include all of the information set forth in the
registration statement, amendments and exhibits. Statements contained in this
Statement of Additional Information concerning the content of the Contracts and
other legal instruments are intended to be summaries. For a complete statement
of the terms of these documents, you should refer to the instruments filed with
the SEC.
FINANCIAL STATEMENTS
14
<PAGE> 64
FARMERS NEW WORLD LIFE
INSURANCE COMPANY
(a wholly owned subsidiary of Farmers Group, Inc.)
- -------------------------------------------------------------------------------
FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 1998, 1997, 1996 AND
INDEPENDENT AUDITORS' REPORT
<PAGE> 65
INDEPENDENT AUDITORS' REPORT
Board of Directors Farmers New World Life Insurance Company Mercer Island,
Washington
We have audited the accompanying balance sheets of Farmers New World Life
Insurance Company (a wholly owned subsidiary of Farmers Group, Inc.) (the
Company) as of December 31, 1998 and 1997, and the related statements of
income, comprehensive income, stockholder's equity, and cash flows for each of
the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of Farmers New World Life Insurance Company at
December 31, 1998 and 1997, and the results of its operations, and its cash
flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
February 3, 1999
Seattle, Washington
<PAGE> 66
FARMERS NEW WORLD LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Farmers Group, Inc.)
BALANCE SHEETS (in thousands)
DECEMBER 31, 1998 AND 1997
================================================================================
<TABLE>
<CAPTION>
ASSETS 1998 1997
- ------ ---- ----
<S> <C> <C>
INVESTMENTS (Notes 2 and 3):
Fixed maturities available-for-sale:
Bonds, at fair value (cost: $3,510,846 and $3,298,645) $3,674,223 $3,444,333
Redeemable preferred stocks, at fair value
(cost: $82,090 and $109,781) 86,662 110,815
Equity securities available-for-sale:
Non-redeemable preferred stocks, at fair value
(cost: $1,153 and $1,153) 1,270 1,227
Common stocks, at fair value (cost: $41 and $-0-) 3 120
Mortgage loans on real estate, net of allowance for losses 52,879 89,903
Investment real estate, net of accumulated depreciation
and allowance for losses (Note 1) 59,047 67,214
Surplus note of the Exchanges (Note 4) 119,000 0
Policy loans 185,211 165,894
Joint ventures 8,456 11,566
S&P 500 call options, at fair value (cost: $11,305 and $3,450) 14,817 3,299
---------- ----------
Total investments 4,201,568 3,894,371
CASH AND CASH EQUIVALENTS 63,784 9,980
ACCRUED INVESTMENT INCOME 53,263 51,971
OTHER RECEIVABLES 17,558 18,937
INCOME TAXES RECOVERABLE 0 23,366
DEFERRED POLICY ACQUISITION COSTS (Note 1) 467,248 439,579
VALUE OF BUSINESS ACQUIRED (Notes 1 & 5) 334,442 359,146
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $7,411 and $6,824 14,379 14,401
OTHER ASSETS:
Securities lending collateral (Note 6) 461,801 544,580
Other assets 2,298 2,380
---------- ----------
464,099 546,960
---------- ----------
TOTAL $5,616,341 $5,358,711
========== ==========
</TABLE>
<PAGE> 67
================================================================================
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY 1998 1997
- ------------------------------------ ---- ----
<S> <C> <C>
POLICY LIABILITIES AND ACCRUALS:
Future policy benefits $3,184,248 $3,010,162
Policy claims (Note 7) 26,177 22,156
---------- ----------
3,210,425 3,032,318
OTHER POLICYHOLDER FUNDS & DIVIDENDS 57,358 60,072
ACCRUED EXPENSES AND OTHER LIABILITIES:
Securities lending liability (Note 6) 461,801 544,580
Death benefit liability 37,024 29,087
Other liabilities 63,736 60,047
---------- ----------
562,561 633,714
INCOME TAXES (Note 8):
Current 4,180 0
Deferred 161,184 153,006
---------- ----------
165,364 153,006
---------- ----------
Total liabilities 3,995,708 3,879,110
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDER'S EQUITY:
Common stock, $1 par value - Authorized, 25,000,000 shares;
issued and outstanding, 6,600,000 shares 6,600 6,600
Additional paid-in capital 994,246 994,246
Accumulated other comprehensive income, net of deferred
taxes of $41,518 and $35,902 77,105 66,675
Retained earnings (Note 10) 542,682 412,080
---------- ----------
Total stockholder's equity 1,620,633 1,479,601
---------- ----------
TOTAL $5,616,341 $5,358,711
========== ==========
</TABLE>
- --------------------------------------------------------------------------------
See notes to financials statements. 2
<PAGE> 68
FARMERS NEW WORLD LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Farmers Group, Inc.)
STATEMENTS OF INCOME (in thousands)
YEARS ENDED DECEMBER 31, 1998, 1997 and 1996
================================================================================
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Net premiums earned (Note 11) $173,229 $151,134 $136,142
Universal life and annuity policy charges 206,393 200,857 188,355
Net investment income (Note 2) 293,770 275,760 257,852
Net realized investment gains (losses) (Note 2) (13,473) 10,063 30,182
Other income 707 784 764
-------- -------- --------
Total revenues 660,626 638,598 613,295
BENEFITS AND EXPENSES:
Death and other benefits (Note 7) 133,984 112,370 110,853
Future policy benefits 23,711 15,713 11,383
Interest credited to policyholders 150,618 146,376 138,033
Underwriting, acquisition and insurance expenses:
Amortization of deferred policy acquisition costs 68,997 70,855 62,178
Amortization of value of business acquired 23,897 21,305 20,411
Commissions 18,972 17,344 18,317
General insurance expenses and taxes 38,659 42,986 38,699
-------- -------- --------
Total benefits and expenses 458,838 426,949 399,874
-------- -------- --------
Income before provision for income taxes 201,788 211,649 213,421
-------- -------- --------
PROVISION (BENEFIT) FOR INCOME TAXES (Note 8):
Current 70,690 80,889 82,556
Deferred 496 (7,027) (11,417)
-------- -------- --------
Total provision for income taxes 71,186 73,862 71,139
-------- -------- --------
NET INCOME $130,602 $137,787 $142,282
======== ======== ========
</TABLE>
See notes to financials statements. 3
<PAGE> 69
FARMERS NEW WORLD LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Farmers Group, Inc.)
STATEMENTS OF COMPREHENSIVE INCOME (in thousands)
YEARS ENDED DECEMBER 31, 1998, 1997 and 1996
================================================================================
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
NET INCOME $130,602 $137,787 $142,282
-------- -------- --------
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized holding gains (losses) on securities:
Unrealized holding gains (losses) on securities,
net of tax of $(7,921) 14,711
Less: reclassification adjustment for gains
included in net income, net of tax of $(357) (662)
-------- -------- --------
Net unrealized holding gains on securities, net of tax of
$7,565, $28,968, and $13,218 14,049 53,797 24,547
Change in effect of unrealized gains (losses) on other
insurance accounts, net of tax of $(1,949), $(7,387), and $3,664 (3,619) (13,718) 6,805
-------- -------- --------
COMPREHENSIVE INCOME $141,032 $177,866 $173,634
======== ======== ========
</TABLE>
See notes to financials statements. 4
<PAGE> 70
FARMERS NEW WORLD LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Farmers Group, Inc.)
STATEMENTS OF STOCKHOLDER'S EQUITY (in thousands)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
================================================================================
<TABLE>
<CAPTION>
Accumulated
Additional other Total stock-
Common paid-in comprehensive Retained holder's
stock capital income earnings equity
------ ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 $6,600 $994,246 $(4,756) $ 506,927 $1,503,017
Dividend in-kind to stockholder $(374,916) (374,916)
Net income 142,282 142,282
Change in other comprehensive
income, net of tax of $16,882 31,352 31,352
------ -------- ------- --------- ----------
BALANCE, December 31, 1996 6,600 994,246 26,596 274,293 1,301,735
Net income 137,787 137,787
Change in other comprehensive
income, net of tax of $21,581 40,079 40,079
------ -------- ------- --------- ----------
BALANCE, December 31, 1997 6,600 994,246 66,675 412,080 1,479,601
Net income 130,602 130,602
Unrealized gains on available for
sale investments arising during
the period, net of tax of $7,921 14,711 14,711
Reclassification adjustment for
gains included in net income,
net of tax of $(357) (662) (662)
Change in effect of unrealized
losses on other insurance
accounts, net of tax of $(1,949) (3,619) (3,619)
------ -------- ------- --------- ----------
BALANCE, December 31, 1998 $6,600 $994,246 $77,105 $ 542,682 $1,620,633
====== ======== ======= ========= ==========
</TABLE>
See notes to financials statements. 5
<PAGE> 71
FARMERS NEW WORLD LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Farmers Group, Inc.)
STATEMENTS OF CASH FLOWS (in thousands)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 130,602 $ 137,787 $ 142,282
Adjustments to reconcile net income to net cash provided by
operating activities:
Universal life type contracts:
Deposits received 299,007 295,747 288,745
Withdrawals (241,765) (232,728) (210,182)
Interest credited 67,585 62,247 56,216
Realized investment losses (gains) 13,473 (10,063) (30,182)
Amortization of deferred policy acquisition costs and VOBA 92,894 92,160 82,589
Deferred income tax expense (benefit) 496 (7,027) (11,417)
Depreciation 2,544 2,462 1,970
Cash provided (used) by changes in operating assets and liabilities:
Federal income taxes payable 4,180 (22,822) 21,016
Deferred policy acquisition costs (93,047) (70,913) (112,362)
Life insurance policy liabilities 27,802 14,588 13,521
Other policyholder funds (2,714) (2,894) (3,097)
Other 31,758 (37,212) (262)
--------- --------- ---------
Net cash provided by operating activities 332,815 221,332 238,837
INVESTING ACTIVITIES:
Purchase of bonds and stocks available-for-sale (660,918) (735,325) (948,418)
Proceeds from sales or maturities of bonds and stocks available-for-sale 458,364 450,760 549,600
Purchase of mortgage loans 0 (32,623) 0
Mortgage loan collections 36,839 30,448 18,287
Purchase of investment real estate (908) (23,568) (168)
Proceeds from sale of investments in real estate 8,557 2,327 5,349
Increase in policy loans (19,317) (17,836) (18,592)
Purchase of property and equipment (572) (1,685) (72)
Purchase of surplus note of the Exchanges (119,000) 0 0
Other (7,535) (10,782) 139
--------- --------- ---------
Net cash used by investing activities (304,490) (338,284) (393,875)
FINANCING ACTIVITIES:
Annuity contracts:
Deposits received 144,793 131,651 141,046
Withdrawals (202,244) (161,150) (121,836)
Interest credited 82,930 80,280 78,177
--------- --------- ---------
Net cash provided by financing activities 25,479 50,781 97,387
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS,
carried forward 53,804 (66,171) (57,651)
</TABLE>
See notes to financials statements. 6
<PAGE> 72
FARMERS NEW WORLD LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Farmers Group, Inc.)
STATEMENTS OF CASH FLOWS (in thousands) (continued)
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
================================================================================
<TABLE>
<CAPTION>
1998 1997 1996
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS, ---- ---- ----
<S> <C> <C> <C>
brought forward $53,804 $(66,171) $(57,651)
CASH AND CASH EQUIVALENTS:
Beginning of year 9,980 76,151 133,802
------- -------- ---------
End of year $63,784 $ 9,980 $ 76,151
======= ======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during year for:
Income taxes $41,250 $122,787 $ 83,538
Interest paid 945 0 1,777
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Dividend in-kind to stockholder 0 0 374,916
</TABLE>
See notes to financial statements. 7
<PAGE> 73
FARMERS NEW WORLD LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Farmers Group, Inc.)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998, 1997, and 1996
================================================================================
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY: The accompanying financial statements include the accounts of
Farmers New World Life Insurance Company ("the Company"), a wholly owned
subsidiary of Farmers Group, Inc. ("FGI") whose ultimate parent is Zurich
Financial Services Group. FGI, a management services insurance holding
company, is attorney in fact for three inter-insurance exchanges and their
subsidiaries ("the Exchanges") and owns a reinsurance company Farmers Re.
In December 1988, BATUS Inc. ("BATUS"), a subsidiary of B.A.T Industries
p.l.c. ("B.A.T"), acquired 100% ownership of FGI and its subsidiaries for
$5,212,619,000 in cash, including related expenses, through its wholly
owned subsidiary BATUS Financial Services. Immediately thereafter, BATUS
Financial Services was merged into FGI. The acquisition was accounted for
as a purchase and, accordingly, the acquired assets and liabilities were
recorded in the Company's balance sheet based on their estimated fair
values at December 31, 1988.
At the time of purchase, a portion of the purchase price, $530,076,000,
was assigned to the Company's "Value of Business Acquired" ("VOBA"), which
represented an actuarial determination of the expected profits from the
business in force at the date of B.A.T's acquisition of FGI. The amount so
assigned is being amortized over its actuarially determined useful life
with the unamortized amount included in "Value of Business Acquired" in
the accompanying balance sheets.
On December 22, 1997, a definitive agreement was reached to merge B.A.T's
Financial Services Businesses, which included FGI and its subsidiaries,
with Zurich Insurance Company ("Zurich"). In June 1998, the merger was
approved by the shareholders of B.A.T and Zurich. In September 1998, this
merger was completed and the businesses of Zurich and B.A.T's Financial
Services Businesses were transferred to Zurich Financial Services ("ZFS"),
a new Swiss company with headquarters in Zurich. This merger was accounted
for by ZFS as a pooling of interests and, therefore, no purchase
accounting adjustments were made to FGI's assets and liabilities.
NATURE OF OPERATIONS: The Company concentrates its activities in the
individual life insurance and annuity markets. Principal lines of business
include traditional and universal whole life products as well as term life
insurance. Additionally, the Company issues flexible and single premium
deferred annuities, single premium immediate annuities and equity indexed
annuities.
The Company and the Exchanges operate using common trade names and logos,
including Farmers Insurance Group of Companies(R), Farmers Insurance
Group(R) and Farmers(R). In addition, the Company and the Exchanges
distribute their respective insurance products through a common network of
direct writing agents and district managers. As of December 31, 1998, this
network consisted of 14,743 direct writing agents and 499 district
managers, each of whom is an independent contractor. The size, efficiency
and scope of this agency force have made it a major factor in the
Exchanges' and the Company's growth. Each agent is required to first submit
business to the insurers in the Farmers Insurance Group of Companies within
the classes and lines of business written by such insurers. To the extent
that such insurers decline such business or do not underwrite it, the
agents may offer business to other insurers.
8
<PAGE> 74
The Company is currently licensed in 37 states, primarily in the western,
midwestern, and southwestern regions of the United States.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS: The
preparation of financial statements in conformity with generally accepted
accounting principles 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.
REVENUE RECOGNITION: Premiums for traditional life and accident and health
insurance products are recognized as revenues when due from policyholders.
Policy withdrawal, maintenance, and other charges are recognized as income
when earned.
Revenues associated with universal life products consist of policy charges
for the cost of insurance, policy administration fees, surrender charges,
and investment income on assets allocated to support policyholder account
balances on deposit. Revenues for deferred annuity products consist of
surrender charges, investment income on assets allocated to support
policyholder account balances on deposit and administrative charges for
equity-indexed annuities. Consideration received for interest-sensitive
insurance and annuity products is recorded as a liability when received.
INVESTMENTS: The Company has classified all investments in fixed
maturities and equity securities as available-for-sale and reports them on
the balance sheet at fair value with unrealized gains and losses, net of
tax, excluded from earnings and reported as a component of stockholder's
equity in accordance with the application of Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments
in Debt and Equity Securities". As of December 31, 1998 and 1997, there
were no securities designated as held-to-maturity or trading.
Realized gains (losses) on sales, redemptions and write-downs of
investments are determined based on the net book value of individual
investments.
Investment real estate consists of properties purchased for investment and
properties acquired through foreclosure, and is carried at the lower of
cost less accumulated depreciation of $28,366,000 in 1998 and $27,714,000
in 1997, or market. Depreciation is provided on a straight-line basis over
45 years, the estimated life of the properties.
The Company follows the provisions of SFAS No. 118 (amending SFAS No.
114), "Accounting by Creditors for Impairment of a Loan", which requires
that impaired loans be measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate or, as
a practical expedient, at the loan's observable market price or the fair
value of the collateral, if the loan is collateral dependent. No material
amounts were recognized in the periods presented.
DEFERRED POLICY ACQUISITION COSTS: The costs of acquiring new traditional
life business, principally first year commissions and other expenses for
policy underwriting and issuance (which are primarily related to and vary
with the production of new business), are deferred and amortized
proportionately over the estimated period during which the related
premiums will be recognized as income, based on the same assumptions that
are used for computing the liabilities for future policy benefits.
9
<PAGE> 75
Policy acquisition costs for universal life and deferred annuity products
are deferred and amortized in relation to the present value of expected
gross profits on the policies. Deferred Policy Acquisition Costs ("DAC")
include amounts associated with the unrealized gains and losses recorded
as a component of stockholder's equity. Accordingly, DAC is increased or
decreased for the impact of estimated future gross profits as if net
unrealized gains or losses on securities had been realized at the balance
sheet date. Net unrealized gains or losses on securities within
stockholder's equity also reflect this impact.
VALUE OF BUSINESS ACQUIRED: The present value of the business acquired in
the 1998 merger with B.A.T is being amortized as the life insurance
business in-force at the time of the merger declines.
PROPERTY AND EQUIPMENT: Depreciation of property and equipment has been
provided using the straight-line method with estimated useful lives of
ten to 45 years for buildings and improvements and five years for
furniture and equipment.
LONG-LIVED ASSETS: In accordance with SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of", long-lived assets and certain identifiable intangibles to be held and
used are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. No such impairments have occurred.
POLICY LIABILITIES AND ACCRUALS: Liabilities for future policy benefits
for traditional life policies are computed principally on a net level
premium method reflecting estimated future investment yields, mortality,
morbidity, and withdrawals. Interest rate assumptions range from 2.25% to
9.00% depending upon the year of issue. Mortality is calculated
principally on select and ultimate tables in common usage in the industry,
modified for Company experience, and withdrawals are estimated based
primarily on experience.
Liabilities for future policy benefits on universal life and deferred
annuity products are determined under the retrospective deposit method and
consist principally of policy values before any surrender charges.
Unpaid policy claims include claims in course of settlement and a
provision for claims incurred but not reported, based on past experience.
LIFE SALES MANAGEMENT SERVICES: Fees charged to the Company by FGI for
sales and marketing services were $21,187,000 in 1998, $20,862,000 in
1997, and $20,885,000 in 1996, and are accounted for as deferred policy
acquisition costs except for advertising expenses, which are expensed as
incurred, of $1,336,000, $1,590,000, and $1,512,000, in 1998, 1997, and
1996, respectively.
STATEMENT OF CASH FLOWS: For purposes of reporting cash flows, the
Company considers short-term investments purchased with an initial
maturity of three months or less to be cash equivalents.
ACCOUNTING PRONOUNCEMENTS: In March 1998, The American Institute of
Certified Public Accountants ("AICPA") issued Statement of Position
("SOP") No. 98-1, "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use". This SOP, effective for financial
statements issued for periods beginning after December 15, 1998, applies
to all nongovernmental entities and establishes the rules for capitalizing
or expensing internally developed software.
10
<PAGE> 76
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income". This Statement, effective for fiscal periods beginning after
December 15, 1997 established standards for reporting and displaying
comprehensive income and its components. This Statement mandated that all
items that are required to be recognized under accounting standards, as
components of comprehensive income be reported in a financial statement
with the same prominence as other financial statements. As a result of
adopting this Statement, the components of comprehensive income are now
stated in the statements of comprehensive income.
In 1998, the FASB released SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This Statement, effective for
financial statements of public and nonpublic entities issued for fiscal
year beginning after June 15, 1999 and deferred until June 15, 2000 by
SFAS No. 137, "Deferral of Effective Date of FASB Statement No. 133",
establishes accounting and reporting standards for derivative instruments
(including certain derivative instruments embedded in other contracts) and
for hedging activities. SFAS No. 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at market value. The Company does
not expect the adoption of this Statement to have a material impact on its
financial statements.
NOTE 2: INVESTMENTS
INVESTMENT INCOME: The sources of investment income for the years ended
December 31 are (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Bonds $257,422 $236,405 $212,944
Common and preferred stocks 8,123 11,747 20,874
Other 41,883 40,370 33,990
-------- -------- --------
Gross investment income 307,428 288,522 267,808
Less investment expenses 13,658 12,762 9,956
-------- -------- --------
Net investment income $293,770 $275,760 $257,852
======== ======== ========
</TABLE>
The Company's investment expenses included approximately $1,143,000, $2,063,000
and $1,931,000 in 1998, 1997, and 1996, respectively, that were paid to its
parent company, FGI.
In June 1998, the Company's investment management was transferred to Scudder
Kemper Investments, Inc. ("SKI"), an indirect subsidiary of Zurich Financial
Services. In 1998, approximately $704,000 of the Company's investment expenses
were paid to SKI.
11
<PAGE> 77
REALIZED GAINS (LOSSES): Realized investment gains (losses) for the years
ended December 31 are (in thousands):
<TABLE>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Bonds $(15,126) $ 8,613 $ (660)
Redeemable preferred stocks 25 1,304 1,674
Non-redeemable preferred stocks 0 71 (3,063)
Common stocks 117 61 32,373
Investment real estate 1,393 3 1,008
Other 118 11 (1,150)
--------- ------- -------
$(13,473) $10,063 $30,182
========= ======= =======
</TABLE>
Properties acquired through foreclosure were $25,677,000 and $28,050,000 at
December 31, 1998 and 1997. During 1998, the Company recorded $768,000 in
realized gains and $587,000 in realized losses on the sale of real estate
acquired through foreclosure. During 1997, the Company recorded no gain or loss
on the sale of real estate acquired through foreclosure. In 1996, the Company
recorded a loss of $179,000 and a gain of $1,000,000 on the sale of real estate
acquired through foreclosure. The Company maintained an allowance for losses of
$3,263,000 and $4,295,000 at December 31, 1998 and 1997, respectively.
UNREALIZED GAINS (LOSSES) ON EQUITY SECURITIES: Gross unrealized gains
(losses), pertaining to non-redeemable preferred stocks and common stocks
stated at fair value as of December 31 are (in thousands):
<TABLE>
<CAPTION>
Gains Losses Net
<S> <C> <C> <C>
1998:
Non-redeemable preferred stocks $165 $(48) $117
Common stocks 0 (38) (38)
---- ---- ----
$165 $(86) 79
==== ====
Less deferred federal income taxes (28)
----
$ 51
====
1997:
Non-redeemable preferred stocks $111 $(37) $ 74
Common stocks 120 0 120
---- ---- ----
$231 $(37) 194
==== ====
Less deferred federal income taxes (68)
----
$126
====
</TABLE>
12
<PAGE> 78
UNREALIZED GAINS (LOSSES) ON FIXED MATURITIES: Amortized cost, gross unrealized
gains, gross unrealized losses, and estimated fair values of fixed maturities as
of December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
---- ----- ------ -----
<S> <C> <C> <C> <C>
1998:
Fixed maturities available-for-sale:
U.S. Treasury securities and
obligations of U.S.
Government corporations
and agencies $ 408,742 $ 42,515 $ (124) $ 451,133
Obligations of states and
political subdivisions 334,242 25,784 (5) 360,021
Debt securities issued by foreign
governments 88,672 2,410 (15,032) 76,050
Corporate securities 914,465 58,161 (5,938) 966,688
Mortgage-backed securities 1,764,725 65,546 (9,940) 1,820,331
---------- -------- --------- ----------
3,510,846 194,416 (31,039) 3,674,223
Redeemable preferred stock 82,090 4,747 (175) 86,662
---------- -------- --------- ----------
$3,592,936 $199,163 $(31,214) $3,760,885
========== ======== ========= ==========
1997:
Fixed maturities available-for-sale:
U.S. Treasury securities and
obligations of U.S.
Government corporations
and agencies $ 393,538 $ 24,174 $ (104) $ 417,608
Obligations of states and
political subdivisions 270,502 13,346 (58) 283,790
Debt securities issued by foreign
governments 136,127 15,686 (5,113) 146,700
Corporate securities 842,838 48,429 (1,578) 889,689
Mortgage-backed securities 1,655,640 56,282 (5,376) 1,706,546
---------- -------- --------- ----------
3,298,645 157,917 (12,229) 3,444,333
Redeemable preferred stock 109,781 3,589 (2,555) 110,815
---------- -------- --------- ----------
$3,408,426 $161,506 $(14,784) $3,555,148
========== ======== ========= ==========
</TABLE>
13
<PAGE> 79
MATURITIES OF FIXED MATURITIES: The amortized cost and estimated fair
value of fixed maturities classified as available-for-sale by contractual
maturity at December 31 are shown below (in thousands). Expected
maturities may 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 fair
cost value
---- -----
<S> <C> <C>
1998:
Fixed maturities available-for-sale:
Due in one year or less $ 23,445 $ 23,813
Due after one year through five years 502,229 516,838
Due after five years through ten years 540,794 569,572
Due after ten years 679,653 743,669
---------- ----------
1,746,121 1,853,892
Mortgage-backed securities 1,764,725 1,820,331
Preferred stock with characteristics of debt securities 82,090 86,662
---------- ----------
$3,592,936 $3,760,885
========== ==========
</TABLE>
In determining estimated fair value, management obtains quotations from
independent sources who make markets in similar securities, generally
broker/dealers. Unless representative trades of securities actually
occurred at December 31, 1998, these quotes are generally estimates of
market value based on an evaluation of appropriate factors such as trading
in similar securities, yields, credit quality, coupon rate, maturity, type
of issue, and other market data.
SALE AND IMPAIRMENT OF DEBT SECURITIES: The gross gains (losses) and
proceeds from sales and writedowns of debt securities are as follows (in
thousands):
<TABLE>
<CAPTION>
Gross Gross Write-
gains losses Proceeds downs
----- ------ -------- ------
<S> <C> <C> <C> <C>
1998 $11,742 $ (468) $ 458,247 $(26,356)
1997 12,111 (2,194) 446,202 0
1996 10,891 (7,377) 376,989 (2,500)
</TABLE>
14
<PAGE> 80
NOTE 3: FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments disclosed have been
determined using available market information and appropriate valuation
methodologies. However, considerable judgment is required to interpret market
data to develop the estimates of fair value. Accordingly, the estimates
presented may not be indicative of the amounts the Company could realize in a
current market exchange. The use of different market assumptions and/or
estimation methodologies could have a significant effect on the estimated fair
value amounts. The carrying value and estimated fair value of assets and
liabilities as of December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
Estimated
Carrying fair
1998: value value
----- -----
<S> <C> <C>
Assets:
Cash and cash equivalents $ 63,784 $ 63,784
Fixed maturities available-for-sale 3,760,885 3,760,885
Non-redeemable preferred stock available-for-sale 1,270 1,270
Common stock available-for-sale 3 3
Mortgage loans 52,879 67,615
Surplus note of the Exchanges 119,000 119,000
Policy loans 185,211 192,620
Joint ventures 8,456 6,668
S&P call options 14,817 14,817
Liabilities:
Future Policy Benefits-deferred annuities 1,492,032 1,433,494
1997:
Assets:
Cash and cash equivalents $ 9,980 $ 9,980
Fixed maturities available-for-sale 3,555,148 3,555,148
Non-redeemable preferred stock available-for-sale 1,227 1,227
Common stock available-for-sale 120 120
Mortgage loans 89,903 105,235
Policy loans 165,894 172,115
Joint ventures 11,566 10,037
S&P call options 3,299 3,299
Liabilities:
Future Policy Benefits-deferred annuities 1,473,578 1,403,455
</TABLE>
The following methods and assumptions were used to estimate the fair value of
financial instruments as of December 31, 1998 and 1997:
CASH AND CASH EQUIVALENTS: The carrying amounts of these items are a
reasonable estimate of their fair value.
FIXED MATURITIES, REDEEMABLE AND NON-REDEEMABLE PREFERRED STOCK, AND
COMMON STOCK: The estimated fair values of bonds, redeemable and
non-redeemable preferred stock and common stock are based upon quoted
market prices, dealer quotes, and prices obtained from independent pricing
services.
15
<PAGE> 81
MORTGAGE LOANS: The estimated fair value of the mortgage loan portfolio is
determined by discounting the estimated future cash flows, using a
year-end market rate which is applicable to the yield, credit quality and
average maturity of the composite portfolio.
POLICY LOANS: The estimated fair value of policy loans is determined by
discounting future cash flows using the current rates at which similar
loans would be made.
SURPLUS NOTE OF THE EXCHANGES: The carrying amount of this item is a
reasonable estimate of its fair market value.
JOINT VENTURES: The estimated fair value of the joint ventures is based on
quoted market prices, current appraisals, and independent pricing
services.
S&P 500 CALL OPTIONS: S&P 500 call options are purchased as hedges against
the interest liabilities generated on the equity-indexed annuity products.
These call options are carried at an estimated fair value based on stock
price, strike price, time to expiration, interest rates, dividends, and
volatility per the methodology of the Black-Scholes Option Pricing
Formula.
FUTURE POLICY BENEFITS-DEFERRED ANNUITIES: The estimated fair values are
based on the currently available cash surrender value, similar to the
demand deposit liabilities of depository institutions.
NOTE 4: SURPLUS NOTE
In September 1998, the Company purchased a $119,000,000 surplus note of the
Exchanges which bears interest at 6.10% annually and is payable in full no
later than October 2001. Conditions governing repayment of the amount are
outlined in the surplus note. Generally, repayment may be made only when the
surplus balance of the issuer reaches a specified level, and then, only after
approval is granted by the issuer's governing Board and the appropriate
Department of Insurance.
The Company recognized interest income of $2,279,000 on this note during 1998.
NOTE 5: VALUE OF BUSINESS ACQUIRED
The changes in VOBA were as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $ 359,146 $ 383,951 $408,362
Amortization related to operations (53,598) (56,371) (57,156)
Interest accrued 29,701 35,066 36,745
Amortization related to net unrealized losses (807) (3,500) (4,000)
--------- ---------- --------
Balance, end of year $ 334,442 $ 359,146 $383,951
========= ========= ========
</TABLE>
Based on current conditions and assumptions as to future events, the Company
expects to amortize the December 31, 1998 balance as follows: approximately
3.5% in 1999, 3.7% in 2000, 3.9% in 2001, 4.2% in 2002 and 4.3% in 2003. The
discount rate used to determine the amortization rate of the VOBA ranged from
12.5% to 7.5%.
16
<PAGE> 82
NOTE 6: SECURITY LENDING ARRANGEMENT
The Company has entered into a security lending agreement with a financial
institution. The agreement authorizes the institution to lend securities held
in the Company's portfolio to a list of authorized borrowers. Concurrent with
delivery of the securities, the borrower provides the Company with cash
collateral equal to at least 102% of the market value of domestic securities
and 105% of the market value of international securities subject to the loan.
The securities are marked-to-market on a daily basis and the collateral is
adjusted on the next business day. The collateral is invested in highly liquid,
fixed income assets with a maturity of less than one year. Income earned from
the security lending arrangement is shared 40% and 60% between the institution
and the Company, respectively. Income earned by the Company was $899,000,
$816,000 and $383,000 in 1998, 1997, and 1996, respectively. As of December 31,
1998 and 1997, the Company recorded $461,801,000 and $544,580,000,
respectively, of collateral in other assets and in accrued expenses and other
liabilities.
NOTE 7: LIABILITY FOR POLICY CLAIMS
Activity in the liability for policy claims is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Balance, January 1 $ 22,156 $ 24,487
Less reinsurance recoverables 270 141
--------- ----------
Net balance, January 1 21,886 24,346
--------- ----------
Incurred related to:
Current year 121,015 106,659
Prior years 12,968 5,698
--------- ----------
Total incurred 133,983 112,357
Paid related to:
Current year 105,251 85,899
Prior years 24,457 28,919
--------- ----------
Total paid 129,708 114,818
--------- ----------
Net balance, December 31 26,161 21,885
Plus reinsurance recoverables 16 271
--------- ----------
Balance, December 31 $ 26,177 $ 22,156
========= ==========
</TABLE>
The liability for policy claims at December 31, 1998 and 1997, was increased by
$12,968,000 and $5,698,000, respectively, due to higher than anticipated
severity of previously reported claims. The liability for policy claims is
primarily comprised of pending claims known to the Company at the end of the
year as well as estimates for incurred claims not yet reported to the Company.
Because estimates are utilized in the statement process, incurred expenses
exist in the current year that relate to insured events from the prior year.
The Company monitors these levels to ensure that current liabilities adequately
reflect proper levels for both current and prior periods.
17
<PAGE> 83
NOTE 8: INCOME TAXES
The Company uses the asset and liability method of accounting for income taxes
under FASB Statement No. 109, "Accounting for Income Taxes". Under this method,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years the differences are expected
to be recovered or settled.
The components of the provision for income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $69,601 $ 79,185 $ 82,556
State 1,089 1,704 0
------- -------- ---------
70,690 80,889 82,556
Deferred:
Federal 496 (7,027) (11,417)
------- -------- ---------
Total $71,186 $ 73,862 $ 71,139
======= ======== =========
</TABLE>
The table below reconciles the provision for income taxes computed at the U.S.
statutory income tax rate of 35% to the Company's provision for income taxes
(in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Expected tax expense $ 70,626 $ 73,938 $ 74,697
Tax-exempt investment income (1,705) (2,233) (3,356)
State taxes 1,089 1,704 0
Other, net 1,176 453 (202)
-------- -------- --------
Reported income tax expense $ 71,186 $ 73,862 $ 71,139
======== ======== ========
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the net deferred tax liabilities as of December 31, 1998 and 1997, are
presented in the following table (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Deferred policy acquisition costs $ 251,626 $ 243,270
Future policy benefits (135,215) (145,733)
Investments (10,842) (5,323)
Valuation of investments in securities 41,518 43,320
Depreciable assets 5,520 6,425
Other 8,577 11,047
---------- ----------
Net deferred tax liabilities $ 161,184 $ 153,006
========== ==========
</TABLE>
There was no valuation allowance recognized for deferred tax assets in 1998 or
1997.
18
<PAGE> 84
NOTE 9: COMMITMENTS AND CONTINGENCIES
The Company is a party to lawsuits arising from its normal business activities.
These actions are in various stages of discovery and development, and some seek
punitive as well as compensatory damages. In the opinion of management, the
Company has not engaged in any conduct which should warrant the award of any
material punitive or compensatory damages. Acting on the advice of counsel, the
Company intends to defend vigorously its position in each case, and management
believes that, while it is not possible to predict the outcome of such matters
with absolute certainty, ultimate disposition of these proceedings should not
have a material adverse effect on the Company's financial position or results
of operations.
NOTE 10: REGULATORY MATTERS
The Company, domiciled in Washington state, prepares its statutory financial
statements in accordance with accounting practices prescribed by the State of
Washington Department of Insurance. 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.
Statutory stockholders' equity was $888,644,000 and $787,637,000 as of December
31, 1998 and 1997, respectively. Statutory net income for the year ended
December 31, 1998, 1997, and 1996, was $98,796,000, $122,863,000, and
$160,957,000, respectively.
Statutory unassigned surplus of $878,845,000 and $777,838,000 included in
retained earnings at December 31, 1998 and 1997, respectively, is the amount
held for the benefit of the stockholder. The entire amount in 1998 and 1997 is
designated as stockholders' surplus for tax purposes and would not subject the
Company to taxation if paid as a cash dividend.
The maximum amount of dividends that can be paid to stockholders by state of
Washington insurance companies without prior approval of the Insurance
Commissioner is subject to restrictions relating to statutory surplus. The
maximum dividend payout which could be made without prior approval is
$98,796,000 in 1999 and $122,863,000 in 1998.
Dividends are determined by the Board of Directors. In 1996, upon approval of
the State of Washington Department of Insurance, the Company paid a
$374,916,000 in-kind dividend to its parent company, FGI.
As of December 31, 1998 and 1997, the Company's statutory surplus exceeded the
NAIC risk-based capital requirements.
NOTE 11: REINSURANCE
The Company has ceded business under both yearly renewable term contracts and
coinsurance contracts. The policy benefit liabilities and unpaid claim amounts
attributable to such business are stated as other receivables on the balance
sheets. The carrying value of reinsurance receivables included in other
receivables totalled approximately $8,500,000 and $8,600,000 at December 31,
1998 and 1997, respectively. None of the reinsurance receivables were with
reinsurers that resulted in any concentration of material credit risk.
19
<PAGE> 85
Effective September 5, 1997, the Company raised the retention limit for
automatic reinsurance ceded. The primary change was to increase the maximum
retention on new issues from $800,000 per life to $2,000,000 per life for the
Farmers Flexible Universal Life policy and from $800,000 per life to $1,500,000
per life for all Traditional policies except Farmers Yearly Renewable Term. The
maximum retention on new issues remains at $800,000 per life for Farmers Yearly
Renewable Term. The excess risk is reinsured with an outside reinsurer and is
not material. Increases in policy benefit liabilities and claims expense are
stated net of increases in future policy benefit liabilities and claims
expenses applicable to reinsurance ceded. Death and other benefits expense is
reduced by $4,074,000, $2,047,000 and $707,000 in 1998, 1997, and 1996,
respectively, of reinsurance recoveries. The Company is contingently liable
with respect to reinsurance ceded in the event that a reinsurer is unable to
meet its obligations under existing reinsurance agreements.
The effect of reinsurance on premiums and amounts earned for the years ended
December 31 is as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Direct premiums $ 168,159 $ 145,073 $ 128,303
Reinsurance assumed 8,798 10,297 11,834
Reinsurance ceded (3,728) (4,236) (3,995)
--------- --------- ---------
Net premiums earned $ 173,229 $ 151,134 $ 136,142
========= ========= =========
</TABLE>
Premiums assumed from unaffiliated companies approximated $8,798,000,
$10,297,000, and $8,028,000 in 1998, 1997, and 1996, respectively, which
represents 5.1%, 6.8%, and 5.8% of the net premiums earned in 1998, 1997, and
1996, respectively. Claims paid to unaffiliated companies on assumed
reinsurance were approximately $7,998,000, $8,240,000, and $8,140,000 in 1998,
1997, and 1996, respectively.
NOTE 12: EMPLOYEES' RETIREMENT PLANS
The Company participates in FGI's two noncontributory defined benefit pension
plans (the Regular Plan and the Restoration Plan). The Regular Plan covers
substantially all employees of FGI, its subsidiaries and the Exchanges who have
reached age 21 and have rendered one year of service. Benefits are based on
years of service and the employee's compensation during the last five years of
employment. The Restoration Plan provides supplemental retirement benefits for
certain key employees of FGI, its subsidiaries, and the Exchanges.
FGI's policy is to fund the amount determined under the aggregate cost method,
provided it does not exceed funding limitations. There has been no change in
funding policy from prior years.
Assets of the Regular Plan are held by an independent trustee. Assets held are
primarily in fixed maturity and equity investments. The principal liability is
for annuity benefit payments of current and future retirees. Assets of the
Restoration Plan are considered corporate assets of FGI and are held in a
grantor trust.
20
<PAGE> 86
Information regarding the Regular Plan's and the Restoration Plan's funded
status is not developed separately for FGI, its subsidiaries including the
Company and the Exchanges. The funded status of both plans as of December 1,
1998 and 1997 (the latest date for which information is available) is as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Change in benefit obligation:
Net benefit obligation at beginning of the year $ 747,069 $ 695,346
Service cost 26,423 26,229
Interest cost 54,998 51,890
Plan amendments 0 7,722
Actuarial (gains)/losses 54,218 (5,213)
Benefits paid (29,534) (28,905)
------------ ------------
$ 853,174 $ 747,069
============ ============
Change in plan assets:
Fair value of plan assets at beginning of the year $ 817,552 $ 744,340
Actual return on plan assets 135,313 101,303
Benefits paid (28,564) (28,091)
------------ ------------
Fair value of plan assets at end of the year $ 924,301 $ 817,552
============ ============
Funded status at end of the year $ 71,127 $ 70,483
Unrecognized net actuarial gain (140,910) (136,691)
Unrecognized prior service cost 31,255 34,555
Unrecognized net transition asset (26,186) (30,862)
------------ ------------
Net amount recognized at end of the year $ (64,714) $ (62,515)
============ ============
</TABLE>
Upon B.A.T's purchase of FGI and its subsidiaries in 1998, FGI allocated part
of the purchase price to its portion of the Regular Plan assets in excess of
the projected benefit obligation at the date of acquisition. The asset is being
amortized for the difference between FGI's net pension cost and amounts
contributed to the Plan. The unamortized balance as of December 31, 1998 and
1997 was $20,622,000 and $24,304,000, respectively.
Components of net periodic pension expense for FGI and its subsidiaries are as
follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service costs $ 13,240 $ 14,238 $ 15,275
Interest costs 27,810 28,362 27,409
Return on plan assets (35,817) (35,116) (35,671)
Amortization of:
Transition obligation 1,365 1,229 1,264
Prior service cost 1,986 2,298 1,359
Actuarial gain (2,447) (1,248) (624)
------------- ----------- ---------
Net periodic pension expense $ 6,137 $ 9,763 $ 9,012
============= =========== =========
</TABLE>
The Company's share of pension expense was $452,000, $510,000, and $565,000 in
1998, 1997, and 1996, respectively.
21
<PAGE> 87
FGI uses the projected unit credit cost actuarial method for attribution of
expense for financial reporting purposes. The interest cost and the actuarial
present value of benefit obligations were computed using a weighted average
interest rate of 6.75% in 1998 and 7.25% in 1997 and 1996, while the expected
return on plan assets was computed using a weighted average interest rate of
9.25% in 1998 and 9.00% in 1997 and 1996. The weighted average rate of increase
in future compensation levels used in determining the actuarial present value
of the projected benefit obligation was 4.50% in 1998 and 5.00% in 1997 and
1996.
FGI and its subsidiaries' postretirement benefits plan is a contributory
defined benefit plan for employees who were retired or who were eligible for
early retirement on January 1, 1995, and is a contributory defined dollar plan
for all other employees retiring after January 1, 1995. Health benefits are
provided for all employees who participated in the Company's group medical
benefits plan for 15 years prior to retirement at age 55 or later. A life
insurance benefit of $5,000 is provided at no cost to retirees who maintained
group life insurance coverage for 15 years prior to retirement at age 55 or
later.
There are no assets separated and allocated to this plan.
The funded status of the entire plan, which includes FGI, its subsidiaries and
the Exchanges, at December 1, 1998 and 1997 (the latest date for which
information is available) was as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Change in benefit obligation:
Net benefit obligation at beginning of the year $ 70,758 $ 75,142
Service cost 1,280 1,395
Interest cost 5,080 5,402
Plan participations' contributions 1,297 1,216
Actuarial (gain)/loss 6,936 (8,205)
Benefits paid (4,984) (4,192)
------------ -------------
$ 80,367 $ 70,758
============ =============
Fair value of plan assets at end of year $ 0 $ 0
============ =============
Funded status at end of the year $ (80,367) $ (70,758)
Unrecognized net actuarial (gain) (8,193) (15,976)
Unrecognized net transition obligation 18,354 19,665
------------ -------------
Accrued postretirement benefit cost $ (70,206) $ (67,069)
============ =============
</TABLE>
FGI and its subsidiaries' share of the accrued postretirement benefit cost was
approximately $53,206,000 in 1998 and $51,930,000 in 1997. The unrecognized net
transition obligation of $18,354,000 in 1998 and $19,665,000 in 1997 represents
the remaining transition obligation of the Exchanges.
Components of postretirement benefits expense for FGI and its subsidiaries are
as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Service costs $ 636 $ 753 $ 1,016
Interest costs $ 2,527 $ 2,918 $ 3,018
Amortization of actuarial (gain)/loss (435) (13) 0
-------------- -------------- -------------
Net periodic expense $ 2,728 $ 3,658 $ 4,034
============== ============== =============
</TABLE>
22
<PAGE> 88
The Company's share of this amount was approximately $205,000, $253,000, and
$264,000 in 1998, 1997, and 1996, respectively.
The weighted average interest rate used in the above benefit computations was
6.75% in 1998 and 7.25% in 1997 and 1996. Beginning in 1996, the initial
medical inflation rate was 7.5% to be graded over a three-year period to 6.0%
and level thereafter, and contribution levels from retirees were the same as
applicable medical cost increases where defined benefits exist. The weighted
average rate of increase in future compensation levels used in determining the
actuarial present value of the accumulated benefit obligation was 4.50% in 1998
and 5.00% in 1997 and 1996.
A 1.0% increase or decrease in the medical inflation rate assumption would have
resulted in the following (in thousands):
<TABLE>
<CAPTION
1% 1%
increase decrease
-------- --------
<S> <C> <C>
Effect on 1998 service and interest components of net periodic cost $ 64 $ (59)
Effect on accumulated postretirement benefit obligation
at December 31, 1998 772 (710)
</TABLE>
NOTE 13: EMPLOYEES' PROFIT SHARING PLANS
FGI and its subsidiaries have two profit sharing plans providing for cash
payments to all eligible employees. The two plans, Cash Profit Sharing Plan
(consisting of Cash and Quest for Gold in 1998 and Cash and Cash Plus in 1997
and 1996) and Deferred Profit Sharing Plan, provide for a maximum aggregate
expense of 16.25% of FGI and its subsidiaries' consolidated annual pretax
earnings, as adjusted. The Deferred Profit Sharing Plan, limited to 10% of
pretax earnings, as adjusted, or 15% of the salary or wage paid or accrued to
the eligible employee, provides for an annual contribution by FGI and its
subsidiaries to a trust for eventual payment to employees as provided in the
Plan. The Cash Profit Sharing Plan and Quest for Gold Program provide for
annual cash distributions to eligible employees. The Cash Profit Sharing Plan
is limited to 5% of pretax earnings, as adjusted, or 5% of eligible employee
salaries or wages paid or accrued. The Quest for Gold Program is limited to
1.25% of pretax earnings, as adjusted, or 6% of eligible employee salaries or
wages paid or accrued. The Cash Plus Plan was limited to 1.25% of pretax
earnings, as adjusted.
The Company's share of expense under these plans was $4,069,000, $3,850,000 and
$3,918,000 in 1998, 1997, and 1996, respectively.
NOTE 14: EQUITY-INDEXED ANNUITIES
During 1997, the Company began selling an equity-indexed annuity product. At
the end of its seven-year term, this product credits interest to the annuity
participant at a rate based on a specified portion of the change in the value
of the Standard & Poor's 500 Composite Stock Price Index (S&P 500 Index),
subject to a guaranteed annual minimum return. In order to hedge the interest
liability generated on the annuities as the index rises, the Company purchases
call options on the S&P 500 Index. The Company considers such call options to
be held as a hedge. As of December 31, 1998 and 1997, the Company had call
options with contract values of $40,229,000 and $13,180,000 respectively, and
carrying values of $14,817,000 and $3,299,000, respectively.
23
<PAGE> 89
Hedge accounting is used to account for the call options as the Company
believes that the options reduce the risk associated with increases in the
account value of the annuities that result from increases in the S&P 500 Index.
The call options effectively hedge the annuity contracts since they are both
purchased and sold with identical parameters. Periodically, the value of the
assets (S&P 500 call options) are matched to the potential liability (annuity
contracts) to ensure the hedge has remained effective. The annuities were
written based on a seven year investment term, absent early termination by
participants. Therefore, the anticipated hedge transaction (i.e., payment of
interest to the policyholder at the end of the investment term and maturity of
the call option) for each annuity is generally expected to occur in seven years
or less. For the years ended December 31, 1998 and 1997, the amount of
unrealized hedging gains (losses) deferred was $3,511,000 and $(151,000),
respectively.
The call options are carried at estimated fair value. Unrealized gains and
losses resulting from changes in the estimated fair value of the call options
are recorded as an adjustment to the interest liability credited to
policyholders. In addition, realized gains and losses from maturity or
termination of the call options are offset against the interest credited to
policyholders during the period incurred. Premiums paid on call options are
amortized to net investment income over the term of the contracts. There were
no early terminations by annuity participants that led to maturities or sales
of the S&P 500 call options during 1998 or 1997.
The cash requirement of the call options consists of the initial premium paid
to purchase the call options. Should a liability exist to the annuity
participant at maturity of the annuity policy, the termination or maturity of
the option contracts will generate positive cash flow to the Company. The
appropriate amount of cash will then be remitted to the annuity participant
based on the respective participation rate. The call options are generally
expected to be held for a seven-year term, but can be terminated at any time.
There are certain risks associated with the call options, primarily with
respect to significant movements in the United States stock market and
counterparty nonperformance. The Company believes that the counterparties to
its call option agreements are financially responsible and that the
counterparty risk associated with these transactions is minimal.
NOTE 15: PARTICIPATING POLICIES
Participating business, which consists of group business, comprised
approximately 8.6% of total insurance in-force as of December 31, 1998 and 8.8%
of its total insurance in-force as of December 31, 1997. In addition,
participating business represented 2.1% and 2.2% of premium income for the
years ended December 31, 1998 and December 31, 1997 and 2.2% of premium income
for the year ended December 31, 1996.
The amount of dividends paid on participating business is determined by the
Farmers Life Board of Directors and is paid annually on the policyholder's
anniversary date. Amounts allocable to participating policyholders are based on
published dividend projections or expected dividend scales.
NOTE 16: OPERATING SEGMENTS
The Company concentrates its activities in the individual life insurance and
annuity markets. These activities are managed separately as each offers a
unique set of product services. As a result, the Company is comprised of the
following two reportable operating segments as defined in SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information": the life
insurance segment and the annuity segment.
24
<PAGE> 90
The life insurance segment provides individual life insurance products,
including universal life, term life, and whole life. The annuity segment
provides flexible and single premium deferred annuities, single premium
immediate annuities, and equity-indexed annuity products.
The basis of accounting used by the Company's management in evaluating segment
performance and determining how resources should be allocated is referred to as
the Company's GAAP historical basis, which excludes the effects of the purchase
accounting ("PGAAP") adjustments related to the acquisition of FGI and the
Company by B.A.T in December 1988 (See Note 1).
The Company accounts for intersegment transactions as if they were to third
parties and, as such, records the transactions at current market prices. There
were no intersegment revenues among the Company's two reportable operating
segments for the years 1998, 1997, and 1996.
The Company operates in 37 states, primarily in the western, midwestern, and
southwestern regions of the United States and does not earn revenues or hold
assets in any foreign countries.
Information regarding the Company's reportable operating segments follows (in
thousands):
<TABLE>
<CAPTION
Year ended December 31, 1998
-------------------------------------------------------------------------------------
GAAP Historical Basis PGAAP Adjustments Total
------------------------------------------------------------------------------------- PGAAP
Life Annuities Total Life Annuities Total Basis
---- --------- ----- ---- --------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 544,390 $ 116,029 $ 660,419 (a) $ 171 $ 36 $ 207 $ 660,626
Investment income 190,197 117,024 307,221 128 79 207 307,428
Investment expenses (8,457) (5,201) (13,658) 0 0 0 (13,658)
Net realized losses (13,473) 0 (13,473) 0 0 0 (13,473)
Income before
provision for taxes 173,576 26,033 199,609 1,895 284 2,179 201,788
Provision for income
taxes 61,803 9,269 71,072 99 15 114 71,186
Assets 3,593,311 1,844,266 5,437,577 118,310 60,454 178,764 (b) 5,616,341
Capital expenditures 572 0 572 0 0 0 572
Depreciation &
amortization 88,146 8,572 96,718 (c) (1,129) (151) (1,280) (d) 95,438
</TABLE>
(a) Revenues for the insurance operating segments include net investment income
and net realized gains(losses).
(b) Amount includes PGAAP adjustments related to the DAC ($168.3 million
decrease) and VOBA ($334.4 million increase) assets.
(c) Amount includes the historical basis amortization associated with the DAC
asset.
(d) Amount includes PGAAP adjustments related to the amortization of the DAC
($26.2 million decrease) and VOBA ($23.9 million increase) assets.
25
<PAGE> 91
<TABLE>
<CAPTION>
Year ended December 31, 1997
-------------------------------------------------------------------------------------
GAAP Historical Basis PGAAP Adjustments Total
------------------------------------------------------------------------------------- PGAAP
Life Annuities Total Life Annuities Total Basis
---- --------- ----- ---- --------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 522,983 $ 114,899 $ 637,882 (a) $ 588 $ 128 $ 716 $ 638,598
Investment income 171,979 115,827 287,806 428 288 716 288,522
Investment expenses (7,626) (5,136) (12,762) 0 0 0 (12,762)
Net realized gains 10,063 0 10,063 0 0 0 10,063
Income before
provision for taxes 190,418 24,677 215,095 (3,050) (396) (3,446) 211,649
Provision for income
taxes 67,022 8,685 75,707 (1,633) (212) (1,845) 73,862
Assets 3,311,007 1,870,445 5,181,452 116,805 60,454 177,259 (b) 5,358,711
Capital expenditures 1,696 0 1,696 0 0 0 1,696
Depreciation &
amortization 82,849 7,210 90,059 (c) 4,025 538 $ 4,563 (d) 94,622
</TABLE>
(a) Revenues for the insurance operating segments include net investment income
and net realized gains(losses).
(b) Amount includes PGAAP adjustments related to the DAC ($195.2 million
decrease) and VOBA ($359.1 million increase) assets.
(c) Amount includes the historical basis amortization associated with the DAC
asset.
(d) Amount includes PGAAP adjustments related to the amortization of the DAC
($18.5 million decrease) and VOBA ($21.3 million increase) assets.
<TABLE>
<CAPTION>
Year ended December 31, 1996
-------------------------------------------------------------------------------------
GAAP Historical Basis PGAAP Adjustments Total
------------------------------------------------------------------------------------- PGAAP
Life Annuities Total Life Annuities Total Basis
---- --------- ----- ---- --------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 502,941 $ 110,344 $ 613,285 (a) $ 8 $ 2 $ 10 $ 613,295
Investment income 157,138 110,660 267,798 6 4 10 267,808
Investment expenses (5,842) (4,114) (9,956) 0 0 0 (9,956)
Net realized gains 30,182 0 30,182 0 0 0 30,182
Income before
provision for taxes 194,416 22,554 216,970 (3,266) (283) (3,549) 213,421
Provision for income
taxes 78,246 9,077 87,323 (14,893) (1,291) (16,184) 71,139
Assets 3,356,559 1,898,740 5,255,299 118,557 61,348 179,905 (b) 5,435,204
Capital expenditures 132 0 132 132
Depreciation &
amortization 75,166 5,624 80,790 (c) 3,490 279 $ 3,769 (d) 84,559
</TABLE>
(a) Revenues for the insurance operating segments include net investment income
and net realized gains(losses).
(b) Amount includes PGAAP adjustments related to the DAC ($217.3 million
decrease) and VOBA ($383.9 million increase) assets.
(c) Amount includes the historical basis amortization associated with the DAC
asset.
(d) Amount includes PGAAP adjustments related to the amortization of the DAC
($20.6 million decrease) and VOBA ($20.5 million increase) assets.
26
<PAGE> 92
FARMERS NEW WORLD LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Farmers Group, Inc.)
BALANCE SHEETS (in thousands)
(Unaudited)
================================================================================
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1999 1998
- ------ -------------- --------------
<S> <C> <C>
INVESTMENTS:
Fixed maturities available for sale:
Bonds, at fair value (cost: $3,746,937 and $3,510,846) $ 3,699,789 $ 3,674,223
Redeemable preferred stocks, at fair value
(cost: $67,206 and $82,090) 68,845 86,662
Equity securities available for sale:
Nonredeemable preferred stocks, at fair value
(cost: $1,153 and $1,153) 1,205 1,270
Common stocks, at fair value (cost: $58,987 and $41) 55,748 3
Mortgage loans on real estate, net of allowance for losses 37,009 52,879
Investment real estate, net of accumulated depreciation
and allowance for losses 51,297 59,047
Surplus note of the Exchanges 119,000 119,000
Policy loans 196,802 185,211
Joint ventures 7,899 8,456
S&P 500 call options, at fair value (cost: $17,376 and $11,305) 23,498 14,817
-------------- --------------
Total investments 4,261,092 4,201,568
CASH AND CASH EQUIVALENTS 51,034 63,784
ACCRUED INVESTMENT INCOME 58,686 53,263
NOTE RECEIVABLE OF AFFILIATE 50,000 0
OTHER RECEIVABLE 27,471 17,558
DEFERRED POLICY ACQUISITION COSTS 530,629 467,248
VALUE OF BUSINESS ACQUIRED 329,379 334,442
PROPERTY AND EQUIPMENT, net of accumulated depreciation
of $27,477 and $28,366 14,314 14,379
OTHER ASSETS:
Securities lending collateral 262,126 461,801
Other assets 1,687 2,298
-------------- --------------
263,813 464,099
-------------- --------------
TOTAL $ 5,586,418 $ 5,616,341
============== ==============
</TABLE>
<PAGE> 93
FARMERS NEW WORLD LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Farmers Group, Inc.)
BALANCE SHEETS (in thousands)
(Unaudited)
================================================================================
<TABLE>
<CAPTION>
September 30, December 31,
LIABILITIES AND STOCKHOLDER'S EQUITY 1999 1998
- ------------------------------------ ------------- -------------
<S> <C> <C>
POLICY LIABILITIES AND ACCRUALS:
Future policy benefits $ 3,348,597 $ 3,184,248
Policy claims 31,013 26,177
------------- -------------
3,379,610 3,210,425
OTHER POLICYHOLDER FUNDS & DIVIDENDS 77,239 57,358
ACCRUED EXPENSES AND OTHER LIABILITIES:
Securities lending liability 262,126 461,801
Death benefit liability 44,483 37,024
Other liabilities 76,279 63,736
------------- -------------
382,888 562,561
INCOME TAXES:
Current 9,890 4,180
Deferred 102,699 161,184
------------- -------------
112,589 165,364
Total liabilities 3,952,326 3,995,708
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, $1 par value - Authorized, 25,000,000 shares;
issued and outstanding, 6,600,000 shares 6,600 6,600
Additional paid-in capital 994,246 994,246
Accumulated other comprehensive income - net of deferred
taxes of $(11,979) and $41,518 (22,246) 77,105
Retained earnings 655,492 542,682
------------- -------------
Total stockholder's equity 1,634,092 1,620,633
TOTAL $ 5,586,418 $ 5,616,341
============ ============
</TABLE>
2
<PAGE> 94
FARMERS NEW WORLD LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Farmers Group, Inc.)
STATEMENTS OF INCOME (in thousands)
(Unaudited)
================================================================================
<TABLE>
<CAPTION>
Nine month period
ended September 30,
-----------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
REVENUES:
Net premiums earned $ 154,821 $ 128,696
Universal life and annuity policy charges 157,731 154,643
Net investment income 228,617 220,008
Net realized investment gains 12,160 9,869
Other income 621 529
------------- ------------
Total revenues 553,950 513,745
BENEFITS AND EXPENSES:
Death and other benefits 102,805 99,212
Future policy benefits 38,270 16,715
Interest credited to policyholders 117,540 112,371
Underwriting, acquisition and insurance expenses:
Amortization of deferred policy acquisition costs 62,297 48,307
Amortization of value of business acquired 15,903 19,452
Commissions 11,818 14,083
General insurance expenses and taxes 32,248 31,813
------------- ------------
Total benefits and expenses 380,881 341,953
------------- ------------
Income before provision for income taxes 173,069 171,792
------------- ------------
PROVISION (BENEFIT) FOR INCOME TAXES:
Current 66,081 23,496
Deferred (5,822) 37,679
------------- ------------
Total provision for income taxes 60,259 61,175
------------- ------------
NET INCOME $ 112,810 $ 110,617
============= ============
</TABLE>
3
<PAGE> 95
FARMERS NEW WORLD LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Farmers Group, Inc.)
STATEMENTS OF COMPREHENSIVE INCOME (in thousands)
(Unaudited)
================================================================================
<TABLE>
<CAPTION>
Nine month period
ended September 30,
------------------------------------
1999 1998
----------------- --------------
<S> <C> <C>
NET INCOME $ 112,810 $ 110,617
----------------- --------------
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Unrealized holding gains/losses on securities:
Unrealized holding gains/(losses) on securities net of tax (144,945) 18,357
of $(78,047) and $9,885
Less: reclassification adjustment for gains included in net income,
net of tax of $2,364 and $ (268) 4,390 (497)
----------------- --------------
Net unrealized holding gains on securities, net of tax of
$(75,683) and $9,617 (140,555) 17,860
Change in effect of unrealized gains (losses) on other insurance
accounts, net of tax of $22,187 and $(2,612) 41,204 (4,850)
----------------- --------------
COMPREHENSIVE INCOME $ 13,459 $ 123,627
----------------- --------------
</TABLE>
4
<PAGE> 96
FARMERS NEW WORLD LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Farmers Group, Inc.)
STATEMENTS OF STOCKHOLDER'S EQUITY (in thousands)
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
(Unaudited)
================================================================================
<TABLE>
<CAPTION>
Accumulated
Additional other Total stock-
Common paid-in comprehensive Retained holder's
stock capital income earnings equity
----- ------- ------ -------- ------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1998 $ 6,600 $ 994,246 $ 77,105 $ 542,682 $ 1,620,633
Net income 112,810 112,810
Unrealized gains (losses) on
available for sale investments
arising during the period, net
of tax of $(78,047) (144,945) (144,945)
Reclassification adjustment for
gains included in net income,
net of tax of $2,364 4,390 4,390
Change in effect of unrealized
gains (losses) on other insurance
accounts, net of tax of $22,187 41,204 41,204
--------- ------------ ------------- ----------- -------------
BALANCE, September 30, 1999 $ 6,600 $ 994,246 $ (22,246) $ 655,492 $ 1,634,092
========= ============ ============= =========== =============
</TABLE>
5
<PAGE> 97
FARMERS NEW WORLD LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Farmers Group, Inc.)
STATEMENTS OF STOCKHOLDER'S EQUITY (in thousands)
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
(Unaudited)
================================================================================
<TABLE>
<CAPTION>
Accumulated
Additional other Total stock-
Common paid-in comprehensive Retained holder's
stock capital income earnings equity
----- ------- ------ -------- ------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 $ 6,600 $ 994,246 $ 66,675 $ 412,080 $ 1,479,601
Net income 110,617 110,617
Unrealized gains (losses) on
available for sale investments
arising during the period, net
of tax of $9,885 18,357 18,357
Reclassification adjustment for
gains included in net income,
net of tax of $(268) (497) (497)
Change in effect of unrealized
gains (losses) on other insurance
accounts net of tax of $(2,612) (4,850) (4,850)
---------- ----------- ----------- ---------- -----------
BALANCE, September 30, 1998 $ 6,600 $ 994,246 $ 79,685 $ 522,697 $ 1,603,228
========== =========== =========== ========== ===========
</TABLE>
6
<PAGE> 98
FARMERS NEW WORLD LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Farmers Group, Inc.)
STATEMENTS OF CASH FLOWS (in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine month period
ended September 30,
---------------------------------
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 112,810 $ 110,617
Adjustments to reconcile net income to net cash provided by
operating activities:
Universal life type contracts:
Deposits received 226,359 223,394
Withdrawals (189,591) (180,274)
Interest credited 53,167 50,285
Realized investment losses (gains) (12,160) (9,869)
Amortization of deferred policy acquisition costs and VOBA 78,200 67,759
Deferred income tax expense (benefit) (5,822) 37,679
Depreciation 1,948 1,921
Cash provided (used) by changes in operating assets and liabilities:
Federal income taxes payable 5,710 14,875
Deferred policy acquisition costs (136,515) (64,284)
Life insurance policy liabilities 43,572 23,779
Other policyholder funds 19,882 (2,466)
Other 72,707 (17,420)
--------- ---------
Net cash provided by operating activities 270,267 255,996
INVESTING ACTIVITIES:
Purchase of bonds and stocks available-for-sale (890,540) (446,970)
Proceeds from sales or maturities of bonds and stocks available-for-sale 617,121 348,489
Purchase of mortgage loans 0 0
Mortgage loan collections 17,044 24,025
Purchase of investment real estate (617) (878)
Proceeds from sale of investments in real estate 6,368 4,302
Increase in policy loans (11,591) (14,847)
Purchase of property and equipment (409) (445)
Purchase of surplus note of the Exchanges 0 (119,000)
Purchase of note receivable from affiliate (50,000) 0
Other (6,071) (6,101)
--------- ---------
Net cash used by investing activities (318,695) (211,425)
FINANCING ACTIVITIES:
Annuity contracts:
Deposits received 121,572 107,341
Withdrawals (149,600) (164,283)
Interest credited 63,706 58,577
--------- ---------
Net cash provided by financing activities 35,678 1,635
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS,
carried forward (12,750) 46,206
</TABLE>
7
<PAGE> 99
FARMERS NEW WORLD LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Farmers Group, Inc.)
STATEMENTS OF CASH FLOWS (in thousands) (continued)
(Unaudited)
================================================================================
<TABLE>
<CAPTION>
Nine month period
ended September 30,
------------------------------------
1999 1998
---- ----
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS,
brought forward $ (12,750) $ 46,206
CASH AND CASH EQUIVALENTS:
Beginning of year 63,784 9,980
------------ ------------
End of year $ 51,034 $ 56,186
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during year for:
Income taxes $ 59,878 $ 22,199
Interest paid (125) 945
</TABLE>
8
<PAGE> 100
FARMERS NEW WORLD LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Farmers Group, Inc.)
NOTES TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
- -------------------------------------------------------------------------------
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying balance sheet of Farmers New World Life Insurance Company
("the Company") as of September 30, 1999, the related statements of income,
comprehensive income, stockholders' equity and cash flows for the nine
month periods ended September 30, 1999 and September 30, 1998, have been
prepared in accordance with generally accepted accounting principles
("GAAP") for interim periods and are unaudited. However, in management's
opinion, the financial statements include all adjustments (consisting of
only recurring adjustments) necessary for a fair presentation of results
for such interim periods. These statements do not include all of the
information and footnotes required by GAAP for complete financial
statements and should be read in conjunction with the balance sheets of the
Company as of December 31, 1998 and 1997, and the related statements of
income, comprehensive income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1998.
2. MATERIAL CONTINGENCIES
The Company is a party to numerous lawsuits arising from its normal
business activities. These actions are in various stages of discovery and
development, and some seek punitive as well as compensatory damages. In the
opinion of management, the Company has not engaged in any conduct which
should warrant the award of any material punitive or compensatory damages.
The Company intends to vigorously defend its position in each case, and
management believes that, while it is not possible to predict the outcome
of such matters with absolute certainty, ultimate disposition of these
proceedings should not have a material adverse effect on the Company's
results of operations or financial position.
9
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PART C
<TABLE>
<CAPTION>
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
<S> <C> <C> <C>
(a) FINANCIAL STATEMENTS
All required financial statements are included in Part B
of this Registration Statement.
(b) EXHIBITS
(1) Certified resolution of the Board of Directors of Farmers New World Life Insurance Company
(the "Company") authorizing establishment of Farmers Annuity Separate Account A (the "Separate Account").2/
(2) Not applicable.
(3) (a) Form of Distribution Agreement between Farmers New World Life Insurance Company and Investors Brokerage
Services, Inc.3/
(b) Form of Investors Brokerage Services, Inc. Registered Representative Agreement.3/
(4) (a) Revised Form of Contract for the Individual Flexible Premium Variable Annuity.3/
(b) Revised Guaranteed Minimum Death Benefit Rider.3/
(c) Revised Guaranteed Retirement Income Benefit Rider.3/
(d) Waiver of Surrender Charge Rider - Terminal Illness.3/
(e) Waiver of Surrender Charge Rider - Nursing Care.3/
(f) Savings Incentive Match Plan for Employees (SIMPLE) Individual Retirement Annuity Amendment Rider (20153).3/
(g) Individual Retirement Annuity Amendment Rider (20129).3/
(h) Roth Individual Retirement Annuity Endorsement (20181). 3/
(5) (a) Form of Application for the Individual Flexible Premium Variable Annuity.3/
(b) Form of Variable Policy Application Supplement. 3/
(6) (a) Articles of Incorporation of Farmers New World Life Insurance Company.1/
(b) By-Laws of Farmers New World Life Insurance Company.1/
(7) Not Applicable.
(8) (a) Form of Participation Agreement between Kemper Variable Series and Farmers
New World Life Insurance Company.3/
(b) Form of Participation Agreement between Scudder Variable Life Investment Fund and Farmers
New World Life Insurance Company.3/
(c) Form of Indemnification Agreement between Scudder Kemper Investment, Inc. and Farmers
New World Life Insurance Company.3/
(d) Form of Participation Agreement between Janus Aspen Series and Farmers New World Life Insurance Company.3/
(e) Form of Participation Agreement between PIMCO Variable Insurance Trust and Farmers
New World Life Insurance Company.3/
(f) Form of Participation Agreement between Templeton Variable Products Series Fund and Farmers
New World Life Insurance Company.3/
(g) Form of Consulting Services Agreement between McCamish Systems, L.L.C. and Farmers
New World Life Insurance Company.3/
</TABLE>
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<TABLE>
<S> <C> <C> <C>
(h) Form of Master Administration Agreement between McCamish Systems, L.L.C. and Farmers
New World Life Insurance Company.3/
(9) Opinion and Consent of M. Douglas Close, Esq.3/
(10) (a) Consent of Sutherland Asbill & Brennan LLP.3/
(b) Consent of Deloitte & Touche LLP.3/
(11) No financial statements will be omitted from Item 23.
(12) Not applicable.
(13) Schedule of Performance Computations.4/
(14) Not applicable.
(15) Powers of Attorney.2/
</TABLE>
1/ Incorporated herein by reference to the initial registration statement on
Form S-6 for Farmers Variable Life Separate Account A filed with the SEC via
EDGARLINK on July 29, 1999 (File No. 333-84023).
2/ Incorporated herein by reference to the initial registration statement on
Form N-4 for Farmers Annuity Separate Account A filed with the SEC via EDGARLINK
on August 13, 1999 (File Nos. 333-85183 and 811-09547).
3/ Filed herewith.
4/ To be provided by future amendment.
ITEM 25. DIRECTORS AND OFFICERS OF FARMERS NEW WORLD LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
Name and Principal Business Address Position and Office with Depositor
- ----------------------------------- ----------------------------------
<S> <C>
C.Paul Patsis(1) President and Director
Richard E. Bangert(3) Director
Donald J. Covey(4) Director
Martin D. Feinstein(2) Director
Paul N. Hopkins (2) Director
Dennis I. Okamato(5) Director
Keitha T. Schofield(2) Director
Gary R. Severson(6) Director
John F. Sullivan, Jr.(7) Director
Gerald E. Faulwell(2) Vice President
Howard E. Falk, Jr.(2) Vice President and Assistant Treasurer
Paul G. Secord(2) Vice President
Kathryn M. Callahan(1) Vice President and Actuary
M. Douglas Close(2) Vice President and General Counsel
James I. Randolph(1) Vice President and Assistant Secretary
David A. Demmon(1) Assistant Vice President and Treasurer
Sharon D. Courlas, M.D.(1) Vice President and Medical Director
Gerald A. Dulek(2) Assistant Vice President
Doren Hohl(2) Assistant Secretary
</TABLE>
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<TABLE>
<S> <C>
Paul F. Hott(1) Assistant Vice President
Kathleen D. Katovich(2) Assistant Secretary
Hubert L. Mountz(2) Assistant Treasurer
Link R. Murphy, M.D. (8) Assistant Medical Director
John R. Patton(1) Assistant Vice President and Secretary
Christopher R. Pflug(2) Assistant Secretary
Maryann M. Seltzer(2) Assistant Secretary
</TABLE>
Principal business address is:
<TABLE>
<S> <C>
1. 3003 - 77th Avenue, S.E., Mercer Island, WA 98040
2. 4680 Wilshire Blvd., Los Angeles, CA 90010
3. 2615 - 42nd Avenue West, Seattle, WA 98199
4. 6300 Sand Point Way, N.E., #307, Seattle, WA 98115
5. 1600 Seventh Avenue, Room 1802, Seattle, WA 98191
6. 6131 - 128th Avenue, N.E., Kirkland, WA 98033
7. 1201 Third Avenue, Suite 3390, Seattle, WA 98101
8. 2500 Farmers Way, Columbus, OH 43235
</TABLE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR
OR REGISTRANT
ZURICH ALLIED AG (ZURICH, SWITZERLAND)
owns 57% of Zurich Financial Services [Sw]
owns 90% of Farmers Group, Inc. [US-NV]
owns 100% of Farmers New World Life Insurance Company [US-WA]
owns 95.2% of FIG Leasing Company, Inc. [US-CA]
owns 100% of Farmers Services Corporation [US-NV]
owns 100% of Farmers Value Added, Inc. [US-NV]
owns 100% of Farmers Investment Research & Management, Inc. [US-NV]
owns 100% of Farmers Reinsurance Company [US-CA]
owns 100% of F.I.G. Travel [US-CA]
owns 38% of Prematic Service Corporation [US-CA]
owns 100% of Prematic Service Corporation [US-NV]
owns 100% of Fire Underwriters Association [US-CA]
owns 70% of F.I.G. Holding Company [US-CA]
owns 1.7% of FIG Leasing Company, Inc. [US-CA]
owns 9% of Prematic Service Corporation [US-CA]
owns 100% of Truck Underwriters Association [US-CA]
owns 30% of F.I.G. Holding Company [US-CA]
owns 3.1% of FIG Leasing Corporation, Inc. [US-CA]
owns 53% of Prematic Service Corporation [US-CA]
owns 99+% of Zurich Insurance Company (see below)
owns 100% of Allied Zurich Holdings Limited [CHANNEL ISLANDS]
owns 10% of Farmers Group, Inc. [US-NV] (see above)
owns 100% of British American Financial Services
owns 100% of British American Financial Services Subsidiaries
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ZURICH INSURANCE COMPANY - UNITED STATES
ZURICH INSURANCE COMPANY (ZURICH, SWITZERLAND)
owns 100% Zurich Towers, Inc. [US - IL]
owns 33% of 20th Century Asset Management Corporation Limited [India]
owns 99+% of Zurich Life Insurance Company (Zurich, Switzerland)
owns 14% of Provident Companies, Inc. *4
owns 100% of Provident Life and Accident Insurance Co. [US-TN]
owns 100% of Provident Life and Casualty Insurance Co.
owns 100% of Provident National Assurance Company [US-TN]
owns 100% of The Paul Revere Corporation [US-MA]
owns 100% of The Paul Revere Life Insurance Company [US-MA]
owns 100% of The Paul Revere Protective Life Insurance Company [US-DE]
owns 100% of The Paul Revere Variable Annuity Insurance Company [US-MA]
owns 100% of - Zurich Holding Co. of America [US - DE]
owns 100% Zurich Finance (USA) Inc [US-DE]
owns 100% Zurich American Brokerage Inc [US-NY]
owns 99.5% of UUBVI, Limited [BVI]
owns 100% Zurich American Insurance Company [US - NY]
owns 100% of Empire Fire & Marine Insurance Company [US - NY]
owns 100% of Empire Indemnity Insurance Company [US - OK]
Zurich Holding Company of America
owns 99.9% Risk Enterprise Management Limited [US - DE]
owns 100% Zurich American REIT Corporation [US - DE]
owns 100% Zurich American Insurance Company [US - NY]
owns 100% Steadfast Insurance Company [US - DE]
owns 100% American Zurich Insurance Company [US - IL]
owns 100% Zurich American Insurance Company of Illinois [US -IL]
owns 100% American Guarantee & Liability Insurance Company [US - NY]
owns 100% Diversified Specialty Risk, Inc. [US - TX]
owns 100% Specialty Producer Group Inc. [US - DE]
owns 100% Daniels-Head Insurance Agency Inc. [US - TX]
owns 100% Daniels-Head Insurance Agency Inc. [US - KY]
owns 100% Daniels-Head Insurance Agency Inc. [US - CA]
owns 100% Daniels-Head Insurance Agency Inc. [US - NY]
owns 100% Daniels-Head Insurance Agency Inc. [US - OH]
owns 100% O'Connor West Insurance Agency Inc.
Empire Fire & Marine Insurance Company
owns 100% of Douglas Street Premium Finance Company of California [US - CA]
owns 100% of Douglas Street Premium Finance Company [US - NE]
owns 100% Minnesota Marketing Center, Inc. [US-MN]
owns 51% of Truckwriters, Inc. [US - NE]
owns Empire Fire & Marine Insurance Company
owns 100% of Empire Management Services, Inc. [US - NE]
owns 100% of Zurich Global Ltd. [Bda]
owns 100% of Universal Underwriters Acceptance Corp. [US - KS]
owns 100% of Universal Underwriters Service Corp. [US - MO]
owns .50% of UUBVI, Limited [BVI]
owns 100% of Universal Underwriters Service Corp. of Texas [US - TX]
owns 100% of The Zurich Services Corporation [US - IL]
owns 100% of Zurich American Brokerage, Inc. [US - NY]
Zurich American Insurance Company [US-NY]
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owns 85% of Maryland Casualty Co. [US - MD]
owns 100% Zurich Agency Services, Inc [US-TX]
owns 100% of Assurance Company of America [US - NY]
owns 100% of Maine Bonding & Casualty Company [US - ME]
owns 100% of Maryland Insurance Company [US - TX]
owns 100% of Zurich Insurance Agency [US - MD]
owns 100% of Maryland Management Corporation [US - TX]
Trust Agreements - Maryland Lloyds [US - TX]
owns 100% of National Standard Insurance Company [US - TX]
owns 100% of Northern Insurance Company of New York [US - NY]
owns 100% of Steadfast Reinsurance Company, Ltd. [Bda]
owns 100% of Valiant Insurance Company [US - IA]
owns 100% of Fidelity & Deposit Company of Maryland [US - MD]
Zurich American Insurance Company [US-NY]
owns 100% of Colonial American Casualty & Surety Company [US - MD]
owns 100% Mountbatten Holding, Inc [US-PA]
owns 100% The Mountbatten Surety Company, Inc [US-PA]
owns 100% HMS Droadnought, Inc. [US-DE]
Fidelity & Deposit Company of Maryland
owns 100% of 300 St. Paul Corporation [US - MD]
owns 51 % of Maryland Netherlands Credit Insurance Company [US - MD]
Zurich American Insurance Company [US-NY]
owns 100% of Universal Underwriters Insurance Company [US - MO]
owns 100% of Universal Underwriters of Texas Insurance Company [US - TX]
owns 100% of Mountain Insurance Agency [US - MA]
owns 100% of Universal Underwriters Life Insurance Company [US - MO]
owns 100% of Robert Hampson, Inc. [Canada]
Zurich Holding Company of America [US-DE]
owns 100% of ZKI Holding Corp. (*3)
owns 32.85% of Scudder Kemper Investments, Inc. [US - DE]
owns 100% Zurich Kemper Investments, Inc [US-DE]
owns 50% of Kemper Distributors, Inc. [US-DE]
owns 50% of Kemper Service Company [US-DE]
owns 100% of ZKI Agency, Inc. [US - DL]
owns 100% ZKI Agency of Alabama Inc. [US-AL]
owns 100% of Scudder Investments (U.K.) Ltd
owns 100% of Zurich Investment Management (C.I.) Limited [Channel
Islands]
owns 100% of Zurich Investment Management (Dublin) Limited (Ireland)
owns 100% of Scudder Kemper Holdings (U.K.) Limited
owns 100% of Scudder, Stevens & Clark Limited
owns 100% Scudder Kemper Holdings [UK] Limited
owns 100% of Scudder, Stevens & Clark Japan, Inc.
owns 100% of Scudder, Stevens & Clark Asia Limited
owns 100% of Scudder Canada Investor Services Limited
owns 100% of Scudder, Stevens & Clark of Canada, Ltd.
owns 100% Zurich Investment Management, Inc. [US-DE]
owns 100% Scudder Investments AG
owns 100% of Scudder, Stevens & Clark (Luxembourg) S.A.
owns 100% of Scudder Trust (Cayman), Ltd.
owns 100% of Scudder Cayman, Ltd.
owns 100% of Scudder, Stevens & Clark Australia Limited
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owns 100% of Scudder, Stevens & Clark Corporation [US - DE]
owns 100% of SS&C Overseas Corporation
owns 49.75% of Scudder Trust Company
owns 50% of Scudder Defined Contributions Services, Inc.
owns 50% of Scudder Capital Stock Corporation
owns 50% Kemper Distributors Inc. [US - DE]
owns 50% of Scudder Capital Planning Corporation
owns 50% of Scudder Investor Services, Inc.
owns 100% of Scudder Insurance Agency Inc. (CA) [US - CA]
owns 100% of Scudder Insurance Agency, Inc.
owns 100% of Scudder Insurance Agency of New York, Inc.
owns 100% of SIS Investment Corporation
owns 50% of Scudder Brokerage Services, Inc.
owns 50% of Scudder Service Corporation
owns 1% of Scudder Realty Holdings (II) L.L.C.
owns 100% of SRV Investment Corporation
owns 100% of Scudder Realty Holdings Corporation
owns 50% of Scudder Capital Planning Corporation
owns 50% Kemper Service Company [US - DE]
owns 50% of Scudder Capital Asset Corporation
owns 50% of Scudder Fund Accounting Corporation
owns 50% of SS&C Investment Corporation
owns 50% of Scudder Investor Services, Inc. [US - MA]
owns 50% of Scudder Brokerage Services, Inc. [US - DE]
owns 50% of Scudder Capital Asset Corporation
owns 49.75% of Scudder Trust Company
owns 50% of Scudder Defined Contributions Services, Inc.
owns 50% of Scudder Capital Stock Corporation
owns 50% of Scudder Service Corporation
owns 99% of Scudder Realty Holdings (II) L.L.C.
owns 50% of Scudder Fund Accounting Corporation
owns 50% of SS&C Investment Corporation
owns 50% of AARP/Scudder Financial Management Company
owns 100% of Korea Bond Fund Management Co., Limited
owns 100% of Scudder Cayman L.A. Power II-P Ltd.
owns 100% of Scudder Cayman L.A. Power II-C Ltd.
owns 100% of SFA, Inc.
Zurich Holding Company of America [US-DE]
owns 36.6% of Scudder Kemper Investments, Inc. [US - DE]
owns 71.67% of Kemper Corporation
owns 100% of Federal Kemper Life Assurance Company [US - IL]
owns 50% of KI/FKLA Rancho Realty, L.L.C.
owns 30% of KL-75, L.L.C.
owns 66.70% of KI/FKLA Ardenwood, L.L.C.
owns 100% of Kemper Investors Life Insurance Company [US - IL]
owns 100% of Investors Brokerage Services, Inc. [US - DE]
owns 100% of Investors Brokerage Services Insurance Agency, Inc. [US - DE]
owns 100% IBS Insurance Agency Inc of Ohio [US-OH]
owns 100% of Investors Brokerage Services Insurance Agency, Inc. of Texas
[US - TX]
(*1) owns 60.10% of KI/FLA San Leandro, L.L.C.
owns 30% of KL-75, L.L.C.
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owns 33.30% of KI/FKLA Ardenwood, L.L.C.
owns 50% of KI/FKLA Rancho Realty, L.L.C.
owns 100% of Kemper Portfolio Corp. [US - DE]
owns 100% of FKLA Realty Corporation [US - IL]
owns 50% of Kemper Real Estate Management Company [US - DE]
owns 75% of KLMLP, L.P. [US - DE] (*2)
owns 100% Butterfield Financial Corporation [US-CA]
owns 100% of Kemper/Lumbermens Properties, Inc. [US - DE]
KADC, Inc [US-CA]
owns 100% of Ardenwood Financial Corporation [US - CA]
owns 100% of Zurich Life Insurance Company of America [US - IL]
owns 100% of Zurich Direct, Inc. [US - IL]
owns 33% of 20th Century Asset Management Corporation Limited [India]
owns 100% of KFC Portfolio Corp. [US - DE]
owns 100% of Kemper Real Estate, Inc. [US - DE]
owns 100% of Kemper/Cymrot, Inc. [US - DE]
owns 100% of Kemper/Cymrot Management, Inc. [US - GA]
owns 100% of KILICO Realty Corporation [US - IL]
KFC Portfolio Corp. owns 100% of KR CBDV [US - DE]
owns 100% of Maunalua Associates, Inc. [US - HI]
owns 100% of Pacific Homes, Inc. [US - HI]
Kemper Corporation owns 66.67% of ZKS Real Estate Partners, L.L.C. [US - DE]
Individual Shareholders own 20.86% of Scudder Kemper Investments, Inc. [US - DE]
SKI Executive Defined Contribution Plan owns 9.66% of Scudder Kemper
Investments, Inc. [US - DE]
Fidelity Life Association, A Mutual Legal Reserve Company [US - IL]
<TABLE>
<CAPTION>
NOTES
<S> <C> <C>
*1 = 100% owned by a Texas resident under contract with Investors Brokerage Services Insurance Agency, Inc. of Texas.
*2 = KLMLP, L.P. is a Delaware limited partnership. Kemper Corporation's indirect ownership of KLMLP, L.P. is as follows:
29.7% KILICO Realty Corporation; 20.85% FKLA Realty Corporation;
1.5% Kemper Portfolio Corp; 22.5% KFC Portfolio Corp.; 0.3%
Kemper Investors Life Insurance Company; and 0.15% Federal Kemper Life Assurance Company.
*3 = Lumbermens Mutual Casualty Company owns the remaining 3.03% of ZKI Holding Corp.
*4 = Zurich Insurance Company, together with various U.S. affiliates, owns 6,349,207 shares, or 14%, of the common stock of
Provident Companies, Inc.
</TABLE>
Percentages reflect direct common stock ownership, except as noted.
Except as noted, non-corporate (i.e., partnership) joint venture real
estate investments by subsidiaries of Kemper Corporation and Fidelity Life
Association are not shown.
ZURICH CENTRE INVESTMENTS
ZURICH INSURANCE COMPANY (ZURICH, SWITZERLAND)
owns 65% of Zurich Centre Group Holdings, Limited [Bda]
owns 43% of Zurich International (Bermuda) Ltd. [Bda.]
owns 35% of Zurich Centre Group Holdings Limited [Bda]
(ZC Advisors International [Bda] and ZC Advisors
[US - NY] have advisory contracts with Zurich Centre Investments Limited
[Bda]
owns 100% of Centre Reinsurance Services (Bermuda) II Limited [Bda]
owns 43% IPC GenPar (Bermuda) L.P. [Bda]
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owns 44% of Insurance GenPar (Bermuda), L.P. [Bda]
owns 1% and serves as GP of Insurance Partners Offshore (Bermuda),L.P.
owns 100% of ZC Sterling Holdings Limited [US - CA]
owns 81% of ZC Sterling Insurance Agency [US - CA]
owns 100% of Centre Reinsurance Holdings Limited [Bda]
owns 100% of Centre Solutions (Bermuda) Limited [Bda]
owns 50% of Advance Travel Holdings (Bermuda) Limited [Bda]
owns 51% of Strategic Risk Management Holdings Limited [Bda]
owns 100% SRM Brokers Limited [Bda]
owns 100% of SRM Consultants Limited [Bda]
owns 100% of Strategic Risk Management Limited [UK]
owns 100% of Strategic Risk Management (Propriety) Limited (South
Africa)
owns 100% of SRM Managers Limited [Bda]
owns 39.6% of Florida Select Insurance Holdings, Inc. [US - DE]
owns 100% of Florida Select Insurance Co. [US - FL]
owns 100% of Florida Select Insurance Agency [US - FL]
Centre Solutions (Bermuda) Limited (Bda)
owns non-voting common stock of Mendip Insurance & Reinsurance Company
Limited [Bda]
owns 100% of CP Holding Limited [BVI]
owns 100% of Centre Reinsurance Representatives Limited [UK]
owns 40% of Pacific Select Insurance Holding, Inc. [US - DE]
owns 100% Pacific Select Insurance Co. [US - CA]
owns 100% of Centre Investors I Limited [Bda]
owns 100% of Centre Investors II Limited [Bda]
owns 100% of Centre Investors III Limited [Bda]
owns 33% of Golden Gate Reinsurance Company Limited [Bda]
owns 100% of CRS III Limited [Bda]
owns 100% Centre Representatives (Asia) Limited (Hong Kong)
owns 16.1% of CAT Limited [Bda]
owns 100% of Superior National Capital, L.P. [Bda]
owns 100% of Centre Solutions (Australia) Limited [Aus]
owns 100% of Centre Reinsurance Services (Bermuda) IV Limited [Bda]
owns 100% of Finwas Financing (Bermuda) Limited [Bda]
owns 100% of Centre Reinsurance Limited [Bda]
Zurich Centre Group Holdings Limited (Bda)
owns 100% of Centre Re Holdings Dublin [Ireland]
owns 100% of Centre Reinsurance Holdings (Delaware II) Limited [US - DE]
owns 100% Centre Solutions (Asia) Limited (Bda)
CentreRe Holdings Dublin (Ireland)
owns 100% Centre Finance Dublin International (Ireland)
owns 100% Centre Investments Dublin (Ireland)
Centre Reinsurance Holdings (Delaware II) Limited
owns 100% of Centre Reinsurance Dublin [Ireland]
owns 100% of Centre Reinsurance Holdings (Delaware) Limited [US - DE]
owns 100% of Zurich Centre Group LLC (US-DE)
owns 100% of Centre Reinsurance (US) Limited [Bda]
owns 100% of Zurich Reinsurance Centre Holdings, Inc. [US - DE]
owns 100% of ZC Property Management [US - DE]
owns 100% of Zurich Reinsurance North America), Inc. [US - CT]
owns 100% of ZC Insurance Company [US - NJ]
owns 24% of Insurance Partners Advisors L.P. [US - DE]
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Centre Reinsurance Limited (Bda)
owns 100% of ZC Specialties Insurance Company [US - TX]
owns 100% of Constellation Reinsurance Company [US - NY]
owns 100% of BDA/US Services Limited [US - DE]
owns 100% of Centre Re Services, Inc. [US - NY]
owns 100% of ZC Resource L.L.C. [US-DE]
owns 100% of Zurich Centre Properties, Inc (US-CT)
ZC Resource LLC [US-DE]
owns 50% of Life Insurance Solutions LLC [US - DE]
owns 50% of Advance Travel Holdings [Delaware] Limited [US - DE]
owns 100% of Advance Travel Limited [US - DE]
owns 49% of Claims Solutions Group [US-DE]
owns 100% of Claims management Group [UK]
Centre Reinsurance Limited [Bda]
owns 100% of Bridge Re [Lux]
owns 100% Centre Insurance International Company [Ireland]
owns 100% of Centre Finance Dublin International [Ire]
owns 100% of Centre Reinsurance International Company [Ire]
owns 33% non-voting stock of International Insurance Advisors, Inc. [US - DE]
owns 54% of Insurance Partners Offshore (Bermuda), L.P. [Bda]
owns 100% of Anglo American Insurance Group Limited [Bda]
owns 30% of International Insurance Advisors, Inc
Zurich Centre Group Holdings Limited [Bda]
owns 100% Advisors, Inc.
owns 100% of Anglo American Insurance Holdings Limited [UK]
owns 100% of Anglo American Underwriting Management Limited [UK]
owns 100% of Anglo American Insurance Management Services Limited [UK]
Centre Reinsurance Limited (Bda)
owns 100% Centre Solutions Holdings II [Delaware] Limited (US-DE)
owns 100% Centre Risk Advisors, Inc. [US-DE]
owns 100% ZC Group LLC [US-DE]
owns 100% Centre Solutions [US] Limited [Bda]
owns 100% ZC Specialty Insurance Company [US-TX]
owns 100% Centre Solutions Holdings [Delaware] Limited [US-DE]
owns 100% Centre Insurance Company [US-DE]
owns 100% of Anglo American Insurance Co. Limited [UK]
owns 100% of Mercantile Indemnity Limited [UK]
owns 100% of Anglo American Insurance Company (Bermuda) Limited [Bda]
Centre Reinsurance Holdings Limited [Bda]
owns 100% of CentreLine Reinsurance Limited [Bda]
owns 100% of Mendip Insurance & Reinsurance Company Limited [Bda]
owns 100% of Strategic Services Centre Limited [Bda] - f/k/a Gear, Inc.
owns 100% of ZC Life Reinsurance Limited [Bda]
owns 100% of Centre Life Holdings (Delaware) Limited [US - DE]
owns 100% of Centre Life Reinsurance Limited [Bda]
Zurich Centre Group Holdings Limited [Bda]
owns 100% of Zurich Payroll Solutions Limited [US - DE]
owns 94% of Cedar Hill Holdings, Inc. [US - DE]
owns 100% of Cedar Hill Assurance Company [US - TX]
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owns 100% of ZCM Holdings (Bermuda) Limited [Bda]
owns 100% ZCM Matched Funding (Bermuda) Limited [Bda]
owns 100% of ZCM Asset Holding Company (Bermuda) Limited [Bda]
owns 100% of Zurich Capital Markets (UK) Limited [UK]
owns 100% of Zurich Capital Markets Inc. [US - DE]
owns 100% of Zurich Capital Markets Securities Inc. [US - DE]
owns 100% of ZCM Matched Funding Corp. [US - DE]
owns 100% of Zurich Capital Markets Company [Ireland]
owns 100% of Centre Financial Services Holdings Limited [Bda]
owns 100% of Zurich Structured Finance, Inc. [US - DE]
owns 100% Centre Kate Inc. 1 [US - DE]
owns 100% Centre Kate Inc. 2 [US - DE]
owns 47.125% of CentRe Mortgage Capital LLC [US - DE]
owns 100% of National Mortgage Capital LLC [US - MD]
owns 47.375% of CMC TEJV-1, LLC [US - DE]
owns 100% of CTH Affordable Housing Corporation [US - DE]
owns 100% of CTH Affordable Housing Investor, Inc. [US - DE]
owns 100% of CTH MHP, L.L.C. [US - DE]
owns 100% of CTH Special General Partner, Inc. [US - DE]
owns 100% of CTH MHP II, Inc. [US - IL]
owns 100% of CTH AHP Corporation [US - DE]
owns 100% of CTH WNC, Inc. [US - IL]
owns 100% of CTH Special General Partner II, Inc. [US - IL]
1% General Partner & 98% Limited Partner of JFS/ZSF 1997, L.P. [US - VA]
owns 34.5% common stock & 100% preferred stock of Centre Trading Partners,
L.P. [US - DE]
owns 45% of Centre Trading Corporation [US - DE]
owns 1% of Centre Trading Partners L.P. [US - DE]
owns 49% of CMB Limited [Bda]
owns 100% of Zurich Home Investments Limited [Bda]
owns 100% of Centre Reinsurance Services (Delaware) Limited [US - DE]
owns 44% of Insurance GenPar LP [US - DE]
owns 100% and serves as GP of Insurance Partners LP [US - DE]
CTH Affordable Housing Corporation
owns 100% ZSF Appollo Corporation [US - IL]
owns 100% CTH/Landmark SLP, Inc. [US - DE]
owns 100% ZSF Landmark Corporation [US - IL]
Zurich Centre Group Holdings Limited (Bda)
owns 50% THIC Holdings Management Corporation
owns 100% Centre Reinsurance Services (Bermuda) Limited (Bda)
owns 100% Zurich S.F. Holdings Inc. (US-DE)
owns 100% Sterling Forest LLC (US)
ZURICH INSURANCE COMPANY (ZURICH, SWITZERLAND)
owns 100% of Zurich International Service [Ire]
owns 100% of Zurich International Services [Lxm]
owns 100% of Marofinac [Mar]
owns 13.23% of La Garantie Generale Marocaine (GGM) [Mar]
owns 5% of Arab International Insurance Co. [Egy]
owns 68.76% of La Garantie Generale Marocaine (GGM) [Mar]
owns 80% of Zurich Life Assurance Company Ltd. [UK]
owns 50% of Previservice S.p.A. [Ity]
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owns 67% of Genevoise Vie (Geneva Life Insurance Co.) [Sw]
owns 0.923% of Zurich International [Blg]
owns 10% of Zurich Eurolife S.A. [Lux]
owns 100% of Turegum Immobilion AG [Sw]
owns 100% of Assuricum Zurich [Sw]
owns 99.87% of Zurich Leben (Life) Insurance Company [Sw]
owns 15% of Alstadt Insurance Co. [Sw]
owns 20% of Telsecur [Spn]
owns 100% of Zurich-Leben PKB [Sw]
owns 10% of Gestora [Spn]
owns 5% of National Insurance Company (Runoff) [Lxm]
owns 10% of Societe Jacquet [Blg]
owns 90% of Zurich Life International Services, Ltd. [UK]
owns 10% of Zurich life Insurance Company of Canada [Can]
owns 20% of Zurich Life Assurance Company Ltd. [UK]
owns 50% of Previservice S.p.A. [Ity]
owns 32.6% of Genevoise Vie (Geneva Life Insurance Co.) [Sw]
owns 99.075% of Zurich International [Blg]
owns 10% of Consultores de Pensiones [Spn]
owns 1% of ASSURYS Compagnie d'Assurances [Fra]
owns 90% of Zurich Eurolife S.A. [Lux]
owns 10% of Zurich Epargne Compagnie d'Assurances [Fra]
owns 100% of Rud, Blass & Cie AG [Sw]
owns 5% of National Insurance Company (Runoff) [Sau]
owns 100% of Genevoise Generale (Geneva General Insurance Co.) [Sw]
owns 10.32% of Zurich International (France) S.A. [Fra]
owns 99.99% of S.G.E.A. [Fra]
owns 2% of ASSURYS Compagnie d'Assurances [Fra]
owns 20% of Zurich Epargne Compagnie d'Assurances [Fra]
owns 80.77% of Danubio Compagnia di Assicurazioni S.p.A.
owns 58.64% of Zurich International (France) S.A. [Fra]
owns 96.99% of ASSURYS Compagnie d'Assurances [Fra]
owns 69.99% of Zurich Epargne Compagnie d'Assurances [Fra]
owns 99.87% of Alpina Insurance Co. [Sw]
owns 10% of Alstadt Insurance Co. [Sw]
owns 19.23% of Danubio Compagnia di Assicurazioni S.p.A. [Ity]
owns 31.01% of Zurich International (France) S.A. [Fra]
owns 74.95% of Alstadt Insurance Co. [Sw]
owns 90% of Zurich Insurance Services [Bah]
owns 99.46% of Zurich do Brazil [Brz]
owns 32% of CAARS [Brz]
owns 100% of Zurich-Anglo Seguradora S.A. [Brz]
owns 60% of Zurich Asia Holdings Ltd. [Bda]
owns 49% of Neango [Arg]
owns 38.7% of ISIS [Arg]
owns 100% of Turegum Insurance Co. [Sw]
owns 33.3% of Zurich Holdings (UK) Ltd. [UK]
owns 100% of Pilot Association [UK]
owns 100% of Zurich Municipal Marketing Services, Ltd. [UK]
owns 10% of Zurich Life International Services, Ltd. [UK]
owns 100% of Zurich Re (UK) Ltd. [UK]
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owns 100% of Zurich International (UK) Ltd. [UK]
owns 100% of General Surety Holding, Ltd. [UK]
owns 100% of General Surety & Guarantee Co. [UK]
owns 10% of Zurich Insurance Services [Bah]
owns 5% of Saudi National Insurance Co., E.C. (SNIC) [Sau]
owns 0.54% of Zurich do Brazil [Brz]
owns 7.5% of Zurich Asia Holdings Ltd. [Bda]
owns 62.5% of Zurich Insurance (Malaysia) Sdn Bhd. [Mal]
owns 100% of Zurich Insurance (Guam) Inc. [Gua]
owns 66.6% of Zurich Holdings (UK) Ltd. [UK]
owns 100% of Zurich Investment Management AG [Sw]
owns 100% of Zurich Versicherung - AG [Ger]
owns 100% of Central Lloyd Verwaltungsges mbH [Ger]
owns 42.7% of Iguazu Compania de Seguros [Arg]
owns 0.7% of Zurich Iguazu Compania de Seguros de Retiro S.A. [Arg]
owns 99.3% of Zurich Iguazu Compania de Seguros de Retiro S.A. [Arg]
owns 100% of Zurich International de Venezuela [Ven]
owns 30% of Zurich Chapultepec Compania de Seguros S.A. [Mex]
owns 50% of ZBV Beratungs-u. Verkaufs - AG [Sw]
owns 100% of HERA Vermogensverwaltung GmbH [Ger]
owns 100% of Zurich - Agrippina Beteiligungs - Aktiengesellschaft
(Deutschland) AG ZABAG [Ger]
owns 16.7% of BFI Betieigungsges fur Industriewerte [Ger]
owns 100% of Deutsche Allgemeine Leben Verischerung AG [Ger]
owns 100% of Deutsche Allgemeine Verischerung AG [Ger]
owns 100% of Zurich Rechtsschutz - Verischerungs - AG [Ger]
owns 100% of Zurich Kautions - und Kredit - AG [Ger]
owns 100% of Zurich International (Deutschland) [Ger]
owns 100% of Zurich Kredit Service GmbH [Ger]
owns 80% of Zurich Investmentges [Ger]
owns 100% of Zurich Gesellschaft fur Vermogensanlagen [Ger]
owns 98% of D. Kern Steuerberatung [Ger]
owns 100% of TDG Tele-Dienste GmbH [Ber]
owns 99.1% of Agrippina Versicherung [Ger]
owns 99.275% of Paria Versicherung - AG [Ger]
owns 100% of Anas Investment, Ltd. Dublin [Ire]
owns 92.3% of Agrippina Ruckversicherung - AG [Ger]
owns 98% of Agrippina Lebensversicherung - AG [Ger]
owns 100% of Agrippina Rechtsschultzversicherung - AG [Ger]
owns 100% of Banuud Kapital, mbH [Ger]
owns 100% of Zurich International (Netherland) N.V. [Nth]
owns 100% of Bastion B.V. [Nth]
owns 100% of Zurich International (Italia) S.p.A. [Ity]
owns 100% of Zurich Insurance Company, U.K. [UK]
owns 49% of Zurich Insurance Company (Russia) [Rus]
owns 100% of Fairfax House Securities Ltd. [UK]
owns 100% of Sanatorio Zurbaran [Spn]
owns 100% of Zurich Kosmos Versicherungen AG [Aus]
owns 100% of LASSAL Mobilien-und Immobilienvermitungs-und
Vetriebsservice GmbH [Aus]
owns 15% of Garant Eurasco [Aus]
owns 100% of Zurich Uberspieczenle Service Sp.z.o.o (Zurich Versicherung
Service GmbH) [Pol]
owns 100% of Zurich Biztositasi Szolgaltato Kft. (Zurich Versicherung
Service GmbH) [Hun]
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owns 99.99% of Inversiones Suizo Chilena [Chl]
owns 73.15% of Compania de Seguros Chilena Generales (Chilean General
Insurance) [Chl]
owns 98.65% of Compnia de Seguros Chilena de Vida (Life Insurance Co.)
[Chl]
owns 2.38% of Compania de Seguros Chilena Generales (Chilean General
Insurance) [Chl]
owns 100% of CRESTA Schadenhilfe GmbH [Aus]
owns 60% of Consultores de Pensiones [Spn]
owns 98.37% of Zurich International (Espana) Compania [Spn]
owns 20% of Consultores de Pensiones [Spn]
owns 40% of Telsecur [Spn]
owns 20% of Gestora [Spn]
owns 10% of Consultores de Pensiones [Spn]
owns 20% of Telsecur [Spn]
owns 60% of Gestora [Spn]
owns 100% of Caudal S.A. de Seguros y Reaseguros [Spn]
owns 10% of Gestora [Spn]
owns 20% of Telsecur [Spn]
owns 36.5% of Sicurta 1879 Assicurazioni S.p.A. [Ity]
owns 99.96% of SIAR (Societa Italiana Assicurazioni e Riassicurazionio)
S.p.A. [Ity]
owns 63.5% of Sicurta 1879 Assicurazioni S.p.A. [Ity]
owns 42.51% of Minerva Vita Assicurazioni S.p.A. [Ity]
owns 63.53% of Zeta Finanza S.p.A. [Ity]
owns 63% of Zeasim [Ity]
owns 100% of Zeta Fiduciaria [Ity]
owns 100% of Zeta Fondi [Ity]
owns 100% of Zetagest [Ity]
owns 0.08% of Zetasim [Ity]
owns 35% of ATAM [Ity]
owns 50.02% of Minerva Assicurazioni S.p.A. [Iy]
owns 24.95% of Minerva Vita Assicurazioni S.p.A. [Ity]
owns 1.13% of Zeta Finanza S.p.A. [Ity]
owns 35.71% of Edil-Spettacolo [Ity]
owns 50% of Toscana Uno [Ity]
owns 15.8% of Zeta Finanza S.p.A. [Ity]
owns 63.11% of ATAM [Ity]
owns 49.96% of Minerva Assicurazioni S.p.A. [Ity]
owns 29.01% of Minerva Vita Assicurazioni S.p.A. [Ity]
owns 19.54% of Zeta Finanza S.p.A. [Ity]
owns 100% of Erbasei S.p.A. [Ity]
owns 36.07% of Zetasim [Ity]
owns 100% of Zurich Australian Insurance Holdings, Ltd. [Ast]
owns 100% of Zurich Australian Staff Superannuation Pty. Ltd. [Ast]
owns 25% of Zurich Australian Insurance Properties Pty. Ltd. [Ast]
owns 100% of Zurich Australian Insurance Ltd. [Ast]
owns 25% of Zurich Australian Insurance Properties Pty. Ltd. [Ast]
owns 100% of Zurich Australian Life Insurance Ltd.
owns 50% of Zurich Australian Insurance Properties Pty. Ltd. [Ast]
owns 51% of National Accountancy Management Services Pty. Ltd. (NAMS)
[Ast]
owns 100% of Zurich Investment Management AG [Ast]
owns 100% of Zurich Australian Auperannuation Pty. Ltd. [Ast]
owns 100% of Zurich Properties Ltd. [Ast]
owns 100% of Zurich Australian Workers Compensation Victoria Pty. Ltd.
[Ast]
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<PAGE> 114
owns 25% of Australian Insurance Systems Holdings Pty. Ltd. [Ast]
owns 33.3% of Machinery Insurance Services Pty. Ltd. [Ast]
owns 87.25% of Zurich Pacific Insurance Pty. Ltd. [Png]
owns 100% of Zurich Australian Workers Commpensation Ltd. [Ast]
owns 50% of Associated marine Insurers [Ast]
owns 100% of Zurich Canadian Holdings ltd. [Can]
owns 50% of Multi Services Canada, Inc. [Can]
owns 50% of World Travel Protection, Inc. [Can]
owns 100% of Zurich Indemnity Company of Canada [Can]
owns 50% of Zurich Canada Investment Management, Ltd. [Can]
owns 100% of Zurich Life of Canada Holdings, Ltd. [Can]
owns 100% of Zurich Life & Health Insurance Company [Can]
owns 48.7% [Class A] of ZURMEX Canadian Holdings, Ltd. [Can]
owns 90% of Zurich Life Insurance Company of Canada [Can]
owns 100% of MICOBA Holdings Ltd. [Bah]
owns 15.91% of MICO Equities Inc. [Phl]
owns 100% of Malayan Insurance Company, Inc. [MICO] [Phl]
owns 50% of Pan Malayan Insurance Company [Phl]
owns 15.96% of First Nationwide Assurance Corporation [Phl]
owns 11.51% of Eastern General Reinsurance Corp. [Phl]
owns 70% of Malayan Zurich Insurance Company [Phl]
owns 10.01% of Eastern General Reinsurance Corp. [Phl]
owns 18.23% of Eastern General Reinsurance Corp. [Phl]
owns 36.03% of First Nationwide Assurance Corporation [Phl]
owns 99.99% of Asia-Pacific Reinsurance Co., Ltd. [B.V.I.]
owns 51.37% of Eastern General Reinsurance Corp. [Phl]
owns 47.98% of First Nationwide Assurance Corporation [Phl]
owns 14.40% of MICO Equities Inc. [Phl]
owns 99.99% of Malayan International Insurance Corporation, Ltd[Bah]
owns 100% of Malayan Insurance Co. (UK) Ltd. [UK]
owns 100% of Malayan Insurance Co. (Hong Kong) Ltd. [Hkg]
owns 80% of P.T. Zurich Insurance Indonesia [Ind]
owns 70% of P.T. PSP Life Insurance Indonesia [Ind]
owns 75% of Zurich Insurance Co. (Asia) Ltd. [Hkg]
owns 100% of Zurich Insurance Company (Singapore) Pte. Ltd. [Sing]
owns 30% of Malayan Zurich Insurance Company [Phl]
ALLIED ZURICH P.L.C. (UK)
owns 43% of Zurich Financial Services [SWITZERLAND](see above)
ITEM 27. NUMBER OF CONTRACTOWNERS
As of the date of this filing, there are no contract owners.
ITEM 28. INDEMNIFICATION
Under its By-laws, Farmers, to the full extent permitted by the
Washington Business Corporation Act, will indemnify any person who was or is a
party to any proceeding by reason of the fact that he or she is or was a
director of Farmers, as provided below.
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<PAGE> 115
By-laws of Farmers New World Life Insurance Company(as amended October 24, 1995)
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
SECTION 47. (a) RIGHT OF INDEMNITY. Each person who acts as a Director, officer
or employee of the corporation shall be indemnified by the corporation for all
sums which he becomes obligated to pay, (including counsel fees, expenses and
court costs actually and necessarily incurred by him) in connection with any
action, suit or proceeding in which he is made a party by reason of his being,
or having been a Director, officer, or employee of the corporation, except in
relation to matters as to which he shall be adjudged in such action, suit or
proceeding to be liable for bad faith or misconduct in the performance of his
duties as such Director, officer or employee, and except any sum paid to the
corporation in settlement of an action, suit or proceeding based upon bad faith
or misconduct in the performance of his duties.
(b) SCOPE OF INDEMNITY. The right of indemnification in this article
provided shall inure to each Director, officer and employee of the corporation,
whether or not he is such Director, officer or employee at the time he shall
become obligated to pay such sums, and whether or not the claim asserted against
him is based on matters which antedate the adoption of this article; and in the
event of his death shall extend to his legal representatives. Each person who
shall act as a Director, officer or employee of the corporation shall be deemed
to be doing so in reliance upon such right of indemnification; and such right
shall not be deemed exclusive of any other right to which any such person may be
entitled, under any by-law, agreement, vote of stockholders, or otherwise.
(c) DETERMINATION OF CLAIMS FOR INDEMNITY. The Board of Directors of
the corporation, acting at a meeting at which a majority of the quorum is
unaffected by self-interest (notwithstanding that other members of the quorum
present but not voting may be so affected), shall determine the propriety and
reasonableness of any indemnity claimed under this article, and such
determination shall be final and conclusive. If, however, a majority of a quorum
of the Board which is unaffected by self-interest and willing to act is not
obtainable, the Board in its discretion may appoint from among the stockholders
who are not Directors or officers or employees of the corporation, a committee
of two or more persons to consider and determine any such question, and the
determination of such committee shall be final and conclusive.
RULE 484 UNDERTAKING
Insofar as indemnification for liability arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the
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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.
<TABLE>
<CAPTION>
ITEM 29. PRINCIPAL UNDERWRITER
<S> <C>
(a) Investors Brokerage Services, Inc. is the registrant's
principal underwriter. It is also the principal
underwriter for KILICO Variable Annuity Separate
Account, KILICO Variable Separate Account, Kemper
Investors Life Insurance Company Variable Annuity
Account C and FKLA Variable Separate Account.
(b) Officers and Directors of Investors Brokerage Services, Inc.,
and their addresses, are as follows:
</TABLE>
<TABLE>
<CAPTION>
Name and Principal Business Address* Positions and Offices with the Underwriter
------------------------------------ ------------------------------------------
<S> <C>
John B. Scott ................................. Chairman and Director
Michael E. Scherrman........................... President and Director
Michael A. Kelly .............................. Vice President
David S. Jorgensen............................. Vice President and Treasurer
Debra P. Rezabek .............................. Secretary
Frank J. Julian ............................... Assistant Secretary
Allen R. Reed ................................. Assistant Secretary
Kenneth M. Sapp ............................... Director
Eliane C. Frye ................................ Director
George Vlaisavljevich.......................... Director
</TABLE>
* All of the persons listed above have as their principal business address:
1 Kemper Drive, Long Grove, Illinois 60049-0001.
<TABLE>
<S> <C> <C> <C> <C>
(c)(1) (2) (3) (4) (5)
Name of Net Underwriting
Principal Discounts and Compensation on Brokerage
Underwriter Commissions Redemption Commissions Compensation
- ----------- ----------- ------------- ----------- ------------
</TABLE>
As of the date of this filing, no compensation has been paid to the underwriter.
ITEM 30. LOCATION OF BOOKS AND RECORDS
All of the accounts, books, records or other documents required to
be kept by Section 31(a) of the Investment Company Act of 1940 and rules
thereunder, are maintained by Farmers New World Life Insurance Company at 3003 -
77th Avenue, S.E., Mercer Island, WA 98040 and by McCamish Systems, L.L.C. at
6425 Powers Ferry Road, Atlanta, GA 30339.
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<PAGE> 117
ITEM 31. MANAGEMENT SERVICES
All management contracts are discussed in Part A or Part B of this
registration statement.
ITEM 32. UNDERTAKINGS AND REPRESENTATIONS.
(a) The registrant undertakes that it will file a
post-effective amendment to this registration statement
as frequently as is necessary to ensure that the audited
financial statements in the registration statement are
never more than 16 months old for as long as purchase
payments under the contracts offered herein are being
accepted.
(b) The registrant undertakes that it will 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 post card or similar written communication
affixed to or included in the prospectus that the
applicant can remove and send to Farmers New World Life
Insurance Company for a statement of additional
information.
(c) The registrant undertakes to deliver any statement of
additional information and any financial statements
required to be made available under this Form N-4
promptly upon written or oral request to the Company at
the address or phone number listed in the prospectus.
(d) The Company represents that in connection with its
offering of the contracts as funding vehicles for
retirement plans meeting the requirements of Section
403(b) of the Internal Revenue Code of 1986, it is
relying on a no-action letter dated November 28, 1988,
to the American Council of Life Insurance (Ref. No.
IP-6-88) regarding Sections 22(e), 27(c)(1), and 27(d)
of the Investment Company Act of 1940, and that
paragraphs numbered (1) through (4) of that letter will
be complied with.
(e) The Company hereby represents that the fees and charges
deducted under the Contracts, in the aggregate, are
reasonable in relation to the services rendered, the
expenses expected to be incurred, and the risks assumed
by the Company.
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<PAGE> 118
As required by the Securities Act of 1933 and the Investment Company
Act of 1940, the Registrant, Farmers Annuity Separate Account A, has caused this
Pre-Effective Amendment No. 1 to the registration statement to be signed on its
behalf, in the City of Mercer Island, and the State of Washington, on this 15th
day of November, 1999.
FARMERS ANNUITY
SEPARATE ACCOUNT A (Registrant)
Attest: /s/ John R. Patton By: /s/ C. Paul Patsis
------------------- -------------------
John R. Patton C. Paul Patsis
Assistant Vice President President
and Secretary Farmers New World Life
Farmers New World Life Insurance Company
Insurance Company
By: FARMERS NEW WORLD LIFE
INSURANCE COMPANY (Depositor)
Attest: /s/ John R. Patton By: /s/ C. Paul Patsis
------------------ -------------------
John R. Patton C. Paul Patsis
Assistant Vice President President
and Secretary Farmers New World Life
Farmers New World Life Insurance Company
Insurance Company
As required by the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ C. Paul Patsis President and Director (Principal November 15, 1999
- -------------------------- Executive Officer)
C. Paul Patsis
/s/ David A. Demmon * Assistant Vice President and November 15, 1999
- -------------------------- Treasurer (Principal Accounting
David A. Demmon Officer and Principal Financial
Officer)
/s/ Richard E. Bangert * Director November 15, 1999
- --------------------------
Richard E. Bangert
/s/ Donald J. Covey * Director November 15, 1999
- --------------------------
Donald J. Covey
</TABLE>
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<PAGE> 119
<TABLE>
<S> <C> <C>
/s/ Martin D. Feinstein * Director November 15, 1999
- -------------------------
Martin D. Feinstein
/s/ Paul N. Hopkins * Director November 15, 1999
- -------------------------
Paul N. Hopkins
/s/ Dennis I. Okamoto * Director November 15, 1999
- -------------------------
Dennis I. Okamoto
/s/ Keitha T. Schofield * Director November 15, 1999
- -------------------------
Keitha T. Schofield
/s/ Gary R. Severson * Director November 15, 1999
- -------------------------
Gary R. Severson
/s/ John F. Sullivan, Jr.* Director November 15, 1999
- --------------------------
John F. Sullivan, Jr.
/s/ C. Paul Patsis
- --------------------------
* By: C. Paul Patsis On November 15, 1999, as Attorney-in-Fact pursuant to
powers of attorney filed herewith.
</TABLE>
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<PAGE> 120
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C>
Exhibit 3(a) Form of Distribution Agreement between Farmers New World Life Insurance Company and
Investors Brokerage Services, Inc.
Exhibit 3(b) Form of Investors Brokerage Services, Inc. Registered Representative Agreement
Exhibit 4(a) Revised Form of Contract for the Individual Flexible Premium Variable Annuity
Exhibit 4(b) Revised Guaranteed Minimum Death Benefit Rider
Exhibit 4(c) Revised Guaranteed Retirement Income Benefit Rider
Exhibit 4(d) Waiver of Surrender Charge Rider - Terminal Illness
Exhibit 4(e) Waiver of Surrender Charge Rider - Nursing Care
Exhibit 4(f) Savings Incentive Match Plan for Employees (SIMPLE) Individual Retirement Annuity Amendment Rider (20153)
Exhibit 4(g) Individual Retirement Annuity Amendment Rider (20129)
Exhibit 4(h) Roth Individual Retirement Annuity Endorsement (20181)
Exhibit 5(a) Form of Application for the Individual Flexible Premium Variable Annuity
Exhibit 5(b) Form of Variable Policy Application Supplement
Exhibit 8(a) Form of Participation Agreement between Kemper Variable Series and Farmers New World Life Insurance
Company
Exhibit 8(b) Form of Participation Agreement between Scudder Variable Life Investment Fund and Farmers New World Life
Insurance Company
Exhibit 8(c) Form of Indemnification Agreement between Scudder Kemper Investment, Inc. and Farmers New World Life
Insurance Company
Exhibit 8(d) Form of Participation Agreement between Janus Aspen Series and Farmers New World Life Insurance Company
Exhibit 8(e) Form of Participation Agreement between PIMCO Variable Insurance Trust and Farmers New World Life
Insurance Company
</TABLE>
<PAGE> 121
<TABLE>
<S> <C>
Exhibit 8(f) Form of Participation Agreement between Templeton Variable Products Series Fund and Farmers New World
Life Insurance Company
Exhibit 8(g) Form of Consulting Services Agreement between McCamish Systems, L.L.C. and Farmers New World Life
Insurance Company
Exhibit 8(h) Form of Master Administration Agreement between McCamish Systems, L.L.C. and Farmers New World Life
Insurance Company
Exhibit 9 Opinion and Consent of M. Douglas Close, Esq.
Exhibit 10(a) Consent of Sutherland Asbill & Brennan LLP
Exhibit 10(b) Consent of Deloitte & Touche LLP
</TABLE>
<PAGE> 1
EXHIBIT 3(a)
DISTRIBUTION AGREEMENT
AGREEMENT made this __________________ day of ______________________________
1999 by and between Farmers New World Life Insurance Company, a Washington
corporation ("FNWL"), on its behalf and on behalf of each separate account
identified in Schedule 1 hereto, and Investors Brokerage Services, Inc.
("Distributor"), an Illinois corporation.
WITNESSETH
WHEREAS, Distributor is a broker-dealer that engages in the distribution of
variable insurance products and may engage in the distribution of other
investment products;
WHEREAS, FNWL desires to issue certain variable insurance products described
more fully below to the public through Distributor acting as principal
underwriter and distributor; and
WHEREAS, FNWL and Distributor acknowledge that Distributor may distribute
variable insurance products and other investment products for other companies.
NOW, THEREFORE, in consideration of their mutual promises, FNWL and Distributor
hereby agree as follows:
1. DEFINITIONS
a. Contracts -- The class or classes of variable insurance products set forth
on Schedule 2 to this Agreement as in effect at the time this Agreement is
executed, and such other classes of variable insurance products that may be
added to Schedule 2 from time to time in accordance with Section 10.b of this
Agreement, and including any riders to such contracts and any other contracts
offered in connection therewith. For this purpose and under this Agreement
generally, a "class of Contracts" shall mean those Contracts issued by FNWL on
the same policy form or forms and covered by the same Registration Statement.
b. Registration Statement -- At any time that this Agreement is in effect,
each currently effective registration statement filed with the SEC under the
1933 Act on a prescribed form, or currently effective post-effective amendment
thereto, as the case may be, relating to a class of Contracts, including
financial statements included in, and all exhibits to, such registration
statement or post-effective amendment. For purposes of Section 8 of this
Agreement, the term "Registration Statement" means any document which is or at
any time was a Registration Statement within the meaning of this Section 1.b.
c. Prospectus -- The prospectus included within a Registration Statement,
except that, if the most recently filed version of the prospectus (including any
supplements thereto) filed pursuant to Rule 497 under the 1933 Act subsequent to
the date on which a Registration Statement became effective differs from the
prospectus included within such Registration Statement at the time it became
effective, the term "Prospectus" shall refer to the most recently filed
prospectus filed under Rule 497 under the 1933 Act, from and after the date on
which it shall have been filed. For purposes of Section 8 of this
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Agreement, the term "any Prospectus" means any document which is or at any time
was a Prospectus within the meaning of this Section 1.c.
d. Fund -- An investment company in which the Separate Account invests.
e. Variable Account -- A separate account supporting a class or classes of
Contracts and specified on Schedule 1 as in effect at the time this Agreement is
executed, or as it may be amended from time to time in accordance with Section
10.b of this Agreement.
f. 1933 Act -- The Securities Act of 1933, as amended.
g. 1934 Act -- The Securities Exchange Act of 1934, as amended.
h. 1940 Act -- The Investment Company Act of 1940, as amended.
i. SEC -- The Securities and Exchange Commission.
j. NASD -- The National Association of Securities Dealers, Inc.
k. Representative -- An individual who is an associated person of Distributor,
as that term is defined in the 1934 Act.
l. Application -- An application for a Contract.
m. Premium -- A payment made under a Contract by an applicant or purchaser to
purchase benefits under the Contract.
2. AUTHORIZATION AND APPOINTMENT
a. Scope of Authority. FNWL hereby authorizes Distributor on an exclusive
basis, and Distributor accepts such authority, subject to the registration
requirements of the 1933 Act and the 1940 Act and the provisions of the 1934 Act
and conditions herein, to be the distributor and principal underwriter for the
sale of the Contracts to the public in each state and other jurisdiction in
which the Contracts may lawfully be sold during the term of this Agreement. The
Contracts shall be offered for sale and distribution at Premium rates set from
time to time by FNWL. Distributor shall use its best efforts to market the
Contracts actively subject to compliance with applicable law, including the
rules of the NASD. However, Distributor shall not be obligated to sell any
specific number or amount of Contracts. Also, the parties acknowledge and agree
that Distributor may distribute variable insurance products and other investment
products for other companies. Completed applications for Contracts shall be
transmitted directly to FNWL for acceptance or rejection in accordance with the
underwriting rules established by FNWL.
b. Limits on Authority. Distributor shall act as an independent contractor and
nothing herein contained shall constitute Distributor or its agents, officers or
employees as agents, officers or employees of FNWL solely by virtue of their
activities in connection with the sale of the Contracts hereunder. Distributor
and its Representatives shall not have authority, on behalf of FNWL: to make,
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<PAGE> 3
alter or discharge any Contract or other insurance policy or annuity 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
(except for the sole purpose of forwarding monies or Premiums to FNWL).
Distributor shall not expend, nor contract for the expenditure of, the funds of
FNWL. Distributor shall not possess or exercise any authority on behalf of FNWL
other than that expressly conferred on Distributor by this Agreement.
3. SOLICITATION ACTIVITIES
a. Representatives. No Representative shall solicit the sale of a Contract
unless at the time of such solicitation such individual is duly registered with
the NASD and duly licensed with all applicable state insurance and securities
regulatory authorities, and is duly appointed as an insurance agent of FNWL.
b. Solicitation Activities. All solicitation and sales activities engaged in
by Distributor and its Representatives with respect to the Contracts shall be in
compliance with all applicable federal and state securities laws and
regulations, as well as all applicable insurance laws and regulations, and
compliance manuals provided by FNWL. In particular, without limiting the
generality of the foregoing:
(1) Distributor, along with appropriate FNWL registered principals, shall
train, supervise and be solely responsible for the conduct of Representatives in
their solicitation of applications and Premiums and distribution of the
Contracts under, and shall supervise their compliance with, applicable rules and
regulations of any securities regulatory agencies that have jurisdiction over
variable insurance product activities.
(2) Neither Distributor nor any Representative shall offer, attempt to offer,
or solicit Applications for, the Contracts or deliver the Contracts, in any
state or other jurisdiction unless FNWL has notified Distributor that such
Contracts may lawfully be sold or offered for sale in such state, and has not
subsequently revised such notice.
(3) Neither Distributor nor any Representative shall give any information or
make any representation in regard to a class of Contracts in connection with the
offer or sale of such class of Contracts that is not in accordance with the
Prospectus for such class of Contracts, or in the then-currently effective
prospectus or statement of additional information for a Fund, or in current
advertising materials for such class of Contracts authorized by FNWL.
(4) All Premiums paid by check or money order that are collected by Distributor
or any of its Representatives shall be remitted promptly, and in any event
within two business days after receipt in full, together with any Applications,
forms and any other required documentation, to FNWL. Checks or money orders in
payment of Premiums shall be drawn to the order of "Farmers New World Life
Insurance Company." If any Premium is held at any time by Distributor,
Distributor shall hold such Premium in a fiduciary capacity and such Premium
shall be remitted promptly, and in any event within two business days, to FNWL.
Distributor acknowledges that all such Premiums, whether by check, money order
or wire, shall be the property of FNWL. Distributor acknowledges that FNWL shall
have the unconditional right to reject, in whole or in part, any Application or
Premium.
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c. Suitability. FNWL and Distributor wish to ensure that the Contracts sold by
Distributor will be issued to purchasers for whom the Contracts are suitable.
Distributor shall require that the Representatives have reasonable grounds to
believe that a recommendation to an applicant to purchase a Contract is suitable
for that applicant. Distributor shall review all applications for suitability in
accordance with Rule 2310 of the NASD Conduct Rules and interpretations and
guidance relating thereto. FNWL will review all applications under the
suitability standards set forth in variable life insurance regulations adopted
by states where the Contracts are sold, and standards adopted by FNWL or as set
forth in compliance and operational manuals. While not limited to the following,
a determination of suitability shall be based on information furnished to a
Representative after reasonable inquiry of the applicant concerning his or her
financial status, retirement needs, reasons for purchasing a Contract,
investment sophistication and experience, other securities holdings, investment
objectives (including risk tolerance), investment time horizon and tax status.
d. Representations and Warranties of Distributor. Distributor represents and
warrants to FNWL that 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 duly registered under applicable state securities laws, and
that Distributor is and shall remain during the term of this Agreement in
compliance with Section 9(a) of the 1940 Act.
4. MARKETING MATERIALS
a. Preparation and Filing. FNWL and Distributor shall together 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. Distributor
shall be responsible for filing such material with the NASD and any state
securities regulatory authorities requiring such filings. FNWL shall be
responsible for filing all promotional, sales or advertising material, as
required, with any state insurance regulatory authorities. FNWL 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 and filing them with 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.
b. Use in Solicitation Activities. FNWL shall be responsible for furnishing
Distributor with such Applications, Prospectuses and other materials for use by
Distributor and Representatives in their solicitation activities with respect to
the Contracts. FNWL shall notify Distributor of those states or jurisdictions
which require delivery of a statement of additional information with a
Prospectus to a prospective purchaser. Distributor or its Representatives shall
not use any promotional, sales or advertising materials that have not been
approved by FNWL.
5. COMPENSATION AND EXPENSES
a. FNWL shall pay compensation for sales of the Contracts in accordance with
the schedules to the Registered Representatives Agreements attached hereto, as
revised from time to time by Distributor.
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b. FNWL shall pay all expenses, except for commissions to Representatives, in
connection with the variable products including, but not limited to, the
preparation and filing of the Contracts, Registration Statements, and
promotional materials. FNWL will pay commissions to the Representatives as
paying agent on behalf of Distributor and will maintain the books and records
reflecting such payments in accordance with the requirements of the 1934 Act on
behalf of Distributor.
6. COMPLIANCE
a. Maintaining Registration and Approvals. FNWL 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.
b. Confirmations and 1934 Act Compliance. FNWL, as agent for Distributor,
shall confirm to each applicant for and 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 Rule 10b-10 or administrative interpretations
thereunder. FNWL shall maintain and preserve books and records with respect to
such confirmations in conformity with the requirements of Rules 17a-3 and 17a-4
under the 1934 Act to the extent such requirements apply. The books, accounts
and records of FNWL, the Variable Account and Distributor as to all transactions
hereunder shall be maintained so as to disclose clearly and accurately the
nature and details of the transactions. FNWL shall maintain, as agent for
Distributor, such books and records of Distributor pertaining to the offer and
sale of the Contracts and required by the 1934 Act as may be mutually agreed
upon by FNWL and Distributor, including but not limited to maintaining a record
of Representatives and of the payment of commissions and other payments or
service fees to Representatives. In addition, FNWL, as agent for Distributor,
shall maintain and preserve such additional accounts, books and other records as
are required of FNWL and Distributor by the 1934 Act. FNWL shall maintain all
such books and records and hold such books and records on behalf of and as agent
for Distributor whose property they are and shall remain, and acknowledges that
such books and records are at all times subject to inspection by the SEC in
accordance with Section 17(a) of the 1934 Act, NASD, and all other regulatory
bodies having jurisdiction.
c. Reports. Distributor shall cause FNWL to be furnished with such reports as
FNWL may reasonably request for the purpose of meeting its reporting and record
keeping requirements under the 1933 Act, the 1934 Act and the 1940 Act and
regulations thereunder as well as the insurance laws of the State of Illinois
and any other applicable states or jurisdictions.
d. Issuance and Administration of Contracts. FNWL shall be responsible for
issuing the Contracts and administering the Contracts and the Variable Account,
provided, however, that Distributor shall have full responsibility for the
securities activities of all persons employed by FNWL, 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. INVESTIGATIONS AND PROCEEDINGS
a. Cooperation. Distributor and FNWL shall cooperate fully in any securities
or insurance regulatory investigation or proceeding or judicial proceeding
arising in connection with the offering, sale or
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distribution of the Contracts distributed under this Agreement. Without limiting
the foregoing, FNWL and Distributor shall notify each other promptly of any
customer complaint or notice of any regulatory investigation or proceeding or
judicial proceeding received by either party with respect to the Contracts.
b. Customer Complaints. Distributor agrees that it will comply with the
reporting requirements imposed by Section 3070 of the NASD Rules of Conduct with
regard to the sales of the Contracts. Without limiting the foregoing,
Distributor agrees to notify the NASD if Distributor or persons associated with
the Distributor are the subject of any written customer complaint involving
allegations of theft, forgery or misappropriation of funds or securities, or is
the subject of any claim for damages by a customer, broker, or dealer which is
settled for an amount exceeding $15,000.
8. INDEMNIFICATION
a. By FNWL. FNWL shall indemnify and hold harmless Distributor and any
officer, director, or employee of 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 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:
(1) 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; provided that FNWL 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 FNWL by Distributor specifically for use in the
preparation of any such Registration Statement or any amendment thereof or
supplement thereto;
(2) result from any breach by FNWL of any provision of this Agreement.
This indemnification agreement shall be in addition to any liability that FNWL
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 Distributor. Distributor shall indemnify and hold harmless FNWL and any
officer, director, or employee of FNWL 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
FNWL 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:
(1) 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
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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; 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
Distributor to FNWL specifically for use in the preparation of any such
Registration Statement or any amendment thereof or supplement thereto;
(2) result from any breach by Distributor of any provision of this Agreement;
(3) result from Distributor's own misconduct or negligence.
This indemnification shall be in addition to any liability that 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 Section 8 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 Section 8 ("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
Section 8. 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 Section 8 shall remain
operative in full force and effect, regardless of any termination of this
Agreement. A successor by law of Distributor or FNWL, as the case may be, shall
be entitled to the benefits of the indemnification provisions contained in this
Section 8.
9. TERMINATION. This Agreement shall terminate automatically if it is assigned
by the Distributor without the prior written consent of the other party. This
Agreement may be terminated at any time for any reason by either party upon 60
days' written notice to the other party, without payment of any penalty. (The
term "assigned" shall not include any transaction exempted from Section 15(b)(2)
of the 1940 Act.) This Agreement may be terminated at the option of either party
to this Agreement upon the other party's material breach of any provision of
this Agreement or of any representation or warranty made in this Agreement,
unless such breach has been cured within 10 days after receipt of notice of
breach from the non-breaching party. Upon termination of this Agreement, all
authorizations, rights and obligations shall cease except the following:
(1) the obligation to settle accounts hereunder, including commissions on
Premiums subsequently received for Contracts in effect at the time of
termination or issued pursuant to Applications received by FNWL prior to
termination; (2) the provisions contained in Section 8 regarding and, (3) the
provisions contained in Section 3(b)(4) regarding the remittance of premiums.
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In the event of any termination for any reason, all books and records and sales
or marketing materials held by Distributor shall promptly be returned to FNWL
free from any claim or retention of rights by Distributor.
10. MISCELLANEOUS
a. Binding Effect. This Agreement shall be binding on and shall inure to the
benefit of the respective successors and assigns of the parties hereto provided
that neither party shall assign this Agreement or any rights or obligations
hereunder without the prior written consent of the other party.
b. Schedules. The parties to this Agreement may amend Schedules 1 and 2 to this
Agreement from time to time to reflect additions of any class of Contracts and
Variable Accounts. The provisions of this Agreement shall be equally applicable
to each such class of Contracts and each Variable Account that may be added to
the Schedule, unless the context otherwise requires. FNWL and Distributor may
modify Schedule 3 as mutually agreed in writing from time to time. Any other
change in the terms or provisions of this Agreement shall be by written
agreement between FNWL and Distributor.
c. 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.
d. Notices. All notices hereunder are to be made in writing and shall be
given:
if to FNWL, to:
C. Paul Patsis, President
Farmers New World Life Insurance Company
3003 77th Avenue S.E.
Mercer Island, WA 98040
with a copy to:
M. Douglas Close
Vice President & General Counsel
Farmers New World Life Insurance Company
4680 Wilshire Boulevard
Los Angeles, CA 90010
if to Distributor, to:
Michael Scherrman, President
Investors Brokerage Services, Inc.
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1 Kemper Drive
Long Grove, IL 60049
or such other address as such party may hereafter specify in writing.
Each such notice to a party shall be either hand delivered or transmitted by
registered or certified United States mail with return receipt requested, or by
overnight mail by a nationally recognized courier, and shall be effective upon
delivery.
e. Interpretation; Jurisdiction. 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 subject matter. No prior
writings 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
provision of this Agreement. This Agreement is made in the State of Washington,
and all questions concerning its validity, construction or otherwise shall be
determined under the laws of Washington without giving effect to principals of
conflict of laws.
f. 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.
g. Section and Other Headings. The headings 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.
h. Counterparts. This Agreement may be executed in two or more counterparts,
each of which taken together shall constitute one and the same instrument.
i. Regulation. This Agreement shall be subject to the provisions of the 1933
Act, 1934 Act and 1940 Act and the regulations thereunder and the rules and
regulations of the NASD, from time to time in effect, including such exemptions
from the 1940 Act as the SEC may grant, and the terms hereof shall be
interpreted and construed in accordance therewith.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed by such authorized officers on the date specified above.
FARMERS NEW WORLD LIFE INSURANCE COMPANY
FNWL
By:
------------------------------
Name: C. Paul Patsis
Title: President
INVESTORS BROKERAGE SERVICES, INC.
Distributor
By:
------------------------------
Name: Michael Scherrman
Title: President
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SCHEDULE 1
For purposes of the Distribution Agreement between FNWL and Distributor entered
into on the_____day of__________, 1999, the separate accounts are as follows:
1. Farmers Annuity Separate Account A
2. Farmers Variable Life Separate Account A
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SCHEDULE 2
For purposes of the Distribution Agreement between FNWL and Distributor entered
into on the____day of__________, 1999, the variable products are as follows:
1. Farmers Variable Annuity
2. Farmers Variable Universal Life
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SCHEDULE 3
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EXHIBIT 3(b)
INVESTORS BROKERAGE SERVICES, INC. REGISTERED REPRESENTATIVE AGREEMENT
This Agreement is entered into as of the _______ date of
______________, ________ by and between INVESTORS BROKERAGE SERVICES, INC.
(hereinafter referred to as "Broker-Dealer") and _____________________________
(hereinafter referred to as "Registered Rep").
WHEREAS, Broker-Dealer is a securities broker-dealer registered and
qualified to transact business pursuant to rules and regulations promulgated by
the Securities and Exchange Commission (the "SEC") and the National Association
of Securities Dealers, Inc. (The "NASD") and certain securities regulators;
WHEREAS, Registered Rep is duly qualified and licensed to sell variable
life insurance policies and variable annuity policies (together, "Variable
Products"); and
WHEREAS, the parties mutually desire to enter into this Agreement so
that Registered Rep may sell and service Variable Products on behalf of
Broker-Dealer;
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions as hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
AUTHORIZATION
Broker-Dealer hereby authorizes Registered Rep to become one of its
registered representatives and to execute securities transactions, including
Variable Products sales, exclusively through it. Registered Rep hereby accepts
that authorization.
ARTICLE II
REGISTERED REP'S OBLIGATIONS
SECTION 2.1 GENERAL. Registered Rep will solicit applications for
insurance, collect premiums, fees and charges, countersign and deliver policies,
reinstate and transfer insurance, assist policy holders and cooperate in
reporting and handling claims, avoid conflicts of interest, comply with all laws
and regulations, and cooperate with and advance the interests of Broker-Dealer,
the registered representatives, and the policyholders.
SECTION 2.2 COMPLIANCE WITH LAWS, RULES, REGULATIONS, ETC. All
Registered Rep's activities in connection with the offer and sale of Variable
Products shall conform to the requirements of state and federal securities laws,
rules, regulations and interpretive guidance, the Conduct Rules of the NASD, and
state insurance laws, rules, regulations and interpretive guidance.
<PAGE> 2
SECTION 2.3 LICENSING AND REGISTRATION. Registered Rep shall remain:
a. registered with the NASD and, if necessary, any applicable state
securities regulatory authority; and
b. Licensed as an insurance agent with authority to sell Variable
Products in any State in which Registered Rep will sell such
Variable Products.
Registered Rep shall take all steps necessary to keep all such registrations and
licenses in force during the term of this Agreement.
SECTION 2.4 COMPLIANCE MANUAL. Registered Rep(s) will familiarize and
comply with, all the requirements set forth in the INVESTORS BROKERAGE SERVICES,
INC. Compliance and Procedures Manual (the "Compliance Manual"), as it may be
amended from to time and supplemented by addendums, attachments or compliance
memoranda from Broker-Dealer. Without limiting the generality of the preceding
sentence, Registered Rep shall comply with the customer compliant procedures and
the filing and recordkeeping requirements set forth in the Compliance Manual.
SECTION 2.5 MATERIAL STATEMENTS OR OMISSIONS. Registered Rep will
not:
a. make any material statements, either oral or written, regarding
Variable Products which are untrue or misleading; or
b. omit a material fact necessary in order to make any oral or
written statements regarding Variable Products, in the light of
the circumstances under which they were made, not misleading.
SECTION 2.6 VARIABLE PRODUCTS OFFERED. Registered Rep shall offer,
sell, and service only those Variable Products offered by Broker-Dealer, and
shall not engage in any private securities transactions without prior written
approval from Broker-Dealer. A "private securities transaction" would include,
among other things, offering variable products or other securities that are not
offered by Broker-Dealer, including any privately placed securities that are not
registered with the Securities and Exchange Commission.
SECTION 2.7 OUTSIDE ACTIVITIES AND SECURITIES DISCLOSURE FORM.
Registered Rep shall complete the "Outside Activities and Securities Disclosure
Form" attached hereto as Exhibit A, and will update this form as requested by
Broker-Dealer promptly when any significant additions or changes to the
information disclosed on the form arise, including new employers or sources of
income, or significant changes in the amount of income from a previously
specified source. Broker-Dealer may amend the form from time to time, and
Registered Rep's obligations hereunder shall apply with equal force to any such
amended form.
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SECTION 2.8 CHANGES TO FORM U-4. Registered Rep shall immediately
notify Broker-Dealer of any changes of information in Registered Rep's
registration on Form U-4 including any changes to Registered Rep's address.
SECTION 2.9 EDUCATION AND TRAINING MEETINGS. Registered Rep shall
attend all mandatory educational and/or training meetings sanctioned by
Broker-Dealer, including but not limited to the annual compliance meeting,
scheduled by Broker-Dealer.
SECTION 2.10 SUPERVISION OF EMPLOYEES. Registered Rep shall take such
steps as necessary to ensure that none of Registered Rep's employees, whether
registered or unregistered, engage in any activities that are not authorized
under applicable law.
SECTION 2.11 NOTIFICATION REQUIRED. Registered Rep shall immediately
notify Broker-Dealer of:
a. any action or fact which comes to Registered Rep's knowledge which
may possibly constitute a violation of any law;
b. any investigations or inquiries by governmental agencies;
c. any judicial proceeding related to Registered Rep;
e. any other events as required under the Compliance Manual.
SECTION 2.12 PERSONAL SERVICES REQUIRED. The fulfillment of this
Agreement required Registered Rep's personal services, and Registered Rep will
not directly or indirectly write or service insurance for any other company,
other than Broker-Dealer's parent or affiliated companies or through any
governmental or insurance industry plan or facility, or for any agent or broker,
except in accordance with the terms of any written consent Broker-Dealer may
give Registered Rep.
SECTION 2.13 PREMIUM ACCOUNT. All funds collected on behalf of the
issuing insurance company shall be held in trust by Registered Rep as the
absolute property of the issuing insurance company, and Registered Rep will be
responsible for these funds until they are safely transmitted to the issuing
company. Registered Rep agrees to maintain a premium fund account for the
issuing insurance company's benefit in a bank or similar financial institution,
which the issuing insurance company may audit at any time, in which Registered
Rep will promptly deposit all funds collected for the issuing insurance
company's premiums, fees, or charges. Registered Rep further agrees to transmit
all such funds and all insurance applications promptly as directed by
Broker-Dealer.
SECTION 2.14 ADVERTISING. Broker-Dealer and the issuing insurance
company will advertise, provide promotional materials, and participate in the
cost of Registered Rep's advertising, in accordance with policies determined
from time to time by Broker-Dealer and the
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issuing insurance company. Registered Rep will not use advertisements or sales
literature relating to Variable Products unless the advertisements or sales
literature have been provided by Broker-Dealer.
SECTION 2.15 EXPENSES. The expense of any office, including rental,
furniture, and equipment; signs; supplies not furnished by Broker-Dealer; the
salaries of Registered Rep's employees; telephone; postage; advertising; and all
other charges or expense incurred by Registered Rep in the performance of this
Agreement shall be incurred at Registered Rep's discretion and paid by
Registered Rep.
SECTION 2.16 OFFICE LOCATION. Registered Rep agrees that in the
location or relocation of Registered Rep's office, Registered Rep will not
unduly infringe on the established office location of any other registered
representative. Registered Rep agrees that Registered Rep will not make any
commitment to change office location without reasonable, at least 30 days, prior
written notice to Broker-Dealer or establish any office in addition to
Registered Rep's principal office without the prior approval of Broker-Dealer.
ARTICLE III
NATURE OF THE RELATIONSHIP
SECTION 3.1 INDEPENDENT CONTRACTOR. As a registered representative,
Registered Rep is obliged to follow Broker-Dealer procedures and processes and
to provide prompt, friendly, accurate, and cost effective service. Registered
Rep is an independent contractor for all purposes. Registered Rep has full
control of Registered Rep's daily activities, subject only to Broker-Dealer's
obligation to supervise Registered Rep under the securities laws, with the right
to exercise independent judgment as to time, place and manner of soliciting
insurance, servicing policyholders, and other carrying out the provisions of
this Agreement.
ARTICLE IV
COMPENSATION
SECTION 4.1 COMPENSATION SCHEDULE. Registered Rep's sole compensation
as a registered representative from Broker-Dealer shall be in the form of
compensation earned from Variable Product sales and service. The Schedule of
Payments attached hereto as Exhibit B sets forth the compensation to be paid to
Registered Rep for Variable Product sales and service while this Agreement is in
force.
SECTION 4.2 WAIVER UNTIL BROKER-DEALER IN RECEIPT OF COMPENSATION.
Registered Rep waives any right to compensation until Broker-Dealer is in
receipt of such compensation from the issuing insurance company. Compensation
will be payable by Broker-Dealer or its parent or affiliated companies.
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SECTION 4.3 BONUSES, AWARDS, PRIZES, AND ALLOWANCES. Broker-Dealer
reserves the right to fix and determine the amount, extent, and conditions of
any bonuses, prizes and allowances.
ARTICLE V
TERMINATION PAYMENTS
SECTION 5.1 PAYMENT AFTER TERMINATION. If this Agreement is terminated
and Registered Rep is subject to "disqualification," as that term is defined in
the NASD's bylaws, then no termination payments will be paid to a Registered Rep
who is subject to "disqualification," termination payments will be paid to
Registered Rep or Registered Rep's legal representative in accordance with the
provisions of Section 5.2.
SECTION 5.2 TERMINATION PAYMENTS. If this Agreement is terminated and
Registered Rep is not subject to "disqualification," Broker-Dealer will pay
Registered Rep or Registered Rep's legal representative:
a. on business written by Registered Rep under the Schedule of
Payments attached hereto as Exhibit B.
(i) any remaining writing compensation for the first through
fifth policy years as would have been due and payable to
Registered Rep if this Agreement had not been terminated;
and
(ii) if on the date of termination Registered Rep had five (5)
or more years of combined service as an agent under the
Farmers Agent's Agreement or Local Agent's Appointment,
any remaining writing compensation for the sixth through
fifteenth policy years as would have been due and payable
to Registered Rep if this Agreement had not been
terminated; and
b. If the date of termination of this agreement coincides with the
date of termination of the Farmers Agent's Agreement, and if on
the date of termination Registered Rep has twenty five (25) or
more years of combined service as an agent under the Farmers
Agent's Agreement or Local Agent's Appointment, on business
credited to Registered Rep's account on which service
compensation is being paid to Registered Rep.
(i) On Variable Deferred Annuity policies a monthly amount
equal to three-fourths of one percent () ( ) of an
average monthly premium of any such policy; and
(ii) On Variable Universal Life policies a monthly amount equal
to one and one-half percent () ( ) of an average
monthly premium of any such
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policy beginning on the last day of the month next
following the month of termination of this Agreement and
until the last day of the month in which Registered Rep's
death occurs' except that no amount shall be paid on any
policy made available for assignment by the termination of
an Investors Brokerage Services, Inc. Registered
Representative Agreement or by a release of policies
pursuant to article X of this Agreement or Article _____
of any other Investors Brokerage Services, Inc. Registered
Representative Agreement, and except that if Registered
Rep is less than sixty five (65) years of age on the date
of termination of this Agreement, amounts shall be reduced
actuarially based on Registered Rep's lower age.
c. The "average monthly premium" of a policy shall be calculated by
dividing the total premium paid on the policy by the number of
full months elapsed between its Policy date and termination of
this Agreement, except that the "average monthly premium" for a
policy in force less than ( ) months shall be no greater than:
(i) For a Variable Universal Life policy, ( ) of
the total Primary Compensation Premium paid on the base
policy and any increases to base and added riders, and
(ii) For a Variable Deferred Annuity policy, ________ dollars
( ).
d. After Registered Rep and any spouse (if accepted as a payee) have
died, or at any time Broker-Dealer owes, for each of three (3)
consecutive periodic payments in this Section, less than
__________ dollars ( ), Broker-Dealer may, in its sole discretion,
change the frequency and amount of the periodic payments to
payment or payments less frequent and of greater amount or
amounts, but of equal present value.
e. After Registered Rep and any spouse (if accepted as a payee) have
died, or at any time Broker-Dealer owes, for each of three (3)
consecutive periodic payments in this Section, less than dollars ,
Broker-Dealer may, in its sole discretion, change the frequency
and amount of the periodic payments to payment or payments less
frequent and of greater amount or amounts, but of equal present
value. Any new amount or amounts shall reasonably consider the
time value of money and any influence of policy persistency, agent
mortality and other factors relevant to the payment frequency and
amounts otherwise provided herein.
ARTICLE VI
CONFIDENTIALITY; PROPRIETARY MATERIALS
SECTION 6.1 CONFIDENTIALITY. Information regarding names, addresses,
and ages of issuing insurance company policyholders; and the expiration of
renewal dates of policies acquired or coming into Registered Rep's possession
during the effective period of this
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Agreement, or any prior Agreement, except information and records of
policyholders insured by the issuing insurance company pursuant to any
governmental or insurance industry plan or facility, are trade secrets and
confidential business information wholly owned by Broker-Dealer or its parent or
affiliated companies. All forms, computer-related and electronic files, and
other materials, whether furnished by Broker-Dealer or its parent or affiliated
companies or purchased by Registered Rep, upon which this information is
recorded shall be the sole and exclusive property of Broker-Dealer or its parent
or affiliated companies. Registered Rep's possession of this information is only
for use in carrying out Registered Rep's duties and responsibilities under this
Agreement. Registered Rep shall take all reasonable steps to maintain the value
and confidentiality of such information, including informing Registered Rep's
employees of this responsibility, and assuring their compliance.
SECTION 6.2 MANUALS, ETC. Broker-Dealer will furnish Registered Rep,
without charge, manuals, forms, records, computer-related and electronic files,
equipment, and such other materials, supplies and services as Broker-Dealer may
specify from time to time. All such property furnished by Broker-Dealer shall
remain the property of Broker-Dealer. In addition, Broker-Dealer will offer at
Registered Rep's expense additional equipment, materials, supplies and services.
ARTICLE VII
TERM, TERMINATION AND SURVIVABILITY
SECTION 7.1 EFFECTIVE DATE AND TERM. This Agreement shall be effective
on the date set out above on Page 1 hereof and shall continue until terminated
as herein provided.
SECTION 7.2. TERMINATION. This Agreement will terminate upon the death
of Registered Rep. Either Registered Rep or Broker-Dealer has the right to
terminate this Agreement by written notice delivered to the other or mailed to
the other's last known address. The date of termination shall be the date
specified in the notice, but in the event no date is specified, the date of
termination shall be the date of delivery if the notice is delivered, or the
date of the postmark, if the notice is mailed. Either Registered Rep or
Broker-Dealer can accelerate the date of termination specified by the other by
giving written notice of termination in accordance with this paragraph. This
Agreement shall also terminate effective immediately upon the termination of the
Farmers Agent's Agreement to which Registered Rep is a party.
SECTION 7.3. RESTRICTIONS ON POST TERMINATION ACTIVITY. For a period of
one year following termination of this Agreement, Registered Rep will not either
personally or through any other person, agency, or organization:
a: induce or advise any issuing insurance company policyholder
credited to Registered Rep's account at the date of termination to
lapse, surrender, or cancel any issuing insurance company
coverage; or
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b: solicit any such policyholder to purchase any insurance coverage
competitive with the insurance coverages sold by Broker-Dealer. In
the event the "period of one year" conflicts with any statutory
provision, such period shall be the period permitted by statute.
After termination of this Agreement Registered Rep agrees not to act or
represent himself or herself in any way as an agent or representative of
Broker-Dealer.
SECTION 7.4 RETURN OF MATERIALS. Within ten days after the termination
of this Agreement, all property belonging to Broker-Dealer shall be returned or
made available for return to Broker-Dealer or its authorized representative.
Without limiting the foregoing, Registered Rep shall promptly deliver to
Broker-Dealer, without retaining any copies or excerpts thereof, the Compliance
Manual, any other manuals, compliance memoranda, prospectuses, statements of
additional information, advertising, sales materials, business cards and
letterhead.
SECTION 7.5 SURVIVABILITY. The agreements in Sections 5.1, 5.2, 6.1,
6.2, 7.3, 7.4, 9.11 and Article VIII shall survive the termination of this
Agreement.
ARTICLE VIII
DISPUTE RESOLUTION
Any controversy between Broker-Dealer and Registered Rep arising out
of, or relating to, this Agreement or the breach thereof may be settled by
arbitration in accordance with the rules then in effect with the NASD at
( , ). Any arbitration hereunder and award of the arbitrators, or of
a majority of them, shall be final, and judgment may be entered in any court,
state or federal, having jurisdiction.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 ASSIGNMENT. Since Broker-Dealer is relying on Registered
Rep to carry out the provisions of this Agreement, neither the Agreement nor any
interest thereunder can be sold, assigned, or pledged without prior written
consent of Broker-Dealer.
SECTION 9.2 ENTIRE AGREEMENT. This Agreement constitutes the sole and
entire Agreement between the parties hereto, and no change, alteration, or
modification of the terms of this Agreement may be made except by agreement in
writing signed by an authorized representative of the Broker-Dealer and accepted
by Registered Rep. This Agreement supersedes all prior commitments, inducements,
promises, negotiations, representations, obligations, conditions, or agreements,
oral or written, between Broker-Dealer, its representatives, and Registered Rep,
except with respect to compensation owing to Registered Rep under Schedules of
Payment under Registered Rep's immediately preceding Investors Brokerage
Services, Inc. Registered Representative Agreement, if any, and with respect to
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compensation overpayments or any other amounts owed Broker-Dealer or its parent
or affiliated companies by Registered Rep. All payments for termination by death
or for termination other than by death which otherwise might have become payable
to Registered Rep under the terms of prior agreements with Broker-Dealer are
hereby waived by Registered Rep.
SECTION 9.3 WAIVER. Failure of any party to enforce any provision of
this Agreement will not constitute a course or waiver in the future of the right
to enforce the same or any other provision.
SECTION 9.4 SEVERABILITY. The parties to this Agreement desire and
intend that the terms and conditions of this Agreement be enforced to the
fullest extent permissible under the laws and public policies applied in each
state or jurisdiction in which enforcement is sought. The parties agree
specifically that, if any particular term or condition of this Agreement is
adjudicated, or becomes by operation of law, invalid or unenforceable, this
Agreement will be deemed amended to delete the portion that is adjudicated, or
that becomes by operation of law, invalid or unenforceable. The deletion or
reduction will apply only with respect to the operation of the term or
condition, and the remainder of the Agreement will remain in full force and
effect. A deletion or reduction resulting from any adjudication will apply only
with respect to the operation of that term in the particular jurisdiction in
which the adjudication is made.
SECTION 9.5 NOTICE.
a. To Broker-Dealer
Investors Brokerage Services, Inc.
1 Kemper Drive
Long Grove, IL 60049-0001
Phone: (800) 323-8215
Fax: (847) 555-5525
with a copy to Registered Rep's Regional Agency Resources Department.
b. To Registered Rep:
Registered Rep's Office Address.
SECTION 9.6 GOVERNING LAW. The validity, enforceability, and
interpretation of this Agreement shall be construed according to the laws of the
State of _________.
SECTION 9.7 HEADINGS. The headings in this Agreement are inserted for
convenience only and will not constitute a part hereof.
SECTION 9.8 SET OFF. Any amount (exclusive of premiums due on
Registered Rep's personal policies with the issuing insurance company) at any
time owning by Registered Rep to
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Broker-Dealer or its parent or affiliated companies shall be a first lien on any
payment due or thereafter becoming due Registered Rep under any of the
provisions of this Agreement, and Broker-Dealer is authorized to deduct such
indebtedness from any such payment due or thereafter becoming due to Registered
Rep from Broker-Dealer.
SECTION 9.9 CHARGEBACKS. If any application is rejected or any policy
is surrendered or canceled, in whole or in part, for any reason, before the
expiration of the policy period, or if any premium is reduced or an overpayment
made to Registered Rep, the compensation paid to Registered Rep on the amount
returned or credited to the policyholder or the amount overpaid to Registered
Rep shall be charged to Registered Rep and shall constitute an indebtedness of
Registered Rep to Broker-Dealer.
SECTION 9.10 RIGHT TO PRESCRIBE. Broker-Dealer and the issuing
insurance company retain the right to prescribe: all policy forms and
provisions; premiums, fees, and charges for insurance and services; rules
governing the binding, acceptance, renewal, rejection, or cancellation of risks,
and adjustments and payment of losses; and limitations on the submission of
applications by individual registered representatives, by market area, by line
of coverage, by policy type, by company, or by other means.
SECTION 9.11 REPRESENTATION. Registered Rep will not represent
Registered Rep as having any powers except those authorized by this Agreement
and subject to any applicable law. Without limiting the foregoing, Registered
Rep shall not have the authority to extend the times of payment of any premium,
or to alter, waive, or forfeit any of the issuing insurance company's rights,
requirements, or conditions in any policy of insurance, or otherwise obligate
Broker-Dealer or issuing insurance company in any way except as stated in this
Agreement or expressly authorized under the rules and regulations of
Broker-Dealer or as otherwise authorized in writing by Broker-Dealer.
SECTION 9.12 TRANSFER OF POLICIES. Broker-Dealer will leave in
Registered Rep's account all policies credited to Registered Rep's account so
long as the policyholder resides within a ( ) mile radius of Registered Rep's
principal place of business and within a State in which Registered Rep is duly
licensed, except that Broker-Dealer may:
a. if service compensation is suspended, reduced or eliminated
pursuant to Section IV. G, Section IV. H and/or Section IV. I of
the Schedule of Payments attached hereto as Exhibit B, transfer
the Variable Products credited to Registered Rep's account to the
accounts of other registered representatives or to Broker-Dealer
for servicing; and
b. after prior written notice to Registered Rep, transfer any policy
to the account of another registered representative when the
policyholder makes a bona fide request in writing.
Registered Rep will respect the rights and interests of Registered Rep's fellow
registered representatives in policies credited to their accounts by refraining
from raiding or otherwise
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diverting policies from their accounts to Registered Rep's account. Registered
Rep shall neither directly nor indirectly attempt to divert policies to
Registered Rep's own account from unassigned accounts or from those of other
registered representatives, or from Registered Rep's own account to the accounts
of other registered representatives.
ARTICLE X
RELEASE OF POLICIES
In the event of a release of policies pursuant to Section VI of the
Farmers Agent's Agreement or Section _____ of another Farmers Agent's Agreement,
the Variable Products held by policyholders and members of the household of such
policyholders whose automobile insurance policies are released shall likewise be
released, and Broker-Dealer will pay with respect to the Variable Products
released by Registered Rep the termination payments in accordance with Section
5.2 of this Agreement, as those provisions may be applicable.
IN WITNESS WHEREOF, Broker-Dealer has caused this Agreement to be
executed on its behalf by its authorized representative, to be effective on the
date above set out on Page 1 hereof, upon its acceptance in writing by
Registered Rep on Form RRAA98(AA97), Registered Rep's Acceptance of Agreement,
transmitted to Broker-Dealer.
INVESTORS BROKERAGE SERVICES, INC.
By:
------------------------------------
Authorized Representative
11
<PAGE> 1
EXHIBIT 4(a)
[FARMERS INSURANCE GROUP LOGO] FARMERS NEW WORLD LIFE INSURANCE
COMPANY(R)
Home Office: 3003 77th Ave. SE, Mercer Island, Washington 98040 / (206)
232-8400
A STOCK COMPANY
Annuitant Jane Doe 001234567 Contract Number
INDIVIDUAL FLEXIBLE PREMIUM VARIABLE ANNUITY CONTRACT
In this contract "we," "us," and "our" refer to Farmers New World Life
Insurance Company. "You" and "your" refer to the Owner of this contract.
This contract is a legal contract between you and us. PLEASE READ YOUR
CONTRACT CAREFULLY.
Your benefits under this contract, the amount of the premium, and other
contract data are shown as the Contract Specifications on the last page of this
contract.
THE AMOUNT OF THE DEATH BENEFIT MAY INCREASE OR DECREASE AS DESCRIBED IN THIS
CONTRACT, DEPENDING ON THE INVESTMENT EXPERIENCE OF THE SUBACCOUNTS.
THE CONTRACT VALUE OF THIS CONTRACT MAY INCREASE OR DECREASE DAILY DEPENDING ON
THE INVESTMENT EXPERIENCE OF THE SUBACCOUNTS. THERE IS NO GUARANTEED MINIMUM
CONTRACT VALUE WITH RESPECT TO AMOUNTS ALLOCATED TO THE VARIABLE ACCOUNT.
NOTICE OF YOUR RIGHT TO RETURN THIS CONTRACT
RIGHT TO EXAMINE PERIOD: YOU MAY CANCEL THIS CONTRACT AT ANY TIME WITHIN 10
DAYS AFTER YOU RECEIVE IT BY DELIVERING OR MAILING IT TO OUR HOME OFFICE AT
MERCER ISLAND, WASHINGTON. ALL PREMIUMS PAID FOR THE CONTRACT WILL BE REFUNDED
TO YOU, PLUS (OR MINUS) ANY GAINS (OR LOSSES) IN THE AMOUNTS YOU INVESTED IN
THE SUBACCOUNTS. WHERE REQUIRED BY STATE LAW, WE WILL REFUND THE GREATER OF
ALL PREMIUMS PAID OR THE CONTRACT VALUE ON THE DATE WE RECEIVE THE CONTRACT AT
OUR HOME OFFICE.
/s/ C. PAUL PATSIS
C. Paul Patsis
President
/s/ Jeffrey T. Blackburn
Jeffrey T. Blackburn
Secretary
2000-398 NONPARTICIPATING INDIVIDUAL FLEXIBLE PREMIUM DEFERRED VARIABLE
ANNUITY. MONTHLY INCOME BEGINS ON ANNUITY START DATE. DEATH BENEFIT
PAYABLE BEFORE ANNUITY START DATE. ALL PAYMENTS AND VALUES PROVIDED
BY THIS CONTRACT, WHEN BASED ON THE INVESTMENT EXPERIENCE OF A
SUBACCOUNT, ARE VARIABLE AND ARE NOT GUARANTEED. 00649 KS
<PAGE> 2
GUIDE TO YOUR CONTRACT
<TABLE>
<S> <C>
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Change of Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Incontestability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Misstatement of Age or Sex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Minimum Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Nonparticipating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Transaction Delay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Proof of Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Protection of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Discharge of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Instructions and Requests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
OWNERSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Rights of Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Transferability of Qualified Plans, TSAs or IRAs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
BENEFICIARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Beneficiary Designation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Change of Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
DEATH BENEFIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Before Annuity Start Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
After Annuity Start Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PREMIUM PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Payment of Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Allocation of Premium Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
CONTRACT VALUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Contract Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Records Maintenance Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Cash Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Surrender Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Surrender of the Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Postponement of Surrenders and Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
FIXED ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Fixed Account Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Guaranteed Interest Rate for Fixed Account Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Current Interest Rate for Fixed Account Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
Page 2 41843
<PAGE> 3
<TABLE>
<S> <C>
VARIABLE ACCOUNT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
General Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Variable Account Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Subaccounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Accumulation Unit Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
TRANSFER PRIVILEGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Transfer Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Transfers from Subaccounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Transfers from the Fixed Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
INCOME BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Election of Annuity Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Payment Interval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Proof of Age and Sex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Evidence of Living . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Date of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ANNUITY OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
First Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Second Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Third Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Other Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ANNUITY TABLES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Description of Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Minimum Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Guaranteed Annuity Table . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
CONTRACT SPECIFICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Last page of the contract
</TABLE>
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DEFINITIONS
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ACCUMULATION UNIT An accounting unit used to calculate the variable account value of this contract before
annuity payments begin. It is a measure of the net investment results of each of the
variable subaccounts.
ADMINISTRATIVE COST CHARGE A charge deducted from the subaccounts on each valuation day that compensates us for the
expenses we incur to issue and administer this contract.
ANNUITANT Before any annuity payments begin, an Annuitant is a person on whose life this contract is
issued. When annuity payments begin, an Annuitant is a person during whose lifetime
payments may be made under one of the annuity options.
ANNUITY START DATE The date on which annuity payments are to begin as described under the Income Benefits
section of this contract.
BENEFICIARY A person entitled to receive benefits in case of the death of the Owner or Annuitant, as
applicable.
CASH VALUE The contract value less any applicable surrender charge and less any applicable charges for
optional benefits, for the records maintenance charge and for premium tax.
CONTRACT MONTH, YEAR, OR A contract month, year, or anniversary as measured from the issue date.
ANNIVERSARY
CONTRACT VALUE The sum of the values you have in the variable account and the fixed account.
FINAL ANNUITY DATE The contract anniversary when the oldest Annuitant is age 95.
FIXED ACCOUNT An account that is part of our general account, and is not part of or dependent on the
investment performance of the variable account.
FIXED ACCOUNT VALUE The portion of the contract value allocated to the fixed account.
FREE PARTIAL WITHDRAWAL The amount that can be withdrawn as a partial withdrawal during a contract year without
AMOUNT incurring surrender charges.
ISSUE DATE The date this contract becomes effective. The issue date is shown on the Contract
Specifications page. Contract months, years, and anniversaries are measured from the issue
date.
MORTALITY AND EXPENSE RISK A charge deducted from the subaccounts on each valuation day that compensates us for
CHARGE providing the mortality and expense guarantees and assuming the risks under this contract.
NET INVESTMENT FACTOR The ratio of the subaccount value at the end of the current valuation day to its value at
the end of the immediately preceding valuation day. The subaccount value reflects gains
and losses in the subaccounts, dividends paid, any capital gains and losses, any taxes
paid, and the deduction of certain charges.
PAYEE A person or entity who receives any amounts payable under this contract. A payee must be a
natural person unless we agree otherwise.
PREMIUM TAX The amount of tax, if any, charged by any government entity on premium payments, on any
portion of the contract value, or on any other funds associated with this contract. We
will deduct any premium tax assessed against us either: (a) from premium payments as we
receive them, (b) from your contract value upon surrender or partial withdrawal, (c) on the
annuity start date, or (d) upon payment of the death benefit.
RECORDS MAINTENANCE CHARGE An amount deducted from the contract value at the end of each contract year and on the
annuity start date or the date when the contract is surrendered. The records maintenance
charge is shown on the Contract Specifications page.
SEC The United States Securities and Exchange Commission.
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SUBACCOUNT A division of the variable account. The assets of each subaccount are invested in a
corresponding portfolio of a designated fund.
VALUATION DAY Each day on which the New York Stock Exchange is open for business.
VALUATION PERIOD The interval of time commencing at the close of normal trading on the New York Stock
Exchange one valuation day and ending at the close of normal trading on the New York Stock
Exchange on the next succeeding valuation day.
VARIABLE ACCOUNT The variable account is named on the Contract Specifications page. The variable account is
not part of our general account. The variable account has subaccounts, each of which is
invested in a corresponding portfolio of a designated mutual fund.
VARIABLE ACCOUNT VALUE The portion of the total value of your contract that is allocated to the subaccounts of the
variable account.
</TABLE>
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GENERAL PROVISIONS
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Contract The entire contract is:
1. this contract;
2. the application attached at issue;
3. any attached amendments and supplements to the application; and
4. any attached riders and endorsements.
In the absence of fraud, we will consider all statements in the application to be
representations and not warranties. No statement will be used by us to contest a claim unless
that statement is in an attached application or in an amendment or supplement to the
application attached to this contract.
Change of Contract Any change in the terms of this contract must be in writing and signed by one of our officers.
A copy of the change will be attached to this contract. No agent has the authority to change
any terms or conditions of this contract.
Incontestability We will not contest this contract after the issue date.
Misstatement of Age or Sex If the Annuitant's age or sex has been misstated, the benefits provided by this contract will
be adjusted to reflect the correct age or sex. After the annuity start date any adjustment
for underpayment will be paid immediately. Any adjustment for overpayment will be deducted
from future payments.
Minimum Benefits Benefits available under this contract are not less than the minimums required by the law of
the state in which this contract is delivered.
Nonparticipating This contract is nonparticipating. It does not share in our surplus earnings.
Transaction Delay Payment(s) and transfers from the subaccounts will usually be made promptly but may be delayed
under any of the following circumstances:
1. the New York Stock Exchange is closed; or
2. the SEC permits or orders a postponement; or
3. the SEC declares an emergency requiring trade to be restricted; or
4. the SEC determines an emergency exists, making the disposal of, or
determination of value of, securities held in the variable account not
reasonably practicable.
We may defer a withdrawal or transfer from the fixed account for up to 6 months from the date
we receive your request for such a withdrawal or transfer.
Reports At least once each year before the annuity start date, we will send the Owner a statement
showing the current contract value and cash value along with any other information required by
law.
Proof of Survival The payment of any annuity benefit is subject to evidence that the Annuitant is alive on the
date such payment is due.
Protection of Proceeds To the extent permitted by law, no benefits payable under this contract to any person are
subject to the claims of an Owner's or Beneficiary's creditors. No person may commute,
encumber or alienate any payments under this contract before they are due.
Discharge of Liability Any payments made by us under an annuity option or in connection with the payment of any
withdrawal, surrender or death benefit shall discharge our liability under this contract to
the extent of such payment.
Instructions and Requests All instructions and requests are effective as of the end of the valuation period in which we
receive them in a form satisfactory to us, unless the event is scheduled to take place at a
later date. We may require that you provide signature guarantees or other safeguards for any
instruction, request or document you send us. You acknowledge and agree that we are not liable
for any loss, liability, cost or expense of any kind for acting on instructions or requests
submitted to us that we reasonably believe to be genuine.
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OWNERSHIP
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OWNER The Annuitant is the Owner of this contract unless:
1. another person is named as Owner in the application; or
2. a new person is named as provided in the Rights of Owner section below.
RIGHTS OF OWNER During the lifetime of the Annuitant all rights and privileges granted by this contract belong
to the Owner. Before the annuity start date the Owner may:
1. Change the Beneficiary or Owner. Any change of Owner requires our approval and is subject to
our underwriting rules then in effect.
2. Change the annuity start date.
3. Select the annuity option.
4. Select the person to receive the income payments.
5. Assign or surrender the contract.
6. Withdraw funds from the contract.
7. Allocate payments and transfer contract value among the investment options.
After the annuity start date during the lifetime of the Annuitant the Owner may change:
1. the Beneficiary and
2. the person to receive the income payments.
We must receive a signed request to exercise any ownership rights.
ASSIGNMENT We are not bound by an assignment unless duplicate signed forms are filed with us. We are not
responsible for the validity of any assignment. The rights of the Owner and the Beneficiary
are subject to the rights of the assignee.
TRANSFERABILITY OF If this contract is part of a Qualified Plan, as defined in Internal Revenue Code Section
QUALIFIED PLANS, TSAs OR 401(a), a Tax Sheltered Annuity (TSA), as defined in IRC Section 403(b), an Individual
IRAs Retirement Annuity (IRA), as defined in IRC Section 408(b), a Savings Incentive Match Plan for
Employees Individual Retirement Annuity (SIMPLE IRA), as defined in IRC Section 408(p), or a
Roth Individual Retirement Annuity (Roth IRA), as defined in IRC Section 408A, it is
nontransferable. This contract cannot be sold, assigned, discounted, used as collateral for a
loan, or as security for the performance of any obligation.
If this contract is owned by a trust as part of a Qualified Plan, the trustee may transfer
ownership to the Annuitant.
BENEFICIARY
BENEFICIARY DESIGNATION The Beneficiary is the person or persons named to receive any death benefit payable. The
Beneficiary is as named in the application or as changed by the Owner's most recent signed
request.
If no Beneficiary is living at the time a death benefit becomes payable, we will pay any death
benefit to you or your estate.
CHANGE OF BENEFICIARY The Beneficiary may be changed at any time before the Annuitant dies. The change must be
signed by the Owner and sent to us. The change will take effect on the date it was signed,
subject to any action taken by us before we receive the request.
If you have named a Beneficiary irrevocably, both you and the Beneficiary must sign any
change.
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DEATH BENEFIT
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BEFORE ANNUITY START DATE We will pay a death benefit if one of the following occurs before the annuity start date and
while this contract is in force:
1. The last surviving Annuitant dies.
2. Any Owner dies. If any Owner is a non-natural person, then the death or change of
any Annuitant will be treated as the death of an Owner.
If there are multiple Beneficiaries, then the provisions of this section shall apply
independently to each Beneficiary. Only one death benefit will be payable under this policy.
Upon payment of the death benefit proceeds, the policy will terminate.
Amount of Death Benefit: If the death benefit is paid on the death of an Annuitant (including
an Owner who is an Annuitant) and the Annuitant dies before his or her 80th birthday and
before the annuity start date, the death benefit is the greater of:
1. the contract value on the later of the date that we receive due proof of death and
the date when we receive the beneficiary's instructions on payment method; or
2. the minimum death benefit. The minimum death benefit is equal to the sum of all
premiums accepted on this contract, minus any proportional reductions for each
withdrawal. The proportional reduction in the minimum death benefit is the product
of (a) and (b), where
(a) is the minimum death benefit immediately prior to the withdrawal.
(b) is the ratio of the amount withdrawn (including any charges) to the contract
value immediately before the withdrawal.
In all other cases where a death benefit is payable before the annuity start date (e.g., where
the death benefit is payable on the death of an Annuitant who has attained his or her 80th
birthday, or where the death benefit is payable on the death of an Owner who is not an
Annuitant), the death benefit is the contract value on the later of the date when we receive
due proof of death and the date when we receive the Beneficiary's instructions on payment
method.
Distribution requirements: If a death benefit becomes payable before the annuity start date,
the proceeds must be taken in a lump sum unless we consent to another arrangement within 90
days of receiving due proof of death.
In all events, distributions will be made from the contract in accordance with Section 72(s)
of the Internal Revenue Code of 1986, as amended. Thus, notwithstanding any other provision
of this contract, if any Owner dies before the annuity start date, the proceeds must be
distributed to the Beneficiary within five years after the date of such death or distributed
over the life (or a period not exceeding life expectancy) of the Beneficiary provided that
such distributions begin within one year of such Owner's death. However, if the sole
beneficiary is the surviving spouse of the deceased Owner, the contract may be continued (in
lieu of paying any death benefit) with the surviving spouse as the sole Owner.
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If an Owner is a non-natural person, then each Annuitant will be treated as an Owner for
purposes of these distribution requirements and any change in or the death of any Annuitant
will be treated as the death of the Owner for purposes of these distribution requirements.
Moreover, if an Annuitant is also an Owner, then the death of such Annuitant will also be
treated as the death of an Owner for purposes of these distribution requirements.
AFTER ANNUITY START DATE If any Owner dies on or after the annuity start date, any remaining payments must be
distributed at least as rapidly as under the annuity option in effect on the date of such
death.
If an Annuitant dies on or after the annuity start date, we will pay any remaining guaranteed
payments to the beneficiary as provided by the annuity option selected.
If an Owner who is not an Annuitant dies while an Annuitant is still living, we will continue
to pay the income payments for the lifetime of the Annuitant in the same manner as before the
Owner's death.
PREMIUM PROVISIONS
PAYMENT OF PREMIUMS Premiums are payable at our home office. The initial premium is shown on the Contract
Specifications page and is due on the issue date. Subsequent premiums are flexible and may be
paid at any time before the annuity start date. Each premium must be at least equal to the
minimum subsequent premium payment shown on the Contract Specifications page.
The sum of all premiums paid to us may not exceed the cumulative premium limit shown on the
Contract Specifications page without our prior approval. The Internal Revenue Code may also
limit the maximum amount of premiums you may pay.
ALLOCATION OF PREMIUM This contract provides investment options for the contract value. The initial premium
PAYMENTS allocation percentages are indicated in the application for this contract, a copy of which is
attached.
The premium allocation percentages that you specified in the application will also apply to
subsequent premium allocations until you change them. You may change your allocation
percentages by giving us written notice.
Allocation percentages must be zero or a whole number not greater than 100. The sum of the
premium allocation percentages must equal 100. An allocation to any subaccount or to the
fixed account must be at least $500.
We reserve the right to limit the number of subaccount allocations in effect at any one time.
Planned periodic premiums and unscheduled premiums will be invested as requested on the
valuation day they are received by our home office. The premium payments will be credited to
the subaccounts at the accumulation unit value next determined after receipt of each payment.
If your state requires us to return your initial premium in the event you exercise your right
to cancel the contract, then we will allocate the initial premium(s) on the issue date to the
fixed account. While held in the fixed account, the premium will be credited with interest at
current fixed account interest rates. The premium(s) will remain in the fixed account for the
number of days in your states' right to cancel period, plus 10 days.
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CONTRACT VALUES
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CONTRACT VALUE The contract value on the issue date is equal to:
1. the initial premium paid; less
2. any premium taxes due.
On each date after the issue date, the contract value is equal to the fixed account value
plus the variable account value.
RECORDS MAINTENANCE CHARGE We will charge a records maintenance charge each year until the annuity start date. The
amount is shown on the Contract Specifications page. The charge for a contract year will
be imposed on the last valuation day of each contract year.
This charge will also be imposed on the annuity start date or the date when the contract is
surrendered.
The fee will be charged against the variable subaccounts and the fixed account
proportionately. The portion of the fee charged to each subaccount will reduce the number
of accumulation units standing to the credit of the contract in that subaccount.
CASH VALUE The cash value of this contract on any date is:
1. the contract value; minus
2. the surrender charge, if any, that you would incur if you surrendered the entire
contract on that date; minus
3. the records maintenance charge that would be assessed if you surrendered the entire
contract on that date; minus
4. any premium taxes and optional benefit charges that would be assessed on this contract
if you surrendered the entire contract on that date.
Surrender charges are shown in the surrender charge table below.
SURRENDER CHARGE A surrender charge will apply to certain partial withdrawals and surrender transactions,
and on annuitization.
When one of these transactions occurs, we will determine if a charge applies. If a charge
applies, it will be calculated as if all payments were withdrawn in the same order in which
they were made.
Each contract year, you may withdraw up to the greater of
1. the excess of contract value over total premium payments less prior withdrawals
that were previously assessed a surrender charge, and
2. 10% of the contract value determined at the time the current withdrawal is
requested
without incurring a surrender charge. If you withdraw an amount in excess of the above
amount, the excess amount withdrawn will be subject to a surrender charge. The surrender
charge applies during the entire seven year period following each premium payment as
follows:
Number of Complete Years Surrender Charge
from Date of Premium payment Percentage
---------------------------- -----------------
0 7%
1 6%
2 5%
3 5%
4 4%
5 3%
6 2%
7 and thereafter 0%
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SURRENDER OF THE CONTRACT You can surrender this contract at any time prior to the annuity start date by notice to us
in writing. Upon surrender, the contract will terminate and we will pay you the cash value
determined as of the close of business on the surrender date. Unless a later date is
specified in your request, the surrender date is the date your written request in proper form
is received at our home office.
WITHDRAWALS Before the annuity start date you may withdraw part of the cash value. Withdrawals are
subject to a surrender charge as shown in the Surrender Charge section.
You will receive a check in the amount of withdrawal you request (less applicable tax
withholding), if available. If a surrender charge applies, the contract value will be
reduced by the surrender charge plus the dollar amount sent to you. Any premium taxes
assessed against this contract on the date of withdrawal will also be deducted from the
contract value.
The minimum withdrawal is $100. You may make only one withdrawal per calendar quarter. A
withdrawal is not available if the withdrawal plus the surrender charge would cause the
contract value to fall below $500.
A withdrawal will reduce the amount in each of the subaccounts and the fixed account
proportionately, unless you request otherwise.
The withdrawal will be processed at the values next determined after receipt of your request
in good order.
POSTPONEMENT OF SURRENDERS We can postpone payment of any amounts withdrawn from the fixed account for up to six months
AND WITHDRAWALS from the date of the request for surrender or partial withdrawal.
FIXED ACCOUNT
FIXED ACCOUNT VALUE We determine the fixed account value for any valuation period before the annuity start date
as the allocation of any premium less any applicable premium taxes, plus any amounts
transferred from the subaccounts, increased by credited interest, and decreased by any
transfers and withdrawals from the fixed account and by any charges deducted from the fixed
account.
Guaranteed minimum fixed account values are not less than the minimum values required by the
state in which this contract is delivered. Where required, a statement of the method of
computing these values has been filed with the state insurance department.
GUARANTEED INTEREST RATE The fixed account is part of our general account. It is not part of and does not depend on
FOR FIXED ACCOUNT VALUE the investment performance of the variable account. We credit interest at rates we
determine. We guarantee that the effective annual interest rate will not be less than 3%.
CURRENT INTEREST RATE FOR We may use rates that are higher than the guaranteed minimum rate to calculate interest on
FIXED ACCOUNT VALUE the fixed account.
At the time that money is allocated to the fixed account, we guarantee a rate for a stated
period of time, usually 12 months. At the end of that period of time, a new rate is
guaranteed for at least a 12-month period. Amounts allocated to the fixed account at
different times may be credited with different rates of interest. Any withdrawal or charges
deducted from the fixed account value will be allocated among different portions using a last
in, first out method.
We reserve the right to offer additional fixed account options in the future such as an
option that is available only for the allocation of premium prior to the systematic transfer
to subaccounts. Special rules may apply to these fixed account options.
We reserve the right to credit different interest rates for different policies on the basis
of size of contract value, fixed account value, or other criteria that do not unfairly
discriminate.
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VARIABLE ACCOUNT
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GENERAL DESCRIPTION The name of the variable account is shown on the Contract
Specifications page. The income, gains and losses of the variable
account are credited to or charged against the assets held in the
variable account, without regard to any other income, gains or
losses of any other variable account or arising out of any other
business we may conduct.
Although we own the assets in the variable account, these assets
are held separately from our other assets and are not part of our
general account. The assets in the variable account are used to
support the operation and provide the variable benefits and values
for this contract and similar contracts. The portion of the assets
of the variable account equal to the reserves and other contract
liabilities of the variable account are not chargeable with
liabilities that arise from any other business that we conduct. We
have the right to transfer to our general account any assets of
the variable account that are in excess of such reserves and other
liabilities. The assets of the variable account are segregated by
investment options, thus establishing a series of subaccounts
within the variable account.
When permitted by law, we reserve the right to :
1. create new variable accounts;
2. combine variable accounts;
3. remove, combine or add subaccounts and make the new subaccounts
available to you at our discretion;
4. substitute shares of another portfolio of the funds or shares
of another investment company for those of the funds;
5. deregister the variable account under the Investment Company
Act of 1940 if registration is no longer required;
6. make any changes required by the Investment Company Act of 1940
or any other law; and
7. operate the variable account as a managed investment company
under the Investment Company Act of 1940 or any other form
permitted by law.
If a change is made, we will send you a revised prospectus and any
notice required by law. If required, we would first seek the
approval of the Securities and Exchange Commission and the
appropriate state regulatory authorities before making a change in
the investment options.
VARIABLE ACCOUNT The variable account value is the sum of the values of the
VALUE subaccounts under this contract.
SUBACCOUNTS The subaccounts are separate investment accounts named by the
company. The subaccount values will fluctuate in accordance with
the investment experience of the applicable portfolio of the fund
held within each subaccount.
The subaccount value is determined by multiplying the number of
accumulation units credited to the subaccount by the appropriate
accumulation unit value.
The number of accumulation units to be purchased or redeemed in a
transaction is found by dividing:
1. the dollar amount of the transaction; by
2. the subaccount's accumulation unit value on the date of that
transaction.
At the end of each valuation day:
- The portion of any premiums, less any premium tax, received
since the preceding valuation day and allocated to each
subaccount will be applied to purchase additional accumulation
units in that subaccount.
- Any transfers to the subaccount from another subaccount or from
the fixed account since the end of the previous valuation day
will be applied to purchase additional accumulation units in
that subaccount.
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- Accumulation units will be redeemed from each subaccount
to cover any transfers from that subaccount to other
subaccounts or to the fixed account since the preceding
valuation day.
- Accumulation units will be redeemed from each subaccount
to cover any amounts withdrawn or surrendered and any
applicable surrender charges assessed against that
subaccount since the preceding valuation day.
- Accumulation units will be redeemed from each subaccount
to cover the portion of the records maintenance charge
deducted from that subaccount.
- Accumulation units will be redeemed from each subaccount
to cover any applicable fees and charges for riders,
endorsements and supplemental benefits attached to this
contract.
- Accumulation units will be redeemed from each subaccount
to cover any taxes that, in our sole judgement, have been
assessed against this contract or have been assessed as a
result of the existence or operation of this contract.
ACCUMULATION UNIT The value of an accumulation unit for each of the subaccounts
VALUE was arbitrarily set at an initial value. The value at the end
of any later valuation day is equal to: A x B
"A" is equal to the subaccount's accumulation unit value for
the end of the immediately preceding valuation day.
"B" is equal to the net investment factor for the most current
valuation day. This net investment factor equals:
X
--- - Z
Y
"X" equals:
1. the net asset value per portfolio share held in the
subaccount at the end of the current valuation day; plus
2. the per share amount of any dividend or capital gain
distribution on portfolio shares held in the subaccount
during the current valuation day; less
3. the per share amount of any capital loss distribution on
portfolio shares held in the subaccount during the current
valuation day.
"Y" equals the net asset value per portfolio share held in the
subaccount as of the end of the immediately preceding
valuation day.
"Z" equals charges and fees deducted from the subaccount.
These consist of:
1. Mortality and expense risk charges. The mortality and
expense risk charges are deducted from each of the
subaccounts on each valuation day. They compensate us for
providing the mortality and expense guarantees and assuming
the risks under this contract. These charges are shown on
the Contract Specifications page.
2. Charge for administrative costs. A charge for
administrative costs is deducted from each of the
subaccounts on each valuation day to compensate us for
expenses we incur to administer contracts. This charge is
shown on the Contract Specifications page.
3. Any applicable charges, fees and expenses for riders,
endorsements or supplemental benefits attached to this
contract. We will only deduct these charges if we do not
collect them by redeeming accumulation units (as described
in the Subaccounts section of this contract).
The net investment factor may be greater than, less than or
equal to one. Therefore, the value of the subaccount may
increase, decrease or remain the same.
</TABLE>
Page 13
<PAGE> 14
TRANSFER PRIVILEGE
<TABLE>
<S> <C>
TRANSFER FEES Twelve transfers per year may be made free of charge. Any unused
free transfers do not carry over to the next contract year. Any
additional transfers during a contract year will be charged a $25
transfer fee. For the purpose of assessing a fee, each written
request or telephone request is considered to be one transfer.
Transfers made pursuant to an asset allocation or dollar cost
averaging program we may offer do not count toward these 12
transfers. The transfer fee will be deducted from the amount
being transferred.
TRANSFERS FROM After the Right to Examine Period, you may transfer all or a part
SUBACCOUNTS of an amount from the value in any subaccount of the variable
account to one or more of the subaccounts of the variable account.
Transfers may also be made to the fixed account, but not during
the six months following any transfer from the fixed account into
one or more subaccounts. The minimum amount that you may transfer
is the lesser of :
1. $100; or
2. the total value in that subaccount on that date.
Any transfer that would reduce the amount in a subaccount below
$500 will be treated as a transfer request for the entire amount
in that subaccount.
A transfer fee may apply as described above.
We may suspend or modify this transfer privilege at any time.
Transfers will be processed based on values determined at the end
of the valuation day during which the transfer request is received
at our home office.
TRANSFERS FROM THE You may transfer an amount from the value in the fixed account to
FIXED ACCOUNT one or more subaccounts of the variable account one time during
the contract year during the 30 days following an anniversary of
the issue date. The minimum amount that you may transfer is the
lesser of:
1. $100; or
2. the total value in that subaccount on that date.
Any transfer that would reduce the amount in the fixed account
below $500 will be treated as a transfer request for the entire
amount in the fixed account.
We can postpone transfers from the fixed account for up to six
months from the date of the request.
A transfer fee may apply as described above.
We may suspend or modify this transfer privilege at any time.
INCOME BENEFITS
ELECTION OF On or before the final annuity date (the contract anniversary
ANNUITY OPTION when the oldest Annuitant is age 95), an annuity start date
must be chosen. An annuity option must be chosen on or before
the annuity start date. On the annuity start date, the cash
value (or, in case of death, the death benefit) will be used to
provide annuity payments. On the final annuity date, we will
use the second annuity option with a 10 year guarantee period
for payment of the cash value if no choice is made.
PAYMENT INTERVAL You may choose to have payments made at the end of 1, 3, 6, or
12 month intervals. If you do not specify the frequency of
payment, we will pay you monthly.
PROOF OF AGE AND We may require proof of the age and sex of the Annuitant(s)
SEX before any payments are made.
EVIDENCE OF LIVING We may require satisfactory proof that each Annuitant is living
when each payment is due. If proof is required, payments will
stop until such proof is given.
DATE OF PAYMENT The first payment under any option shall be made on the day of
the month you request, subject to our agreement, and will begin
in the month immediately following the annuity start date or
approval of the death claim for settlement. Subsequent
payments shall be made on the same day of each subsequent
period in accordance with the payment interval and annuity
option selected.
</TABLE>
Page 14 41849
<PAGE> 15
ANNUITY OPTIONS
<TABLE>
<S> <C>
FIRST OPTION We will pay an income for the lifetime of the Annuitant,
ceasing with the last payment due prior to the death of the Annuitant.
SECOND OPTION We will pay an income for the lifetime of the Annuitant, with
the guarantee that we will make payments for at least 10 or 20
years. You select either the 10 or 20 year guarantee period.
If payments have been made for less than the 10 or 20 year
guarantee period at the Annuitant's death, we will pay the
balance of the guaranteed payments to the Beneficiary or
Beneficiaries for the rest of the guaranteed period.
If the guaranteed payments have been paid, the payments will
stop with the last payment due before the Annuitant's death.
THIRD OPTION Joint and Survivor Life Annuity - We will pay an income during
the joint lifetime of two Annuitants. After the death of one
of the Annuitants, we will continue the payments for the
lifetime of the surviving Annuitant. The payments will stop
with the last payment due before the death of the last
surviving Annuitant.
OTHER OPTIONS May be available with our consent.
ANNUITY TABLES
DESCRIPTION OF The attached tables show the minimum dollar amount of the first
TABLES monthly payment for each $1,000 applied under the first, second
and third annuity options. Under the first or second options,
the amount of each payment will depend upon the adjusted age
and sex of the Annuitant at the time the first payment is due.
Under the third option, the amount of each payment will depend
upon the sex of both Annuitants and their adjusted ages at the
time the first payment is due.
The adjusted age of the Annuitant is determined by calculating
the age at the nearest birthday of the Annuitant on the annuity
start date and subtracting a number that depends on the year in
which the annuity start date belongs:
Annuity Start Date Adjusted Age is Age Minus
Before 2001 0
2001 to 2010 1
2011 to 2020 2
2021 to 2030 3
2031 to 2040 4
After 2040 5
Once the Owner has elected an annuity option, that election may
not be changed with respect to any Annuitant following the
commencement of annuity payments.
MINIMUM PAYMENT The option elected must result in a payment that is at least
equal to the minimum payment amount according to our rules then
in effect. If at any time, payments to be made to any payee
are or become less than the minimum payment amount, we have
the right to change the frequency of payment to such interval
as will result in a payment at least equal to the minimum. If
any amount due would be less than the minimum payment amount
per year, we may make such other settlement as may be equitable
to the payee.
</TABLE>
Page 15
<PAGE> 16
GUARANTEED ANNUITY TABLES
Monthly Payments for Each $1000 Applied
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
OPTION 1 OPTION 2
LIFE INCOME LIFE INCOME
-------------------------------------------------------------------------------------------------
120 Payments Guaranteed 240 Payments Guaranteed
AGE Male Female Male Female Male Female
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
55 4.20 3.89 4.15 3.86 3.98 3.77
56 4.29 3.97 4.23 3.94 4.04 3.83
57 4.39 4.05 4.32 4.02 4.11 3.90
58 4.49 4.14 4.42 4.10 4.18 3.97
59 4.60 4.23 4.52 4.19 4.24 4.03
60 4.72 4.33 4.63 4.28 4.31 4.10
61 4.84 4.43 4.74 4.38 4.38 4.17
62 4.98 4.55 4.85 4.48 4.45 4.25
63 5.12 4.66 4.98 4.59 4.51 4.32
64 5.27 4.79 5.10 4.71 4.58 4.39
65 5.43 4.93 5.24 4.83 4.64 4.47
66 5.61 5.07 5.38 4.95 4.71 4.54
67 5.79 5.23 5.52 5.09 4.77 4.62
68 5.99 5.39 5.68 5.23 4.83 4.69
69 6.20 5.57 5.83 5.38 4.88 4.75
70 6.42 5.76 5.99 5.54 4.93 4.82
71 6.66 5.97 6.16 5.71 4.98 4.88
72 6.92 6.20 6.33 5.88 5.02 4.94
73 7.19 6.44 6.50 6.06 5.06 4.99
74 7.48 6.70 6.68 6.25 5.10 5.04
75 7.79 6.99 6.86 6.44 5.13 5.08
76 8.12 7.30 7.04 6.64 5.16 5.12
77 8.48 7.63 7.22 6.84 5.18 5.15
78 8.86 7.99 7.39 7.05 5.20 5.18
79 9.27 8.38 7.57 7.25 5.22 5.20
80 9.71 8.81 7.74 7.45 5.24 5.22
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
OPTION 3
Joint Life Annuity With 100% To Survivor -- Male and Female Joint Annuitants
MALE FEMALE AGE
AGE 55 60 65 70 75 80
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
55 3.51 3.68 3.83 3.95 4.04 4.11
60 3.62 3.85 4.07 4.27 4.43 4.54
65 3.71 4.00 4.30 4.60 4.87 5.08
70 3.78 4.11 4.50 4.92 5.34 5.71
75 3.82 4.19 4.65 5.20 5.79 6.38
80 3.85 4.25 4.76 5.41 6.19 7.05
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 16 41850
<PAGE> 17
FARMERS NEW WORLD LIFE INSURANCE COMPANY
CONTRACT SPECIFICATIONS
<TABLE>
<S> <C>
OWNER GEORGE B DOE CONTRACT NUMBER 001234567
ANNUITANT JOHN A DOE ISSUE DATE OCTOBER 1, 1998
ISSUE AGE 35 ANNUITY START DATE OCTOBER 1, 2058
SEX M MONTHLY DUE DATE 01
VARIABLE ACCOUNT: FARMERS NEW WORLD LIFE VARIABLE ANNUITY SEPARATE ACCOUNT "A"
INITIAL PREMIUM: $X,XXX.XX
MINIMUM SUBSEQUENT PREMIUM $XXX.XX, OR $XX FOR PAYMENTS DRAWN BY US ON YOUR
PAYMENT: ACCOUNT VIA PAPER OR ELECTRONIC DEBIT.
CUMULATIVE PREMIUM LIMIT: $1,000,000
RECORDS MAINTENANCE CHARGE $30 (OR $0 IF CONTRACT VALUE AT THE TIME THE CHARGE
(ANNUAL): IS MADE IS AT LEAST $50,000)
MORTALITY AND EXPENSE RISK 0.95% (ON AN ANNUAL BASIS) OF THE DAILY NET ASSETS OF
CHARGE: THE VARIABLE ACCOUNT.
ADMINISTRATIVE COST CHARGE: 0.20% (ON AN ANNUAL BASIS) OF THE DAILY NET ASSETS OF
THE VARIABLE ACCOUNT.
GUARANTEED MINIMUM DEATH BENEFIT 0.25% (ON AN ANNUAL BASIS) OF THE DAILY NET ASSETS OF
RIDER CHARGE: THE VARIABLE ACCOUNT.
GUARANTEED RETIREMENT INCOME 0.25% (ON AN ANNUAL BASIS) OF THE DAILY NET ASSETS OF
BENEFIT RIDER CHARGE: THE VARIABLE ACCOUNT.
</TABLE>
2000-398 NONPARTICIPATING INDIVIDUAL FLEXIBLE PREMIUM DEFERRED
VARIABLE ANNUITY. MONTHLY INCOME BEGINS ON ANNUITY
START DATE. DEATH BENEFIT PAYABLE BEFORE ANNUITY START
DATE. ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT,
WHEN BASED ON THE INVESTMENT EXPERIENCE OF A SUBACCOUNT,
ARE VARIABLE AND ARE NOT GUARANTEED.
<PAGE> 1
EXHIBIT 4(b)
GUARANTEED MINIMUM DEATH BENEFIT RIDER
<TABLE>
<S> <C>
BENEFIT The death benefit payable in the event of the last surviving Annuitant's death before the annuity
start date is enhanced as described below.
The death benefit payable upon the death of the last surviving Annuitant is the greater of:
(a) the death benefit described in the contract to which this rider is attached; or
(b) premiums accumulated daily at an effective annual rate of 4% through the earlier of the date
of death and the contract anniversary coincident with or next following the Annuitant's 80th
birthday, minus proportional reductions for withdrawals; or
(c) The Greatest Anniversary Value (calculated as described below) for the anniversaries through
the earlier of the date of death and the contract anniversary coincident with or next
following the Annuitant's 80th birthday, minus proportional reductions for withdrawals.
If the last surviving Annuitant dies after the contract anniversary coincident with or next following
the Annuitant's 80th birthday, the amounts calculated under b) and c) will be increased by premiums
received and proportionately reduced by withdrawals since that anniversary.
If the last surviving Annuitant was older than 80 on the Issue Date, then no death benefit will be
payable under b) or c).
The death benefit provided by this rider will never be greater than the maximum death benefit allowed
by any nonforfeiture laws that govern this contract.
The proportional reductions for withdrawals are determined independently for items b) and c). The
proportional reduction for each withdrawal is equal to the product of:
1) The death benefit available under the item being considered (either b or c) immediately prior
to the withdrawal, and
2) The ratio of the amount withdrawn (including any charges) to the contract value immediately
before the withdrawal.
The Greatest Anniversary Value referred to in c) is calculated as follows. An anniversary value is
defined for each eligible anniversary as the contract value on that anniversary increased by premiums
accepted since that anniversary and proportionately reduced for withdrawals since that anniversary.
The largest such anniversary value is the Greatest Anniversary Value.
CHARGE The charge for this rider is deducted from each of the subaccounts on each valuation day. The charge
is shown on the Contract Specifications page.
TERMINATION This rider will end when:
1. the contract ends; or
2. we receive your signed request for termination.
CONTRACT This rider is subject to all the terms of the contract, except as modified in this rider.
Attached to and made a part of this contract effective as of the date of issue of the contract.
</TABLE>
FARMERS NEW WORLD LIFE INSURANCE COMPANY
/s/ C. PAUL PATSIS /s/ JEFFREY T. BLACKBURN
C. Paul Patsis Jeffrey T. Blackburn
President Secretary
2000-GMDB 41851
<PAGE> 1
EXHIBIT 4(c)
GUARANTEED RETIREMENT INCOME BENEFIT RIDER
<TABLE>
<S> <C>
BENEFIT On the annuity start date, the Owner may choose to receive the Guaranteed Retirement Income Benefit
described below if all of the following conditions are met:
1) The Owner elects an annuity start date that is on or after the tenth contract anniversary;
2) The annuity start date occurs during the 30 day period following a contract anniversary;
3) The Owner selects an annuity option that provides payments for the lifetime of one or more
Annuitants with payments guaranteed for a period not in excess of 10 years;
4) The annuity start date is before the Annuitant's 91st birthday and after the Annuitant's 60th
birthday, or after the 15th contract anniversary if the Annuitant is younger than age 44 on
the issue date.
GUARANTEED The amount of income under the Guaranteed Retirement Income Benefit is determined by applying the
RETIREMENT INCOME Income Base less any applicable taxes to the guaranteed annuity table rates in the contract for the
BENEFIT annuity option selected. The annuity option must satisfy all the conditions stated above.
On the annuity start date, the amount of income payable will be the greater of the amount provided
under this Guaranteed Retirement Income Benefit or the amount determined under the Income Benefits,
Annuity Options and Annuity Tables sections of the contract.
INCOME BASE The Income Base is used solely for the purpose of calculating the Guaranteed Retirement Income Benefit.
It does not affect the contract value.
The Income Base is the greater of:
a) premiums accumulated daily at an effective annual rate of 5% through the earlier of the
annuity start date and the contract anniversary coincident with or next following the
Annuitant's 80th birthday, with a proportional reduction for withdrawals.
b) The Greatest Anniversary Value for the anniversaries through the earlier of the annuity start
date and the contract anniversary coincident with or next following the Annuitant's 80th
birthday, with a proportional reduction for withdrawals.
The proportional reductions for withdrawals are determined independently for items a) and b). The
proportional reduction after a withdrawal is equal to the product of:
1) The Income Base calculation under either item a) or b) immediately prior to the withdrawal,
and
2) The ratio of the amount withdrawn (including any charges) to the contract value immediately
before the withdrawal.
In determining the Income Base when the Annuitant is over 80 on the annuity start date, the Income
Base on the contract anniversary coincident with or next following the Annuitant's 80th birthday is
increased by premiums received and proportionately reduced by withdrawals since that anniversary.
If a Joint Life Annuity Option is selected, then the age of the oldest Annuitant will be used to
determine the Income Base.
CHARGE The charge for this rider is deducted from each of the subaccounts on each valuation day. The
charge is shown on the Contract Specifications page.
TERMINATION OF This rider will end when:
RIDER
1. the contract ends; or
2. we receive your signed request for termination.
</TABLE>
2000-GRIB 41852
<PAGE> 2
<TABLE>
<S> <C>
Contract This rider is subject to all the terms of the contract, except as modified in this rider.
Attached to and made a part of this contract effective as of the date of issue of the contract.
</TABLE>
FARMERS NEW WORLD LIFE INSURANCE COMPANY
/s/ C. PAUL PATSIS /s/ JEFFREY T. BLACKBURN
C. Paul Patsis Jeffrey T. Blackburn
President Secretary
<PAGE> 1
EXHIBIT 4(d)
FARMERS NEW WORLD LIFE INSURANCE COMPANY
WAIVER OF SURRENDER CHARGE RIDER
- TERMINAL ILLNESS -
<TABLE>
<S> <C>
RIDER BENEFIT We will waive the surrender charge, subject to the terms of this rider, on a surrender
or withdrawal if the Annuitant develops a terminal illness. The waiver is available
one year after the effective date of the rider.
We will waive the surrender charge for any withdrawal amount the Owner requests,
subject to the same terms as stated in the policy, up to an aggregate maximum
withdrawal of $250,000 from all contracts carrying this rider and naming the same
person as the Annuitant.
Waiver of the surrender charge under this rider is available only once. No benefit
will be provided by this rider if the terminal illness results from intentionally
self-inflicted injuries.
DEFINITIONS
- - PHYSICIAN A person who is licensed to practice medicine in the United States and who is acting
within the scope of that license. Physician does not include the Annuitant; the
owner; a person who lives with the Annuitant or the Owner; or a person who is a
relative of the Annuitant or the Owner.
- - TERMINAL ILLNESS A medical condition that with reasonable medical certainty will result in the
Annuitant's death in 12 months or less from the date of the physician statement,
regardless of any medical treatment received, with the exception of major organ
transplants.
- - MAJOR ORGANS Major organs are defined as heart, lung, liver, pancreas, kidney, and bone marrow.
- - PHYSICIAN STATEMENT A statement acceptable to us, signed by a physician which gives the diagnosis of the
Annuitant's terminal illness, as defined above. We may also require additional
information from other physicians having knowledge of the Annuitant's terminal
illness.
PROOF OF ELIGIBILITY The owner may file a surrender or withdrawal request along with written proof that
demonstrates the qualifying conditions for waiving surrender charges have been met.
Written proof includes: a properly completed claim form, a physician statement, and
medical information acceptable to us supporting the diagnosis. We may require
additional medical information from the physician submitting the statement and from
other physicians or institutions having knowledge of the Annuitant's terminal illness.
We reserve the right to have a physician of our choosing examine the Annuitant at our
expense prior to waiving the surrender charge. If the physician we choose provides a
different opinion, we reserve the right to rely on that physician statement to
determine eligibility. In case of disagreement, the parties shall submit to
arbitration.
TERMINATION This rider will end when:
1. The contract ends for any reason; or
2. The benefit is exercised and surrender charges are waived; or
3. The Annuitant dies.
GUARANTEED VALUES This rider does not increase or decrease any guaranteed values of this contract.
CONTRACT This rider is subject to all the terms of this contract except as modified in this
rider.
Attached to and made a part of this contract effective as of the date of issue of the
contract.
</TABLE>
FARMERS NEW WORLD LIFE INSURANCE COMPANY
/s/ C. PAUL PATSIS /s/ JEFFREY T. BLACKBURN
C. Paul Patsis Jeffrey T. Blackburn
President Secretary
2000 TIBR 41842
<PAGE> 1
EXHIBIT 4(e)
FARMERS NEW WORLD LIFE INSURANCE COMPANY
WAIVER OF SURRENDER CHARGE RIDER
- NURSING CARE -
<TABLE>
<S> <C>
RIDER BENEFIT While the Annuitant is confined to a skilled nursing facility or hospital, as defined
in this rider, we will waive any surrender charges for surrenders and/or withdrawals.
The Annuitant must be under age 75 at the time of withdrawal or surrender and confined
to the skilled nursing facility and/or hospital continuously for a minimum of 90 days
before this benefit is available. The Owner must provide us with satisfactory proof
of confinement. Partial withdrawals are subject to the same terms of frequency and
amount as stated in the policy.
This benefit is not available and surrender charges will never be waived if the
Annuitant is confined to a skilled nursing facility and/or hospital at issue or within
6 months of the effective date of this rider.
SKILLED NURSING FACILITY A skilled nursing facility is defined as a place that:
1. is licensed by the state in which it is located as a skilled nursing facility;
2. is approved for payment of Federal Medicare benefits under Title XVIII of the
Social Security Act of 1965, as amended or is qualified to receive approval, if
requested;
3. is primarily engaged in providing skilled nursing care under the supervision of a
licensed physician;
4. provides continuous 24-hour-a-day nursing service by or under the supervision of a
registered graduate professional nurse (R.N.); and
5. maintains a daily medical record of each patient.
This benefit is not available for confinement in a facility primarily for the care or
treatment:
1. of drug or alcohol dependency;
2. of mental diseases or disorders; or
3. for custodial or educational care.
HOSPITAL A hospital is defined as a facility that:
1. Is licensed and operated as a hospital according to the state in which the
facility is located;
2. Operates primarily for the care and treatment of sick or injured persons as
inpatients;
3. Provides continuous 24-hour-a-day nursing service by or under the supervision of a
registered graduate professional nurse (R.N.);
4. Is supervised by a staff of licensed physicians; and
5. Has medical, diagnostic, and major surgical facilities or has access to such
facilities.
TERMINATION This rider will end when:
1. The contract ends for any reason; or
2. The Annuitant dies.
GUARANTEED VALUES This rider does not increase or decrease any guaranteed values of this contract.
CONTRACT This rider is subject to all the terms of this contract except as modified in this
rider.
Attached to and made a part of this contract effective as of the date of issue of the
contract.
</TABLE>
FARMERS NEW WORLD LIFE INSURANCE COMPANY
/s/ C. PAUL PATSIS /s/ JEFFREY T. BLACKBURN
C. Paul Patsis Jeffrey T. Blackburn
President Secretary
2000 NCR 41841
<PAGE> 1
EXHIBIT 4(f)
FARMERS NEW WORLD LIFE INSURANCE COMPANY(R)
SAVINGS INCENTIVE MATCH PLAN FOR EMPLOYEES (SIMPLE)
INDIVIDUAL RETIREMENT ANNUITY
AMENDMENT RIDER AND STATEMENT OF ELIGIBILITY
In connection with my application to Farmers New World Life Insurance Company
for an SIMPLE Individual Retirement Annuity Plan, I agree that:
A. I have received a copy of the Farmers New World Life Disclosure Statement
for SIMPLE Individual Retirement Plans.
-- or --
I received the SIMPLE Disclosure Statement at the same time my policy was
delivered to me as required by Internal Revenue Regulations. I may revoke my
policy at any time within 10 days of receiving it.
B. This SIMPLE IRA will accept only cash contributions made on your behalf
pursuant to the terms of a SIMPLE IRA Plan described in section 408(p) of
the Internal Revenue Code. A rollover contribution or a transfer of assets
from another SIMPLE IRA of yours will also be accepted. No other
contributions will be accepted.
C. If contributions made on your behalf pursuant to a SIMPLE IRA Plan
maintained by your employer are received directly by Farmers New World Life
from the employer, Farmers New World Life will provide the employer with the
summary description required by section 408(l)(2) of the Internal Revenue
Code.
D. Prior to the expiration of the 2-year period beginning on the date you first
participated in any SIMPLE IRA Plan maintained by your employer, any
rollover or transfer by you of funds from this SIMPLE IRA must be made to
another SIMPLE IRA of yours. Any distribution of funds to you during this
2-year period may be subject to a 25-percent additional tax if you do not
roll over the amount distributed into a SIMPLE IRA. After the expiration of
this 2-year period, you may roll over or transfer funds to any IRA of yours
that is qualified under section 408(a) or (b) of the Internal Revenue Code.
I agree to the following modifications of the policy to which this Amendment
Rider and Statement of Eligibility is attached.
THE FOLLOWING PROVISIONS WILL APPLY, AND ANY CONFLICTING PROVISIONS IN THE
POLICY ARE APPROPRIATELY AMENDED:
1. You, the Payee/Annuitant, are the Owner of the policy at all times. The
policy is for the exclusive benefit of you and your beneficiary(ies).
2. The policy is nontransferable except to us on surrender or settlement. It
may not be sold, assigned, discounted or pledged as collateral for a loan or
as security for the performance of any obligation or for any other purpose.
Ownership of the policy may not be transferred except in event of a divorce
pursuant to a court order.
3. The value of the policy fund will be distributed to you, according to
Internal Revenue Service regulations, no later than the first day of April
following the calendar year in which you attain age 701/2 (required
beginning date).
a) The distribution will be made over your life or the lives of you and your
designated beneficiary; or over a period certain not extending beyond
your life expectancy or the joint and last survivor life expectancy of
you and your designated beneficiary.
b) Payments must be made in a single sum or in periodic payments at
intervals of no longer than one year. In addition payments may not
increase except as provided in Q & A F-3 of Section 1.401(a)(9)-1 of the
Proposed Income Tax Regulations.
c) All distributions under this section must be made according to IRC
Section 401(a)(9), including the incidental death benefit requirements
of IRC Section 401(a)(9)(G) and the minimum distribution incidental
benefit requirements of Section 1.401(a)(9)-2 of the Proposed Income Tax
Regulations.
d) 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
you elect otherwise before distributions are required to begin, life
expectancies shall be recalculated annually. Your election is
irrevocable and applies to all subsequent years. The life expectancy of
a non-spouse beneficiary may not be recalculated. Instead, life
expectancy will be calculated using the beneficiary's attained age during
the calendar year in which the beneficiary attains age 701/2, 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.
4. If you die before the entire policy fund is distributed, the following
distribution provisions shall apply:
a) If you die after distribution has begun, the remaining distribution will
be made at least as rapidly as under the method of distribution used
before your death.
b) If you die before distribution begins, the entire fund balance will be
paid not later than December 31st of the calendar year containing the
fifth anniversary of your death unless your beneficiary elects to receive
distributions according to (1) or (2) below:
(1) If the balance is payable to a beneficiary designated by you, then
the entire fund balance will be distributed to your beneficiary in
substantially equal payments over the life or over a period certain
not greater than the life expectancy of your beneficiary. The
payments must start not later than December 31st of the calendar
year immediately following the calendar year of your death.
(2) If the designated beneficiary is your surviving spouse, the
distributions must start not later than December 31st of the
calendar year immediately
1997 SIMPLE IRA Amendment Rider 31-1214 / 20153 9/97
<PAGE> 2
following the calendar year of your death or December 31st of the
calendar year in which you would have attained age 701/2. Your
surviving spouse may rollover your entire policy fund to an
Individual Retirement Annuity in his or her own name within 60 days
of receiving the distribution.
c) Distributions under this section are considered to have begun if payments
have started by your required beginning date or if before your required
beginning date, payments irrevocably start to your beneficiary over a
period allowed and in an annuity form acceptable under Section
1.401(a)(9) of the Regulations.
d) 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
distributions beginning after your death, unless your surviving spouse
elects otherwise before distributions are required to begin, life
expectancies shall be recalculated annually. This election is irrevocable
and applies to all subsequent years. For 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. 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.
e) If the beneficiary is your surviving spouse, the spouse may treat this
policy as his or her own Individual Retirement Annuity (IRA). This
election will be deemed to have been made if the spouse makes a regular
contribution to this annuity, makes a rollover to or from this annuity,
or fails to elect any of the above provisions.
5. Your entire interest in this policy is nonforfeitable.
6. Farmers New World Life shall submit any annual reports required by the
Internal Revenue Code as well as Treasury Regulations issued regarding the
status of this Individual Retirement Annuity.
7. In the event of any conflict between provisions in this annuity and
Internal Revenue Regulations, the regulations will control.
8. We reserve the right to amend this annuity at any time to comply with
requirements imposed upon Individual Retirement Annuities under Internal
Revenue Regulations.
I understand the purpose of this rider is to bring my policy into compliance
with Section 408(b) and 408(p) of the Internal Revenue Code of 1986, as
amended. I agree to the provisions, conditions, and limitations of this rider.
- -------------------------------------- --------------------------------
Signature of Owner Social Security Number
- -------------------------------------- --------------------------------
Address Date
Farmers New World Life Insurance Company has issued this rider as a part of the
policy to which it is attached effective as of the date of issue of the policy.
FARMERS NEW WORLD LIFE INSURANCE COMPANY
/s/ JAMES I. RANDOLPH /s/ JEFFREY T. BLACKBURN
James I. Randolph Jeffrey T. Blackburn
Vice President Secretary
1997 SIMPLE IRA Amendment Rider 31-1214 / 20153 9/97
<PAGE> 1
EXHIBIT 4(g)
FARMERS NEW WORLD LIFE INSURANCE COMPANY(R)
INDIVIDUAL RETIREMENT ANNUITY
AMENDMENT RIDER AND STATEMENT OF ELIGIBILITY
In connection with my application to Farmers New World Life Insurance Company
for an Individual Retirement Annuity Plan, I agree that:
A. I have received a copy of the Farmers New World Life Disclosure Statement
for Individual Retirement Plans.
-- or --
I received the Disclosure Statement at the same time my policy was delivered
to me as required by Internal Revenue Regulations. I may revoke my policy at
any time within 10 days of receiving it.
B. I understand that payments made to my Individual Retirement Plan established
under the terms of IRC Section 408 shall be in cash or by check. Also, all
payments except for rollover contributions described in IRC Sections 402(c),
403(a)(4), 403(b)(8), or 408(d)(3) or Simplified Employee Pension (SEP)
contributions described in IRC Section 408(k), shall not exceed the
following limits in any taxable year:
(1) The annual limit for an Individual Retirement Plan (IRA) is the lesser
of $2,000 or 100 percent of the compensation included in my gross income
for the taxable year.
(2) The combined annual limit for IRAs for both myself and my non-working
spouse is the lesser of $4,000 or 100 percent of the working spouse's
Compensation for the taxable year. However, the individual annual limit,
for either the working spouse's IRA or the non-working spouse's IRA, may
never exceed $2,000. My spouse and I must have separate IRAs.
(3) Payments made on my behalf by my employer to a Simplified Employee
Pension are limited to 15 percent of my Compensation (not to exceed
$160,000 as adjusted by the IRS for increases in the cost of living) or
$30,000, whichever is less.
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.
For an IRA or a Simplified Employee Pension (SEP) IRA, compensation
generally means wages, salaries, professional fees, or other amounts derived
from or received for personal services actually rendered (including, but not
limited to, commissions paid salesmen, compensation for services on the
basis of a percentage of profits, commissions on insurance premiums, tips,
and bonuses) and includes earned income, as defined in Section 401(c)(2)
(reduced by the deduction the self-employed individual takes for
contributions made to a self-employed retirement plan). For purposes of
this definition, section 401(c)(2) shall be applied as if the term trade or
business for purposes of section 1402 included service described in
subsection (c)(6). Compensation does not include amounts derived from or
received as earnings or profits from property (including but not limited to
interest and dividends) or amounts not includable in gross income.
Compensation also does not include any amount received as a pension or
annuity or as deferred compensation. The term "compensation" shall include
any amount includable in the individual's gross income under section 71 with
respect to a divorce or separation instrument described in subparagraph (A)
of Section 71(b)(2).
I agree to the following modifications of the policy to which this Amendment
Rider and Statement of Eligibility is attached.
THE FOLLOWING PROVISIONS WILL APPLY, AND ANY CONFLICTING PROVISIONS IN THE
POLICY ARE APPROPRIATELY AMENDED:
1. You, the Payee/Annuitant, are the Owner of the policy at all times. The
policy is for the exclusive benefit of you and your beneficiary(ies).
2. The policy is nontransferable except to us on surrender or settlement. It
may not be sold, assigned, discounted or pledged as collateral for a loan or
as security for the performance of any obligation or for any other purpose.
Ownership of the policy may not be transferred except in event of a divorce
pursuant to a court order.
3. The value of the policy fund will be distributed to you, according to
Internal Revenue Service regulations, no later than the first day of April
following the calendar year in which you attain age 701/2 (required
beginning date).
a) The distribution will be made over your life or the lives of you and your
designated beneficiary; or over a period certain not extending beyond
your life expectancy or the joint and last survivor life expectancy of
you and your designated beneficiary.
b) Payments must be made in a single sum or in periodic payments at
intervals of no longer than one year. In addition payments may not
increase except as provided in Q & A F-3 of Section 1.401(a)(9)-1 of the
Proposed Income Tax Regulations.
c) All distributions under this section must be made according to IRC
Section 401(a)(9), including the incidental death benefit requirements
of IRC Section 401(a)(9)(G) and the minimum distribution incidental
benefit requirements of Section 1.401(a)(9)-2 of the Proposed Income Tax
Regulations.
d) 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
you elect otherwise before distributions are required to begin, life
expectancies shall be recalculated annually. Your election is
irrevocable and applies to all subsequent years. The life expectancy of
a non-spouse beneficiary may not be recalculated. Instead, life
expectancy will be calculated using the beneficiary's attained age during
the calendar year in which the beneficiary attains age 701/2, 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
1997 IRA Amendment Rider 31-0624 / 20129 9/97
<PAGE> 2
first calculated.
4. If you die before the entire policy fund is distributed, the following
distribution provisions shall apply:
a) If you die after distribution has begun, the remaining distribution will
be made at least as rapidly as under the method of distribution used
before your death.
b) If you die before distribution begins, the entire fund balance will be
paid not later than December 31st of the calendar year containing the
fifth anniversary of your death unless your beneficiary elects to receive
distributions according to (1) or (2) below:
(1) If the balance is payable to a beneficiary designated by you, then
the entire fund balance will be distributed to your beneficiary in
substantially equal payments over the life or over a period certain
not greater than the life expectancy of your beneficiary. The
payments must start not later than December 31st of the calendar
year immediately following the calendar year of your death.
(2) If the designated beneficiary is your surviving spouse, the
distributions must start not later than December 31st of the
calendar year immediately following the calendar year of your death
or December 31st of the calendar year in which you would have
attained age 701/2. Your surviving spouse may rollover your entire
policy fund to an Individual Retirement Annuity in his or her own
name within 60 days of receiving the distribution.
c) Distributions under this section are considered to have begun if payments
have started by your required beginning date or if before your required
beginning date, payments irrevocably start to your beneficiary over a
period allowed and in an annuity form acceptable under Section
1.401(a)(9) of the Regulations.
d) 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
distributions beginning after your death, unless your surviving spouse
elects otherwise before distributions are required to begin, life
expectancies shall be recalculated annually. This election is irrevocable
and applies to all subsequent years. For 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. 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.
e) If the beneficiary is your surviving spouse, the spouse may treat this
policy as his or her own Individual Retirement Annuity (IRA). This
election will be deemed to have been made if the spouse makes a regular
contribution to this annuity, makes a rollover to or from this annuity,
or fails to elect any of the above provisions.
5. Your entire interest in this policy is nonforfeitable.
6. Farmers New World Life shall submit any annual reports required by the
Internal Revenue Code as well as Treasury Regulations issued regarding the
status of this Individual Retirement Annuity.
7. In the event of any conflict between provisions in this annuity and
Internal Revenue Regulations, the regulations will control.
8. We reserve the right to amend this annuity at any time to comply with
requirements imposed upon Individual Retirement Annuities under Internal
Revenue Regulations.
I understand the purpose of this rider is to bring my policy into compliance
with Section 408(b) of the Internal Revenue Code of 1986, as amended. I agree
to the provisions, conditions, and limitations of this rider.
- -------------------------------------- --------------------------------
Signature of Owner Social Security Number
- -------------------------------------- --------------------------------
Address Date
Farmers New World Life Insurance Company has issued this rider as a part of the
policy to which it is attached effective as of the date of issue of the policy.
FARMERS NEW WORLD LIFE INSURANCE COMPANY
/s/ GLEN W. VINING /s/ JEFFREY T. BLACKBURN
Glen W. Vining Jeffrey T. Blackburn
President Secretary
1997 IRA Amendment Rider
<PAGE> 1
EXHIBIT 4(h)
FARMERS NEW WORLD LIFE INSURANCE COMPANY(R)
ROTH INDIVIDUAL RETIREMENT ANNUITY ENDORSEMENT
(IRS Form 5305-RB under section 408A of the Internal Revenue Code)
<TABLE>
<S> <C>
[ ]CHECK IF THIS ENDORSEMENT SUPERSEDES A PRIOR ROTH IRA ENDORSEMENT. [ ]CHECK IF ROTH CONVERSION IRA.
</TABLE>
This endorsement is made a part of the annuity contract to which it is
attached, and the following provisions apply in lieu of any provisions in the
contract to the contrary.
The annuitant is establishing a Roth individual retirement annuity (Roth IRA)
under section 408A to provide for his or her retirement and for the support of
his or her beneficiaries after death.
ARTICLE I
1. If this Roth IRA is not designated as a Roth Conversion IRA, then, except
in the case of a rollover contribution described in section 408A(e), the
issuer will accept only cash contributions and only up to a maximum amount
of $2,000 for any tax year of the annuitant.
2. If this Roth IRA is designated as a Roth Conversion IRA, no contributions
other than IRA Conversion Contributions made during the same tax year will
be accepted.
ARTICLE II
The $2,000 limit described in Article I is gradually reduced to $0 between
certain levels of adjusted gross income (AGI). For a single annuitant, the
$2,000 annual contribution is phased out between AGI of $95,000 and $110,000;
for a married annuitant who files jointly, between AGI of $150,000 and
$160,000; and for a married annuitant who files separately, between $0 and
$10,000. In the case of a conversion, the issuer will not accept IRA
Conversion Contributions in a tax year if the annuitant's AGI for that tax year
exceeds $100,000 or if the annuitant is married and files a separate return.
Adjusted gross income is defined in section 408A(c)(3) and does not include IRA
Conversion Contributions.
ARTICLE III
The annuitant's interest in the contract is nonforfeitable and nontransferable.
ARTICLE IV
1. The contract does not require fixed contributions.
2. Any dividends (refund of contributions other than those attributable to
excess contributions) arising under the contract will be applied before the
close of the calendar year following the year of the dividend as
contributions toward the contract.
ARTICLE V
1. If the annuitant dies before his or her entire interest in the contract is
distributed to him or her and the annuitant's surviving spouse is not the
sole beneficiary, the entire remaining interest will, at the election of
the annuitant or, if the annuitant has not so elected, at the election of
the beneficiary, either:
(a) Be distributed by December 31 of the calendar year containing the
fifth anniversary of the annuitant's death, or
(b) Be distributed over the life, or a period not longer than the life
expectancy, of the designated beneficiary starting no later than
December 31 of the calendar year following the calendar year of the
annuitant's death. Life expectancy is computed using the expected
return multiples in Table V of section 1.72-9 of the Income Tax
Regulations.
If distributions do not begin by the date described in (b), distribution
method (a) will apply.
2. If the annuitant's spouse is the sole beneficiary on the annuitant's date
of death, such spouse will then be treated as the annuitant.
ARTICLE VI
1. The annuitant agrees to provide the issuer with information necessary for
the issuer to prepare any reports required under sections 408(I) and
408A(d)(3)(E), and Regulations section 1.408-5 and 1.408-6, and under
guidance published by the Internal Revenue Service.
2. The issuer agrees to submit reports to the Internal Revenue Service and the
annuitant as prescribed by the Internal Revenue Service.
ARTICLE VII
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through IV and this sentence will be controlling. Any
additional articles that are not consistent with section 408A, the related
regulations, and other published guidance will be invalid.
ARTICLE VIII
This endorsement will be amended from time to time to comply with the
provisions of the Code, related regulations, and other published guidance.
Other amendments may be made with the consent of the persons whose signatures
appear on the contract.
ARTICLE IX
1. All contributions to this annuity will be in the form of cash or check.
2. The annuitant is the owner of this contract at all times.
<PAGE> 2
(continued on reverse)
31-2008 20181 11/98
3. ARTICLE V IS AMENDED IN ITS ENTIRETY TO READ:
If the annuitant dies before his or her entire interest in the contract is
distributed, and before distribution has begun, the entire remaining
interest will be paid not later than December 31 of the calendar year
containing the fifth anniversary of the annuitant's death unless the
beneficiary elects to receive distribution according to (a) or (b) below:
a) The entire remaining interest will be distributed to the beneficiary
in substantially equal payments over the life, or over a period
certain not greater than the life expectancy, of the beneficiary.
Life expectancy is computed using the expected return multiples in
Tables V and VI of section 1.72-9 of the Income Tax Regulations.
(b) If the annuitant's spouse is the sole beneficiary on the annuitant's
date of death, the surviving spouse may roll over the entire policy
fund to a Roth IRA in his or her own name within 60 days of receiving
the distribution.
4. As the owner of the annuity, I acknowledge that I have or will receive a
copy of the Farmers New World Life Insurance Company Disclosure Statement
for Roth Individual Retirement Annuities at the time of contract delivery.
5. TAX QUALIFICATION. The policy is intended to qualify as a Roth IRA annuity
contract for federal income tax purposes. The provisions of the policy,
this endorsement, and all other attached endorsements and riders are to be
interpreted to ensure and maintain such tax qualification, despite any
other provisions to the contrary. In the event of any conflict between
provisions in the contract and Internal Revenue regulations, the
regulations will control.
6. As the owner of the annuity, I certify that all of the information provided
to Farmers New World Life Insurance Company with respect to this annuity is
complete and accurate. I understand that Farmers New World Life Insurance
Company is not responsible for losses of any kind that may result from my
directions, actions, or failure to act. I acknowledge that Farmers New
World Life Insurance Company has no duty to determine whether my
contributions or distributions comply with the Internal Revenue regulations
pertaining to this agreement, and they shall not be responsible for any
penalties, taxes, judgments, or expenses that I may incur in connection
with my Roth IRA.
- -------------------------- ------------------------- ---------------------
Signature of Annuitant Social Security Number Date
Attached to and made a part of this policy effective as of the issue date of
the policy.
FARMERS NEW WORLD LIFE INSURANCE COMPANY
/s/ JAMES I. RANDOLPH /s/ JEFFREY T. BLACKBURN
James I. Randolph Jeffrey T. Blackburn
Vice President Secretary
================================================================================
GENERAL INSTRUCTIONS
(Section references are to the Internal Revenue Code unless otherwise noted.)
PURPOSE OF FORM
Form 5305-RB is a model annuity endorsement that meets the requirements of
section 408A and has been automatically approved by the IRS. A Roth individual
retirement annuity (Roth IRA) is established after the contract, which includes
this endorsement, is fully executed by both the individual (annuitant) and the
issuer. The contract must be for the exclusive benefit of the annuitant or his
or her beneficiaries.
Do not file Form 5305-RB with the IRS. Instead, keep it for records
purposes.
Unlike contributions to traditional individual retirement arrangements,
contributions to a Roth IRA are not deductible from the annuitant's gross
income' and distributions after 5 years that are made when the annuitant is
591/2 years of age or older or on account of death, disability, or the purchase
of a home by a first-time homebuyer (limited to $10,000), are not includible in
gross income. For more information on Roth IRAs, including the required
disclosure the annuitant can get from the issuer, get Pub. 590, Individual
Retirement Arrangements (IRAs).
This Roth IRA can be used by an annuitant to hold: (1) IRA Conversion
Contributions, amounts rolled over or transferred from another Roth IRA, and
annual cash contributions of up to $2,000 from the annuitant; or (2) if
designated as a Roth Conversion IRA (by checking the box on page 1), only IRA
Conversion Contributions for the same tax year.
To simplify the identification of funds distributed from Roth IRAs,
annuitants are encouraged to maintain IRA Conversion Contributions for each tax
year in a separate Roth IRA.
DEFINITIONS
ROTH CONVERSION IRA. A Roth Conversion IRA is a Roth IRA that accepts only IRA
Conversion Contributions made during the same tax year.
IRA CONVERSION CONTRIBUTIONS. IRA Conversion Contributions are amounts rolled
over, transferred, or considered transferred from a non-Roth IRA to a Roth IRA.
A non-Roth IRA is an individual retirement account or annuity described in
section 408(a) or 408(b), other than a Roth IRA.
ISSUER. The issuer is the insurance company providing the annuity contract.
The insurance company may use other terms besides "issuer" to refer to itself,
such as, "company," "insurer," or "us."
ANNUITANT. The annuitant is the person who establishes the annuity contract.
The insurance company may use other terms besides "annuitant" to refer to the
person who establishes the annuity contract, such as, "owner," "applicant,"
"insured," or "you."
SPECIFIC INSTRUCTIONS
Article I. The annuitant may be subject to a 6-percent tax on excess
contributions if (1) contributions to other individual retirement arrangements
of the annuitant have been made for the same tax year, (2) the annuitant's
adjusted gross income exceeds the applicable limits in Article II for the tax
year, or (3) the annuitant's and spouse's compensation does not exceed the
amount contributed for them for the tax year. The annuitant should see the
disclosure statement or Pub. 590 for more information.
ARTICLE IX. Article IX and any that follow it may incorporate additional
provisions that are agreed to by the annuitant and issuer to complete the
contract. They may include, for example, definitions, investment powers,
voting rights, exculpatory provisions, amendment and termination, removal of
the issuer, issuer's fees, state law requirements, beginning date of
distributions, accepting only cash, treatment of excess contributions,
prohibited transactions with the annuitant, etc. Use additional pages if
necessary and attach them to this form.
NOTE: Form 5305-RB may be reproduced and reduced in size for adaption to
passbook purposes.
20181 11/98
<PAGE> 1
EXHIBIT 5(a)
<TABLE>
<S> <C> <C>
[LOGO ANNUITY APPLICATION
FARMERS NEW WORLD FARMERS NEW WORLD LIFE INSURANCE COMPANY(R) AN
LIFE INSURANCE COMPANY] 3003 77TH AVENUE S.E. - MERCER ISLAND, WA 98040 - (206) 232-8400
1. PROPOSED ANNUITANT
- -----------------------------------------------------------------------------------------------------------------------------------
Name - First, Middle, Last Sex Birthdate
- -----------------------------------------------------------------------------------------------------------------------------------
Mailing Address - Number, Street City
- -----------------------------------------------------------------------------------------------------------------------------------
State Zip Code Taxpayer I.D. Number/SSN Marital Status Home Phone No. Business Phone No.
- -----------------------------------------------------------------------------------------------------------------------------------
2. OWNER (IF OTHER THAN PROPOSED ANNUITANT)
- -----------------------------------------------------------------------------------------------------------------------------------
Name - First, Middle, Last Taxpayer I.D. Number/SSN
- -----------------------------------------------------------------------------------------------------------------------------------
Mailing Address - Number, Street City
- -----------------------------------------------------------------------------------------------------------------------------------
State Zip Code Relationship to Proposed Annuitant Birthday Home Phone No. Business Phone No
Month Day Year
- -----------------------------------------------------------------------------------------------------------------------------------
3. BENEFICIARY DESIGNATIONS
- -----------------------------------------------------------------------------------------------------------------------------------
Primary Beneficiary Age Relationship Contingent Beneficiary Age Relationship
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
4. ANNUITY INFORMATION
- -----------------------------------------------------------------------------------------------------------------------------------
Plan Code Initial / Single Payment Planned payment (if applicable) Frequency of Payment (if applicable) For Tax Year
$
- -----------------------------------------------------------------------------------------------------------------------------------
Check only one: [ ] NON-QUALIFIED [ ] REGULAR-IRA [ ] SIMPLE-IRA [ ] SEP-IRA [ ] ROTH-IRA [ ] TSA [ ] QUALIFIED PENSION PLAN
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Check if applicable: [ ] Transfer? [ ] Rollover? [ ] 1035 Exchange? [ ] Regular IRA or Roth IRA rollover?
- - Please see reverse for description of plans, and additional information about Transfers, Rollovers, and 1035 Exchanges.
- - If applicable, indicate the full name, address, and telephone number of the life insurance company or financial institution
sending Transfer funds, in the "Remarks/Instructions" space below.
- -----------------------------------------------------------------------------------------------------------------------------------
5. Will Proposed Annuitant stop paying premiums, reduce the face amount, or otherwise discontinue any existing life insurance or
annuity if this annuity is issued? (If so, include the name and address of the existing company in the "Remarks/Instructions"
space below).
Proposed Annuitant Response: [ ] Yes [ ]No Agent Response: [ ] Yes [ ] No If "Yes" to either, forward State replacement
form.
Remarks/Instructions
---------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ACKNOWLEDGMENT AND DECLARATION
I agree that this application will become a part of the contract issued by
Farmers New World Life. I declare to the best of my knowledge and belief that
the statements and answers to the questions on this annuity application are true
and complete.
PRIVACY ACT NOTICE
Federal law requires most recipients of dividends, interest, or other payments
to give taxpayer identification numbers to payers who must report the payments
to the Internal Revenue Service (IRS). The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Payers must generally withhold 20%
of taxable interest, dividend, and certain other payments to a payee who does
not furnish a taxpayer identification number to a payer. Certain penalties may
also apply. Under penalty of perjury, as policyowner, I certify that:
A. The number shown on this form is my correct taxpayer identification number
(Social Security Number or Employer Identification Number), and
B. I am not subject to backup withholding either because I have not been
notified by the IRS that I am subject to backup withholding as a result of
failure to report all interest or dividends, or the IRS has notified me
that I am no longer subject to backup withholding.
Note: Cross out item (B) above if you have been notified by the IRS that you are
subject to backup withholding because of underreporting interest or dividends on
your tax return. However, if after being notified by the IRS that you were
subject to backup withholding, you receive another notification from the IRS
that you are no longer subject to backup withholding, do not cross out item (B).
Minnesota residents: I acknowledge receipt of the IRS Form W-9.
Ohio Applicants only - Section 3999.21 of the Ohio Insurance Code requires the
following statement: Any person who, with intent to defraud or knowing that
he/she is facilitating a fraud against an insurer, submits an application or
files a claim containing a false or deceptive statement is guilty of insurance
fraud.
- --------------------------------------------------------------------------------
Please attach check payable to Farmers New World Life. Do not make check payable
to agent or leave payee blank.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
----------------- ---------------- ----------------------------------------------------------------------------
Signed
at on X
----------------- ---------------- ----------------------------------------------------------------------------
City, State Month, Day, Year SIGNATURE OF PROPOSED ANNUITANT OR PARENT if Annuitant is a Juvenile
- -------------------------------------------------- ----------------------------------------------------------------------------
X X
- -------------------------------------------------- ----------------------------------------------------------------------------
SIGNATURE OF OWNER (if other than Proposed SIGNATURE OF OWNER'S SPOUSE, where required in community property states
Annuitant) when a person other than spouse is named as primary beneficiary.
- -------------------------------------------------- ----------------------------------------------------------------------------
X
- -------------------------------------------------- ----------------------------------------------------------------------------
SIGNATURE OF AGENT
------------------------- ----------------------------------------------------------------------------
Agent Code Agent Stamp or Telephone Number and Address
</TABLE>
<PAGE> 2
PLAN DESCRIPTIONS
NON-QUALIFIED ANNUITY - Contributions are made by an individual, trust, estate
or business entity and are not tax-deductible. Interest earned is tax-deferred
(until assignment, annuity is owned by other than a "natural" person, or
distribution is made). Upon assignment, withdrawal or distribution, only
earnings (interest credited) are included in taxable income.
REGULAR INDIVIDUAL RETIREMENT ANNUITY (IRA) - Contributions are made by an
individual, and may be tax-deductible depending on income and whether the IRA
owner is covered by an employer-sponsored retirement plan. Interest is
tax-deferred until distribution. At distribution, 100% of funds withdrawn are
taxable. Deposits made between January 1st and April 15th of each year must
identify the tax year to which it applies.
SAVINGS INCENTIVE MATCH PLAN FOR EMPLOYEES (SIMPLE) IRA - Contributions are
funded using employee salary reduction contribution and either employer matching
or nonelective contributions. Contributions are not included in the employee's
gross income and are tax-deductible by the employer. Annuity is owned by the
employee. Interest is tax-deferred until distribution. At distribution 100% of
funds withdrawn are taxable.
SIMPLIFIED EMPLOYEE PENSION (SEP-IRA) - Contributions are made by the employer,
employee, or both. If an employer contribution is to be made for any plan year,
it must be made for every eligible employee. Employer contributions are not
included on employee's W-2 form. The employee may also make additional
contributions to the SEP-IRA (or to a separate IRA) subject to regular IRA
rules. All deposits must be identified AS TO WHETHER THEY ARE EMPLOYER
CONTRIBUTIONS OR THE EMPLOYEES PERSONAL IRA CONTRIBUTION. DEPOSITS MADE BETWEEN
JANUARY 1ST AND APRIL 15TH OF EACH YEAR must identify the tax year to which it
applies.
ROTH IRA - Contributions are made by an individual, and are not tax-deductible.
Interest is tax-deferred until distribution. At time of distribution the annuity
owner will not be taxed on the principal, and may or may not be taxed on
interest earned, depending on the circumstances. Rollover contributions from a
Regular IRA to the Roth IRA should be deposited into a separate account since
the exclusion date (distribution rule) is tracked differently.
TAX-SHELTERED ANNUITY (TSA) - Contributions are made by the employer and not
included in the employee's gross income. Tax-sheltered annuities are for
employees of tax-exempt educational organizations, religious organizations,
charitable organizations, etc. Interest is tax-deferred until distribution.
Annuity is owned by the employee. At distribution 100% of funds withdrawn are
taxable.
QUALIFIED PENSION PLANS - Contributions are made by the employer directly to
FNWL, or to a Pension Trust account, and are tax-deductible by the employer and
not included in the employee's gross income. Interest is tax-deferred until
distribution. Plans must be non-discriminatory, i.e., they must provide
participation for all eligible employees. FNWL's Qualified Pension Plan does not
include SEP-IRAs or TSAs, nor can it be a profit-sharing plan. The owner should
consult with a tax adviser to determine which, if any, Adoption Agreement
(Profit Sharing 31-1182 or Money Purchase 31-1183) will coincide with the
Prototype Defined Contribution Plan packet (31-1181).
TRANSFER - Funds are moved, tax-deferred, from one financial institution
directly to another; the policy owner does not handle the funds.
ROLLOVER - Funds from a qualifying account (e.g., IRA, SEP-IRA, SIMPLE IRA, Roth
IRA, TSA or Qualified Pension Plan) are distributed to the owner, who then must
roll the funds over into the same type of account or an IRA within 60 days of
receipt to qualify as a non-taxable rollover. Funds in a SIMPLE IRA can not be
rolled over to an IRA during the first two years of plan participation.
Non-qualified annuities cannot be established with rollover funds.
1035-EXCHANGE - An exchange-in-kind for certain insurance policies and
non-qualified annuity contracts as permitted under Section 1035 of the Internal
Revenue Code. New policies or contracts can be issued that maintain the original
cost basis and therefore remain tax-deferred.
One or more of the following forms may be required before an FNWL Annuity can be
issued. Please consult publications 31-0719 and 31-0798 for further details.
<TABLE>
<S> <C> <C>
1. IRS Form W-9................................................................................ SRN 31-0723
2. Amendment Rider and Statement of Eligibility (Regular IRA and SEP-IRA)...................... SRN 31-0624
SRN 31-3233 ID/ND
3. Amendment Rider and Statement of Eligibility (SIMPLE)....................................... SRN 31-1214
SRN 31-1943 ID/ND
4. Amendment Rider and Statement of Eligibility (Roth IRA)..................................... SRN 31-1216
SRN 31-1217 ID/ND
5. Disclosure Statement for Regular IRA and SEP-IRA 49X Plans.................................. SRN 31-0623
6. Disclosure Statement for Regular IRA and SEP-IRA 39X Plans.................................. SRN 31-1004
7. Disclosure Statement: for Regular IRA and SEP-IRA - Equity Indexed Annuity (EIA)............ SRN 31-1213
8. Disclosure Statement for Roth IRA 39X Plans................................................. SRN 31-1218
9. Disclosure Statement for Roth IRA 49X Plans................................................. SRN 31-1219
10. Disclosure Statement for Roth IRA - Equity Indexed Annuity (EIA)............................ SRN 31-1209
11. EIA Disclosure (required at time application is completed).................................. SRN 31-1349
SRN 31-1339 KS
SRN 31-1338 AZ
SRN 31-1328 WA
12. Disclosure Statement for SIMPLE IRA 49X Plans .............................................. SRN 31-1945
13. Disclosure Statement for SIMPLE IRA 39X Plans .............................................. SRN 31-1944
14. Disclosure Statement for SIMPLE IRA - Equity Indexed Annuity (EIA) ......................... SRN 31-1946
15. IRS Form 5304-SIMPLE ..................................................................... SRN 31-2004
16. Notice of Applicant and Policy Receipt (Non-Qualified Annuity Only) ........................ SRN 31-0790
17. Absolute Assignment and Beneficiary Designation (Non-Qualified Annuity Only) ............... SRN 31-0789
18. Transfer of IRA and Qualified Pension Plans ................................................ SRN 31-0626
19. Statement of Election by Applicant - Rollover .............................................. SRN 31-0716
20. TSA Amendment Rider......................................................................... SRN 31-1157
</TABLE>
<PAGE> 1
EXHIBIT 5(b)
<TABLE>
<S> <C> <C>
Member of Farmers Insurance Group of Companies
3003 77th Avenue SE, Mercer Island, Washington 98040 [FARMERS INSURANCE GROUP LOGO]
VARIABLE POLICY APPLICATION SUPPLEMENT FARMERS NEW WORLD LIFE INSURANCE COMPANY(R)
- --------------------------------------------------------------------------------------------------------------------------------
Proposed Insured: ______________________________ Policy Number: _____________________ Plan:___________________
Planned Premium: $_____________________________ Mode Payable: $_____________________
- --------------------------------------------------------------------------------------------------------------------------------
ELECTED FEATURES:
[ ] I elect the Guaranteed Minimum Death Benefit Rider. (Variable Annuity only; where available).
[ ] I elect the Guarantee Retirement Income Benefit. (Variable Annuity only; where available).
[ ] I elect Automatic Asset Rebalancing (AAR) among the chosen accounts (excluding fixed account). I elect to have the
assets in the subaccounts moved to match the premium allocation elections.
[ ] I elect to Dollar Cost Average (DCA) in the amount of $____________ ($100 minimum) per month from the fixed account.
The starting balance of the fixed account must be at least equal to the requested transfer amount. Transfers will
continue until the policy owner instructs otherwise; or until there is not enough money in the fixed account to make
the transfer; whichever is earlier. This amount is to go to the following subaccounts ($100 minimum per subaccount,
maximum of eight subaccounts):
_____% Janus Aspen Capital Appreciation _____% PIMCO Variable Insurance Trust Low Duration Bond
_____% Kemper Variable Government Securities _____% Scudder Variable Life Investment Fund Bonds
_____% Kemper Variable Kemper-Dreman High Return Equity _____% Scudder Variable Life Investment Fund Growth & Income
_____% Kemper Variable High Yield _____% Scudder Variable Life Investment Fund International
_____% Kemper Variable Small Cap Growth _____% Scudder Variable Life Investment Fund Money Market
_____% PIMCO Variable Insurance Trust Foreign Bond _____% Templeton Variable Products Series Developing Markets
- --------------------------------------------------------------------------------------------------------------------------------
PREMIUM ALLOCATION: (Choose One) Please see reverse for additional information
[ ] I have elected the following asset allocation model:
[ ] Income [ ] Income with Growth [ ] Balanced [ ] Growth with Income [ ] Growth
[ ] My allocation of premiums is as follows: (All allocations must total 100%. $500 minimum per account)
_____% Janus Aspen Capital Appreciation _____% PIMCO Variable Insurance Trust Low Duration Bond
_____% Kemper Variable Government Securities _____% Scudder Variable Life Investment Fund Bonds
_____% Kemper Variable Kemper-Dreman High Return Equity _____% Scudder Variable Life Investment Fund Growth & Income
_____% Kemper Variable High Yield _____% Scudder Variable Life Investment Fund International
_____% Kemper Variable Small Cap Growth _____% Scudder Variable Life Investment Fund Money Market
_____% PIMCO Variable Insurance Trust Foreign Bond _____% Templeton Variable Products Series Developing Markets
- --------------------------------------------------------------------------------------------------------------------------------
SUITABILITY INFORMATTION on Owner (print name of owner if other than Insured:_________________________________________)
- --------------------------------------------------------------------------------------------------------------------------------
Net Worth
Annual Earnings Income Tax Rate (including residence) Financial Objectives Risk Tolerance
- --------------------------------------------------------------------------------------------------------------------------------
[ ] $0 - $50,000 [ ] 15% [ ] $0 - $150,000 [ ] Growth of assets over long term [ ] Conservative
[ ] $50,001 - $100,000 [ ] 28% [ ] $150,001 - $250,000 [ ] Increase current income [ ] Moderate
[ ] $100,001 - $250,000 [ ] 31% [ ] $250,001 - $500,000 [ ] Combination of the above [ ] Aggressive
[ ] over $250,000 [ ] 36% [ ] over $500,000 [ ] Other ___________________
[ ] 39%
- --------------------------------------------------------------------------------------------------------------------------------
TELEPHONE TRANSFER (see reverse) is authorized unless the following box is checked: [ ] I prefer NOT to authorize telephone
transfers.
Was a hypothetical sales illustration used during the sales process? [ ] Yes [ ] No (If yes, please submit a copy with
the application.)
</TABLE>
I understand that THE AMOUNT AND DURATION OF THE DEATH BENEFIT MAY VARY UNDER
THE SPECIFIED CONDITIONS. POLICY VALUES MAY INCREASE OR DECREASE IN ACCORDANCE
WITH THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT. ILLUSTRATIONS OF
BENEFITS INCLUDING DEATH BENEFITS, POLICY VALUES, AND CASH SURRENDER VALUES,
ARE AVAILABLE UPON REQUEST. I acknowledge receipt of the current prospectus
for the policy and for the underlying funds representing the Premium Allocation
options elected above. All statements and answers to the above questions
are, to the best of my knowledge and belief, complete and true. I agree that
they shall form a part of my application and that they shall be subject to the
terms of the Acknowledgement & Authorization found in the application.
All states except Kansas, North Dakota, Oregon, Texas, and Virginia: Any person
who with intent to defraud or knowing that he/she is facilitating fraud against
an insurer, submits an application or files a claim containing a false or
deceptive statement is guilty of insurance fraud and/or may have violated state
law.
<TABLE>
<S> <C>
Dated at:
------------------------- ------------------------------------------
City and State Signature of Proposed Insured
Dated on:
------------------------- ------------------------------------------
Month, Day, Year Signature of Owner (if other than Insured)
------------------------------
Signature of Agent as witness
</TABLE>
<PAGE> 2
PREMIUM ALLOCATION:
In some states (for a variable annuity) and in all
states (for a variable life policy), the initial
premium payment will be allocated to the fixed account
for the period described in the prospectus.
TELEPHONE TRANSFER AUTHORIZATION:
Telephone transfer among the subaccounts and the fixed
account are subject to the conditions of the Telephone
Transfer Agreement. By requesting this authorization,
I, as owner, agree and understand that:
1. Neither the Company nor its agents or
representatives who act on its behalf shall be
subject to any claim, loss, liability, cost, or
expense, if it acts in good faith in following
instructions pursuant to this authorization.
2. Transfer will be made subject to the conditions
of the policy, administrative regulations of the
Company, and the prospectus.
3. Transfers from a subaccount shall be based on the
accumulation unit value next determined following
receipt of a valid, complete, telephone transfer
instruction.
4. This authorization shall continue in force until
the earlier of receipt of written revocation from
the owner, or the Company discontinuing this
privilege.
I understand that as a condition of allowing telephone
instructions to be made, the Company, at its sole
option and without prior notice to the owner, any
person or representative, may record all or part of any
telephone conversation containing such instructions.
All terms are binding on my agents, heirs, and
assignees.
Telephone transfer is authorized unless the preference
box is marked on the front of this form.
<PAGE> 1
EXHIBIT 8(a)
PARTICIPATION AGREEMENT
-----------------------
AMONG
KEMPER VARIABLE SERIES
SCUDDER KEMPER INVESTMENTS, INC.
KEMPER DISTRIBUTORS, INC.
AND
FARMERS NEW WORLD LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of this _____ day of _______,
1999, by and among Farmers New World Life Insurance Company (hereinafter, the
"Company"), a Washington insurance company, on its own behalf and on behalf of
each separate account of the Company set forth on Schedule A hereto as may be
amended from time to time (each account hereinafter referred to as an
"Account"), Kemper Variable Series, a business trust organized under the laws
of the Commonwealth of Massachusetts (hereinafter the "Fund"), Scudder Kemper
Investments, Inc. (hereinafter the "Adviser"), a Delaware corporation, and
Kemper Distributors, Inc. (hereinafter the "Underwriter"), a Delaware
corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance and variable annuity
contracts (hereinafter the "Variable Insurance Products") offered by insurance
companies that have entered into participation agreements with the Fund
(hereinafter "Participating Insurance Companies");
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each designated a "Portfolio" and representing the interest
in a particular managed portfolio of securities and other assets;
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission ("SEC") granting Participating Insurance Companies and
variable annuity and variable life insurance separate accounts exemptions from
the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment
Company Act of 1940, as amended, (hereinafter the "1940 Act") and Rules
6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, if and to the extent necessary to
permit shares of the Fund to be sold to and held by variable annuity and
variable life insurance separate accounts of both affiliated and unaffiliated
life insurance companies (SEC Release No. IC-17164; File No. 812-7345;
hereinafter the "Shared Funding Exemption Order");
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under
the Securities Act of 1933, as amended (hereinafter the "1933 Act");
WHEREAS, the Adviser is duly registered as an investment adviser under
the Investment Advisers Act of 1940, as amended, and any applicable state
securities laws;
<PAGE> 2
WHEREAS, the Company has registered or will register certain variable
life insurance and variable annuity contracts supported wholly or partially by
the Accounts (the "Contracts") under the 1933 Act, and said Contracts are
listed in Schedule A hereto, as it may be amended from time to time by mutual
written agreement;
WHEREAS, each Account is duly established and maintained as a separate
account, established by resolution of the Board of Directors of the Company, on
the date shown for such Account on Schedule A hereto, to set aside and invest
assets attributable to the aforesaid Contracts;
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act;
WHEREAS, the Underwriter is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended ("1934 Act"), and is a
member in good standing of the National Association of Securities Dealers Inc.
("NASD");
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares of the Portfolios listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement ("Designated Portfolios"), on behalf of the Accounts to fund the
aforesaid Contracts, and the Underwriter is authorized to sell such shares to
unit investment trusts such as the Accounts at net asset value; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company also intends to purchase shares in other open-end
investment companies or series thereof not affiliated with the Fund
("Unaffiliated Funds") on behalf of the Accounts to fund the Contracts.
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund, the Adviser and the Underwriter agree as follows:
ARTICLE I
Sale of Fund Shares
--------------------
1.1 The Underwriter agrees to sell to the Company those shares of
the Designated Portfolios that the Accounts order, executing such orders on a
daily basis at the net asset value next computed after receipt by the Fund or
its designee of the order for the shares of the Designated Portfolios.
1.2 The Fund agrees to make shares of each Designated Portfolio
available for purchase at the applicable net asset value per share by the
Company and the Accounts on those days on which the Fund calculates such
Designated Portfolio's net asset value pursuant to rules of the SEC, and the
Fund will calculate such net asset value on each day when the New York Stock
Exchange is open for trading. Notwithstanding the foregoing, the Board of
Trustees of the
2
<PAGE> 3
Fund ("Board") may refuse to sell shares of any Designated Portfolio to any
person, or suspend or terminate the offering of shares of any Designated
Portfolio if such action is required by law or by regulatory authorities having
jurisdiction, or is, in the sole discretion of the Board acting in good faith
and in light of its fiduciary duties under federal and any applicable state
laws, necessary in the best interest of the shareholders of such Designated
Portfolio.
1.3 The Fund and the Underwriter agree that shares of the Fund
will be sold only to Participating Insurance Companies or their separate
accounts. No shares of any Designated Portfolios will be sold to the general
public. The Fund and the Underwriter will not sell shares of any Designated
Portfolio to any insurance company or separate account unless an agreement
containing provisions substantially the same as Sections 2.1, 3.4, 3.5 and 3.6
and Article VII of this Agreement is in effect to govern such sales.
1.4 The Fund agrees to redeem, on the Company's request, any full
or fractional shares of the Designated Portfolios held by the Company,
executing such requests on a daily basis at the net asset value next computed
after receipt by the Fund or its designee of the request for redemption, except
that the Fund reserves the right to suspend the right of redemption or postpone
the date of payment or satisfaction upon redemption consistent with Section
22(e) of the 1940 Act and any rules thereunder, and in accordance with the
procedures and policies of the Fund as described in the Fund's then current
prospectus.
1.5 For purposes of Sections 1.1 and 1.4, the Company shall be
the designee of the Fund for receipt of purchase and redemption orders from the
Accounts, and receipt by such designee shall constitute receipt by the Fund;
provided that the Company receives the order prior to the determination of net
asset value as set forth in the Fund's then current prospectus and the Fund
receives notice of such order by 11:00 a.m. New York time on the next following
Business Day. "Business Day" shall mean any day on which the New York Stock
Exchange is open for trading and on which the Fund calculates its net asset
value pursuant to the rules of the SEC.
1.6 The Company agrees to purchase and redeem the shares of each
Designated Portfolio offered by the Fund's then current prospectus in
accordance with the provisions of such prospectus.
1.7 The Company shall pay for shares of a Designated Portfolio on
the next Business Day after receipt of an order to purchase shares of such
Designated Portfolio. Payment shall be in federal funds transmitted by wire by
4 p.m. New York time. If payment in federal funds for any purchase is not
received or is received by the Fund after noon New York time on such Business
Day, the Company shall promptly, upon the Fund's request, reimburse the Fund
for any charges, costs, fees, interest or other expenses incurred by the Fund
in connection with any advances to, or borrowing or overdrafts by, the Fund, or
any similar expenses incurred by the Fund, as a result of portfolio
transactions effected by the Fund based upon such purchase request. For
purposes of Section 2.8 and 2.9 hereof, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
3
<PAGE> 4
1.8 Issuance and transfer of the shares of a Designated Portfolio
will be by book entry only. Stock certificates will not be issued to the
Company or any Account. Shares of a Designated Portfolio ordered from the Fund
will be recorded in an appropriate title for each Account or the appropriate
subaccount of each Account.
1.9 The Fund shall furnish same-day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on shares of the Designated Portfolios. The
Company hereby elects to receive all such income, dividends, and capital gain
distributions as are payable on shares of a Designated Portfolio in additional
shares of that Designated Portfolio. The Company reserves the right to revoke
this election and to receive all such income dividends and capital gain
distributions in cash. The Fund shall notify the Company of the number of
shares so issued as payment of such dividends and distributions. The Fund shall
use its best efforts to furnish advance notice of the day such dividends and
distributions are expected to be paid.
1.10 The Fund shall make the closing net asset value per share for
each Designated Portfolio available to the Company on a daily basis as soon as
reasonably practical after the closing net asset value per share is calculated
(normally by 6:30 p.m. New York time) and shall use its best efforts to make
such net asset value per share available by 7:00 p.m. New York time. In the
event the Fund is unable to make the 7:00 p.m. New York time deadline, it shall
provide additional time for the Company to place orders for the purchase and
redemption of shares. Such additional time shall be equal to the additional
time which the Fund takes to make the closing net asset value available to the
Company. Any material error in the calculation or reporting of the closing net
asset value per share shall be reported immediately upon discovery to the
Company. In such event the Company shall be entitled to an adjustment to the
number of shares purchased or redeemed to reflect the correct closing net asset
value per share and the Fund shall bear the cost of correcting such errors. Any
error of a lesser amount shall be corrected in the next Business Day's net
asset value per share.
1.11 The Parties hereto acknowledge that the arrangement
contemplated by this Agreement is not exclusive; the shares of the Designated
Portfolios (and other Portfolios of the Fund) may be sold to other insurance
companies (subject to Section 1.3 and Article VII hereof) and the cash value of
the Contacts may be invested in other investment companies.
ARTICLE II
Representations and Warranties
------------------------------
2.1 The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act; that the Contracts will be continually
issued, offered for sale and sold in compliance in all material respects with
all applicable federal and state laws and that the sale of the Contacts shall
comply in all material respects with state insurance suitability requirements.
The Company further represents and warrants that it is an insurance company
duly organized and in good standing under applicable law and that it has
legally and validly established each Account prior to any issuance or sale
thereof as a separate account under the Washington
4
<PAGE> 5
insurance laws and has registered or, prior to any issuance or sale of the
Contracts, will register each Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as a separate account for the
Contracts.
2.2 The Fund represents and warrants that shares of the
Designated Portfolios sold pursuant to this Agreement shall be registered under
the 1933 Act, duly authorized for issuance and sold in compliance with all
applicable federal securities laws and that the Fund is and shall remain
registered under the 1940 Act. The Fund shall amend the Registration Statement
for its shares under the 1933 Act and the 1940 Act from time to time as
required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares of the Designated Portfolios for sale in
accordance with the laws of the various states only if and to the extent deemed
advisable by the Fund after taking into consideration any state insurance law
requirements that the Company advises the Fund may be applicable.
2.3 The Fund currently does not intend to make any payments to
finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act,
although it may make such payments in the future subject to applicable law.
2.4 The Fund makes no representations as to whether any aspect of
its operation, including but not limited to, investments policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states, except that the Fund represents that the investment policies, fees and
expenses of the Designated Portfolios are and shall at all times remain in
compliance with the insurance laws of the State of Washington to the extent
required to perform this Agreement. The Company will advise the Fund in writing
as to any requirements of Washington insurance law that affect the Designated
Portfolios, and the Fund will be deemed to be in compliance with this Section
2.4 so long as the Fund complies with such advice of the Company.
2.5 The Fund represents that it is lawfully organized and validly
existing as a business trust under the laws of the Commonwealth of
Massachusetts and that it does and will comply in all material respects with
the 1940 Act.
2.6 The Underwriter represents and warrants that it is a member
in good standing of the NASD and is registered as a broker-dealer with the SEC.
The Underwriter further represents that it will sell and distribute the shares
of the Designated Portfolios in accordance with any applicable state and
federal securities laws.
2.7 The Adviser represents and warrants that it is and shall
remain duly registered as an investment adviser under all applicable federal
and state securities laws and that the Adviser shall perform its obligations
for the Fund in compliance in all material respects with any applicable state
and federal securities laws.
2.8 The Fund, the Adviser and the Underwriter represent and
warrant that all their directors, officers, employees, investment advisers, and
other individuals or entities dealing with
5
<PAGE> 6
the money and/or securities of the Fund are and shall continue to be at all
times covered by a blanket fidelity bond or similar coverage for the benefit of
the Fund in an amount not less than the minimum coverage required currently by
Rule 17g-1 of the 1940 Act or such related provisions as may be promulgated
from time to time. The aforesaid bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
2.9 The Company represents and warrants that all its officers,
employees, investment advisers, and other individuals or entities employed or
controlled by the Company dealing with the money and/or securities of the Fund
are covered by a blanket fidelity bond or similar coverage in an amount not
less than $5 million. The aforesaid bond includes coverage for larceny and
embezzlement and is issued by a reputable bonding company. The Company agrees
that this bond or another bond containing these provisions will always be in
effect, and agrees to notify the Fund, the Adviser and the Underwriter in the
event that such coverage no longer applies.
2.10 The Company represents and warrants that all shares of the
Designated Portfolios purchased by the Company will be purchased on behalf of
one or more unmanaged separate accounts that offer interests therein that are
registered under the 1933 Act and upon which a registration fee has been or
will be paid; and the Company acknowledges that the Fund intends to rely upon
this representation and warranty for purposes of calculating SEC registration
fees payable with respect to such shares of the Designated Portfolios pursuant
to Instruction B.5 to Form 24F-2 or any similar form or SEC registration fee
calculation procedure that allows the Fund to exclude shares so sold for
purposes of calculating its SEC registration fee. The Company agrees to
cooperate with the Fund on no less than an annual basis to certify as to its
continuing compliance with this representation and warranty.
2.11 The Fund represents and warrants that the investments of each
Designated Portfolio will comply with the diversification requirements set
forth in Section 817(h) of the Internal Revenue Code of 1986, as amended
("Code") Code and the rules and regulations thereunder.
ARTICLE III
Prospectuses, Statements of Additional
Information, and Proxy Statements; Voting
-----------------------------------------
3.1 The Fund shall provide the Company with as many copies of the
Fund's current prospectus or profile for the Designated Portfolios as the
Company may reasonably request. If requested by the Company in lieu thereof,
the Fund shall provide such documentation (including a final copy of the new
prospectus) and other assistance as is reasonably necessary in order for the
Company once each year (or more frequently if the prospectus for a Designated
Portfolio is amended) to have the prospectus for the Contracts and the
prospectus or profile for the Designated Portfolios printed-together in one
document. Expenses with respect to the foregoing shall be borne as provided
under Article V.
6
<PAGE> 7
3.2 The Fund's prospectus shall disclose that (a) the Fund is
intended to be a funding vehicle for all types of variable annuity and variable
life insurance contracts offered by Participating Insurance Companies, (b)
material irreconcilable conflicts of interest may arise, and (c) the Fund's
Board will monitor events in order to identify the existence of any material
irreconcilable conflicts and determine what action, if any, should be taken in
response to such conflicts. The Fund hereby notifies the Company that
disclosure in the prospectus for the Contracts regarding the potential risks of
mixed and shared funding may be appropriate. Further, the Fund's prospectus
shall state that the current Statement of Additional Information ("SAI") for
the Fund is available from the Company (or, in the Fund's discretion, from the
Fund), and the Fund shall provide a copy of such SAI to any owner of a Contract
who requests such SAI and to the Company in such quantities as the Company may
reasonably request. Expenses with respect to the foregoing shall be borne as
provided under Article V.
3.3 The Fund shall provide the Company with copies of its proxy
material, reports to shareholders, and other communications to shareholders for
the Designated Portfolios in such quantity as the Company shall reasonably
require for distributing to Contract owners. Expenses with respect to the
foregoing shall be borne as provided under Article V.
3.4 The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the shares of each Designated Portfolio in
accordance with instructions received from Contract
owners; and
(iii) vote shares of each Designated Portfolio for which
no instructions have been received in the same
proportion as shares of such Designated Portfolio
for which instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act
to require passthrough voting privileges for variable contract owners or to the
extent otherwise required by law. The Company reserves the right to vote shares
of each Designated Portfolio held in any separate account in its own right, to
the extent permitted by law.
3.5 The Company shall be responsible for assuring that each of
its separate accounts participating in a Designated Portfolio calculates voting
privileges as required by the Shared Funding Exemption Order and consistent
with any reasonable standards that the Fund has adopted or may adopt.
3.6 The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Fund will either
provide for annual meetings or comply with Section 16(c) of the 1940 Act
(although the Fund is not one of the trusts described in Section 16(c) of that
Act) as well as with Sections 16(a) and, if and when applicable, Section 16(b).
Further, the Fund will act in accordance with the SEC's interpretation of the
requirements of
7
<PAGE> 8
Section 16(a) with respect to periodic elections of directors or trustees and
with whatever rules the SEC may promulgate from time to time with respect
thereto. The Fund reserves the right, upon prior written notice to the Company
(given at the earliest practicable time), to take all actions, including but
not limited to, the dissolution, termination, merger and sale of all assets of
the Fund or any Designated Portfolio upon the sole authorization of the Board,
to the extent permitted by the laws of the Commonwealth of Massachusetts and
the 1940 Act.
3.7 It is understood and agreed that, except with respect to
information regarding the Fund, the Underwriter, the Adviser or Designated
Portfolios provided in writing by the Fund, the Underwriter or the Adviser,
none of the Fund, the Underwriter or the Adviser is responsible for the content
of the prospectus or statement of additional information for the Contracts.
ARTICLE IV
Sales Material and Information
------------------------------
4.1 The Company shall furnish, or shall cause to be furnished, to
the Fund or the Underwriter, each piece of sales literature or other
promotional material ("sales literature") that the Company develops or uses and
in which the Fund (or a Designated Portfolio thereof) or the Adviser or the
Underwriter is named, at least five business days prior to its use. No such
material shall be used if the Fund or its designee reasonably objects to such
use within five business days after receipt of such material. The Fund or its
designee reserves the right to reasonably object to the continued use of such
material, and no such material shall be used if the Fund or its designee so
object.
4.2 The Company shall not give any information or make any
representation or statement on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement, prospectus, profile or
SAI for the shares of the Designated Portfolios, as such registration
statement, prospectus, profile or SAI may be amended or supplemented from time
to time, or in reports or proxy statements for the Fund, or in sales literature
approved by the Fund or its designee or by the Underwriter, except with the
permission of the Fund or the Underwriter or the designee of either.
4.3 The Fund or the Underwriter shall furnish, or shall cause to
be furnished, to the Company, each piece of sales literature that the Fund or
Underwriter develops or uses in which the Company and/or its Account is named,
at least eight business days prior to its use. No such material shall be used
if the Company reasonably objects to such use within eight business days after
receipt of such material. The Company reserves the right to reasonably object
to the continued use of such material and no such material shall be used if the
Company so objects.
4.4 The Fund and the Underwriter shall not give any information
or make any representations on behalf of the Company or concerning the Company,
the 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 such registration
8
<PAGE> 9
statement, prospectus or statement of additional information may be amended or
supplemented from time to time, or in published reports for the Accounts which
are the public domain or approved by the Company for distribution to Contract
owners, or in sales literature approved by the Company or its designee, except
with the permission of the Company.
4.5 The Fund will provide to the Company at least one complete
copy of all registration statements, prospectuses, profiles, SAIs, reports,
proxy statements, sales literature, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate to the
Designated Portfolios, contemporaneously with the filing of such document(s)
with the SEC or other regulatory authorities.
4.6 The Company will provide to the Fund at least one complete
copy of all registration statements, prospectuses, statements of additional
information, shareholder reports, solicitations for voting instructions, sales
literature, applications for exemptions, request for no-action letters, and all
amendments to any of the above, that relate to the Contracts or the Accounts,
contemporaneously with the filing of such document(s) with the SEC or other
regulatory authorities.
4.7 For purposes of this Agreement, the phrase "sales literature"
includes, but is not limited to, any of the following: advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, electronic media, 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,
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article) and
educational or training materials or other communications distributed or made
generally available to some or all agents or employees.
4.8 At the request of any party to this Agreement, any other
party will make available to the requesting party's independent auditors all
records, data and access to operating procedures that may reasonably be
requested in connection with compliance and regulatory requirements related to
this Agreement or any party's obligations under this Agreement.
ARTICLE V
Fees and Expenses
-----------------
5.1 All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund, except and as further provided in Schedule
B. The Fund shall see to it that all shares of the Designated Portfolios are
registered, duly authorized for issuance and sold in compliance with applicable
federal securities laws and, if and to the extent deemed advisable by the Fund,
in accordance with applicable state securities laws prior to their sale.
5.2 The parties hereto shall bear the expenses of typesetting,
printing and distributing the Fund's prospectus, SAI, proxy materials and
reports as provided in Schedule B.
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5.3 Administrative services to variable Contract owners shall be
the responsibility of the Company and shall not be the responsibility of the
Fund, Underwriter or Adviser. The Fund recognizes the Company as the sole
shareholder of shares of the Designated Portfolios issued under the Agreement.
5.4 The Fund shall not pay and neither the Adviser nor the
Underwriter shall pay any fee or other compensation to the Company under this
Agreement, although the parties will bear certain expenses in accordance with
Schedule B and other provisions of this Agreement.
ARTICLE VI
Diversification and Qualification
---------------------------------
6.1 The Fund will invest the assets of each Designated Portfolio
in such a manner as to ensure that the Contracts will be treated as annuity or
life insurance contracts, whichever is appropriate, under the Code, and the
regulations issued thereunder (or any successor provisions). Without limiting
the scope of the foregoing, the Fund will, with respect to each Designated
Portfolio, comply with Section 817(h) of the Code and Treasury Regulation
Section 1.817-5, and any Treasury interpretations thereof, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts, and any amendments or other modifications or successor provisions to
such Section or Regulations. In the event of a breach of this Article VI, the
Fund will: (a) take all reasonable steps to notify the Company of such breach
and (b) immediately take all necessary steps to adequately diversify the
affected Designated Portfolio so as to achieve compliance within the grace
period afforded by Treasury Regulation Section 1.817-5.
6.2 The Fund represents that each Designated Portfolio is
currently qualified (and for new Designated Portfolios, intends to qualify) as
a Regulated Investment Company under Subchapter M of the Code, and that it will
make every effort to maintain such qualification (under Subchapter M or any
successor or similar provisions) and that it will notify the Company
immediately upon having a reasonable basis for believing that a Designated
Portfolio has ceased to so qualify or that a Designated Portfolio might not so
qualify in the future. The Fund acknowledges that compliance with Subchapter M
is an essential element of compliance with Section 817(h).
6.3 The Fund shall provide the Company or its designee with
reports certifying compliance with the aforesaid Section 817(h) diversification
and Subchapter M qualification requirements on a quarterly basis.
6.4 The Company represents that the Contracts are currently, and
at the time of issuance shall be, treated as life insurance or annuity
insurance contracts, under applicable provisions of the Code, and that it will
make every effort to maintain such treatment, and that it will notify the Fund,
the Adviser and the Underwriter immediately upon having a reasonable basis for
believing the Contracts have ceased to be so treated or that they might not be
so treated in the future.
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ARTICLE VII
Potential Conflicts
-------------------
7.1 The Board will monitor the Fund for the existence of any
material irreconcilable conflict between the interests of the contract owners
of all separate accounts investing in the Fund. An irreconcilable material
conflict may arise for a variety of reasons, including: (a) an action by any
state insurance regulatory authority; (b) a change in applicable federal or
state insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any similar
action by insurance, tax, or securities regulatory authorities; (c) an
administrative or judicial decision in any relevant proceeding; (d) the manner
in which the investments of any Designated Portfolio are being managed; (e) a
difference in voting instructions given by variable annuity contract and
variable life insurance contract owners; or (f) a decision by a Participating
Insurance Company to disregard the voting instructions of contract owners. The
Board shall promptly inform the Company if it determines that an irreconcilable
material conflict exists and the implications thereof.
7.2 The Company and the Adviser will report any potential or
existing conflicts of which each is aware to the Board. The Company will assist
the Board in carrying out its responsibilities under the Shared Funding
Exemption Order, by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is
not limited to, an obligation by the Company to inform the Board whenever
Contract owner voting instructions are disregarded. At least annually, and more
frequently if deemed appropriate by the Board, the Company shall submit to the
Adviser, and the Adviser shall at least annually submit to the Board, such
reports, materials and data as the Board may reasonably request so that the
Board may fully carry out the obligations imposed upon it by the conditions
contained in the Shared Funding Exemption Order; and said reports, materials
and data shall be submitted more frequently if deemed appropriate by the Board.
The responsibility to report such information and conflicts to the Board will
be carried out with a view only to the interests of the contract owners.
7.3 If it is determined by a majority of the Board, or a majority
of its disinterested members, that a material irreconcilable conflict exists,
the Company and any other Participating Insurance Companies shall, at their
expense and to the extent reasonably practicable (as determined by a majority
of the disinterested Board members), take whatever steps are necessary to
remedy or eliminate the irreconcilable material conflict, up to and including:
(a), withdrawing the assets allocable to some or all of the separate accounts
from the Fund or any Designated Portfolio and reinvesting such assets in a
different investment medium, which may include another Designated Portfolio of
the Fund, or submitting to a vote of all affected contract owners the question
whether such segregation should be implemented and, as appropriate, segregating
the assets of any appropriate group (i.e., annuity contract owners, life
insurance contract owners, or variable contract owners of one or more
Participating Insurance Companies) that votes in favor of such segregation, or
offering to the affected contract owners the option of making such a change;
and (b), establishing a new registered management investment company or managed
separate account.
11
<PAGE> 12
7.4 If a material irreconcilable conflict arises because of a
decision by the Company to disregard contract owner voting instructions and
that decision represents a minority position or would preclude a majority vote,
the Company may be required, at the Fund's election, to withdraw the affected
Account's investment in any Designated Portfolio and terminate this Agreement
with respect to such 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 disinterested
members of the Board. The Company will bear the cost of any remedial action,
including such withdrawal and termination. No penalty will be imposed by the
Fund upon the affected Account for withdrawing assets from the Fund in the
event of a material irreconcilable conflict. Any such withdrawal and
termination must take place within six (6) months after the Fund gives written
notice that this provision is being implemented, and until the effective date
of such termination the Fund shall continue to accept and implement orders by
the Company for the purchase (and redemption) of shares of such Designated
Portfolio.
7.5 If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to the Company
conflicts with the majority of other state regulators, then the Company will
withdraw the affected Account's investment in the affected Designated Portfolio
and terminate this Agreement with respect to such Account within six months
after the Board informs the Company in writing that it has determined that such
decision has created an irreconcilable material conflict; provided, however,
that such withdrawal and termination shall be limited to the extent required by
the foregoing material irreconcilable conflict as determined by a majority of
the disinterested members of the Board. Until the effective date of such
termination the Fund shall continue to accept and implement orders by the
Company for the purchase (and redemption) of shares of such Designated
Portfolios.
7.6 For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict; but
in no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contract if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw an Account's investment in any
Designated Portfolio and terminate this Agreement within six (6) months after
the Board informs the Company in writing of the foregoing determination;
provided, however, that such withdrawal and termination shall be limited to the
extent required by any such material irreconcilable conflict as determined by a
majority of the disinterested members of the Board.
7.7 If and to the extent the Shared Funding Exemption Order
contains terms and conditions different from Sections 3.4, 3.5, 3.6, 7.1, 7.2,
7.3, 7.4 and 7.5 of this Agreement, then the Fund and/or the Participating
Insurance Companies, as appropriate, shall take such steps as may be necessary
to comply with the Shared Funding Exemption Order, and Sections 3.4, 3.5,
12
<PAGE> 13
3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of the Agreement shall continue in effect only
to the extent that terms and conditions substantially identical to such
Sections are contained in the Shared Funding Exemption Order or any amendment
thereto. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemption Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemption Order, then (a) the Fund and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the
extent such rules are applicable; and (b) Sections 3.4, 3.5, 3.6, 7.1, 7.2,
7.3, 7.4 and 7.5 of this Agreement shall continue in effect only to the extent
that terms and conditions substantially identical to such Sections are
contained in such Rule(s) as so amended or adopted.
ARTICLE VIII
Indemnification
---------------
8.1 Indemnification by the Company.
(a) The Company agrees to indemnify and hold harmless
the Fund, the Adviser, the Underwriter and each of their officers, trustees and
directors and each person, if any, who controls the Fund, the Adviser or the
Underwriter 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 Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute or regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the shares of the
Designated Portfolios 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, prospectus, or
statement of additional information 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 Company by or on
behalf of the Fund for use in the Registration Statement,
prospectus or statement of additional information for the
Contracts or in the Contracts or sales literature for the
Contracts (for any amendment or supplement) or otherwise for
use in connection with the sale of the Contracts or shares of
the Designated Portfolios; or
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<PAGE> 14
(ii) arise out of or as a result of statements
or representations (other than statements or representations
contained in the Registration Statement, prospectus, SAI or
sales literature of the Fund not supplied by the Company or
persons under its control) or wrongful conduct of the Company
or persons under its authorization or control, with respect
to the sale or distribution of the Contracts or shares of the
Designated Portfolios; or
(iii) arise out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement, prospectus, profile, SAI or sales
literature of the Fund or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to
make the statements therein not misleading if such a
statement or omission was made in reliance upon information
furnished to the Fund by or on behalf of the Company; or
(iv) arise as a result of any material failure
by the Company to provide the services and furnish the
materials under the terms of this Agreement (including a
failure, whether unintentional or in good faith or otherwise,
to comply with the qualification requirements specified in
Article VI of this Agreement); or
(v) arise out of or are based upon any untrue
statements or alleged untrue statements of any material fact
contained in any Registration Statement, prospectus,
statement of additional information or sales literature for
any Unaffiliated Fund, or arise out of or are based upon 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, or otherwise pertain to or
arise in connection with the availability of any Unaffiliated
Fund as an underlying funding vehicle in respect of the
Contracts; or
(vi) arise out of or result from any material
breach of any representation and/or warranty made by the
Company in this Agreement or arise out of or result from any
other material breach of this Agreement by the Company;
as limited by and in accordance with the provisions of Sections 8.l(b)
and 8.l(c).
(b) The Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith,
or gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of its obligations or
duties under this Agreement.
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<PAGE> 15
(c) The Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the 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 such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the Company of
any such claim shall not relieve the Company from any liability that it may
have to the Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision, except to the extent that
the Company has been prejudiced by such failure to give notice. In case any
such action is brought against an Indemnified Party, the Company shall be
entitled to participate, at its own expense, in the defense of such action. The
Company also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action and to settle the claim at its
own expense provided, however, that no such settlement shall, without the
Indemnified Parties' written consent, include any factual stipulation referring
to the Indemnified Parties or their conduct. After notice from the Company to
such party of the Company's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Company will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable
costs of investigation.
(d) The Indemnified Parties will promptly notify the
Company of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the shares of the Designated Portfolios
or the Contracts or the operation of the Fund.
8.2 Indemnification by the Underwriter
(a) The Underwriter agrees to indemnify and hold
harmless the Company and each of its directors and officers and each person, if
any, who controls the 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 the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of
shares of the Designated Portfolios 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, profile. prospectus
or SAI of the Fund or sales literature of the Fund developed
by the Underwriter (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
15
<PAGE> 16
statement or omission was made in reliance upon and in
conformity with information furnished to the Underwriter or
Fund by or on behalf of the Company for use in the
Registration Statement, profile or prospectus for the Fund or
its sales literature (or any amendment or supplement thereto)
or otherwise for use in connection with the sale of the
Contracts or shares of the Designated Portfolios; or
(ii) arise out of or as a result of statements
or representations (other than statements or representations
contained in the Registration Statement, prospectus or sales
literature for the Contracts not supplied by the Underwriter
or persons under its control) or wrongful conduct of the Fund
or Underwriter or person under their control with respect to
the sale or distribution of the Contracts or shares of the
Designated Portfolios;
(iii) arise out of any untrue statement or
alleged untrue statement of a material fact contained in a
Registration Statement, prospectus or sales literature for
the Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if
such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the
Fund; or
(iv) arise as a result of any failure by the
Fund to provide the services and furnish the materials under
the terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with
the diversification and other qualification requirements
specified in Article VI of this Agreement); or
(v) arise out of or result from any material
breach of any representation and/or warranty made by the
Underwriter in this Agreement or arise out of or result from
any other material breach of this Agreement by the
Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b)
and 8.2(c) hereof.
(b) The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith,
or gross negligence in the performance or such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company or the Accounts, whichever is
applicable.
(c) The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall
16
<PAGE> 17
have notified the Underwriter in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify the Underwriter of any such claim shall not
relieve the Underwriter from any liability which it may have to the Indemnified
Party against whom such action is brought otherwise than on account of this
indemnification provision, except to the extent that the Underwriter has been
prejudiced by such failure to give notice. In case any such action is brought
against the Indemnified Party, the Underwriter will be entitled to participate,
at its own expense, in the defense thereof. The Underwriter also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action and to settle the claim at its own expense; provided,
however, that no such settlement shall, without the Indemnified Parties'
written consent, include any factual stipulation referring to the Indemnified
Parties or their conduct. After notice from the Underwriter to such party of
the Underwriter's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Underwriter will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
(d) The Company agrees promptly to notify the
Underwriter of the commencement of any litigation or proceedings against it or
any of its officers or directors in connection with the issuance or sale of the
Contracts or the operation of the Account.
8.3 Indemnification By the Fund
(a) The Fund agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the 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, expenses, damages, liabilities (including
amounts paid in settlement with the written consent of the Fund); or litigation
(including legal and other expenses) to which the Indemnified Parties may be
required to pay or may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, expenses, damages,
liabilities or expenses (or actions in respect thereof) or settlements, are
related to the operations of the Fund and:
(i) arise as a result of any failure by the
Fund to provide the services and furnish the materials under
the terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with
the diversification and qualification requirements specified
in Article VI of this Agreement); or
(ii) arise out of or result from any material
breach of any representation and/or warranty made by the Fund
in this Agreement or arise out of or result from any other
material breach of this Agreement by the Fund; or
17
<PAGE> 18
(iii) arise out of or result from the materially
incorrect or untimely calculation or reporting of the daily
net asset value per share or dividend or capital gain
distribution rate;
as limited by and in accordance with the provisions of Sections 8.3(b)
and 8.3(c) hereof.
(b) The Fund shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith,
or gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company, the Fund, the Underwriter, the Adviser
or the Accounts, whichever is applicable.
(c) The Fund shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Fund in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability that it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision, except to the extent that the Fund
has been prejudiced by such failure to give notice. In case any such action is
brought against the Indemnified Parties, the Fund will be entitled to
participate, at its own expense, in the defense thereof. The Fund also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action and to settle the claim at its own expense; provided,
however, that no such settlement shall, without the Indemnified Parties'
written consent, include any factual stipulation referring to the Indemnified
Parties or their conduct. After notice from the Fund to such party of the
Fund's election to assume the defense thereof, the Indemnified Party shall bear
the fees and expenses of any additional counsel retained by it, and the Fund
will not be liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in connection with
the defense thereof other than reasonable costs of investigation.
(d) The Company, the Adviser and the Underwriter agree
to notify the Fund promptly of the commencement of any litigation or proceeding
against it or any of its respective officers or directors in connection with
the Agreement, the issuance or sale of the Contracts, the operation of any
Account, or the sale or acquisition of shares of the Designated Portfolios.
ARTICLE IX
Applicable Law
--------------
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of ____________.
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<PAGE> 19
9.2 This Agreement shall be subject to the provisions of the
1933, 1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from the statutes, rules and regulations as the SEC
may grant (including, but not limited to, the Shared Funding Exemption Order)
and the terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X
Termination
-----------
10.1 This Agreement shall continue in full force and effect until
the first to occur of:
(a) termination by any party, for any reason with
respect to any Designated Portfolio, by ninety (90) days' advance written
notice delivered to the other parties; or
(b) termination by the Company by written notice to the
Fund, the Adviser and the Underwriter with respect to any Designated Portfolio
based upon the Company's reasonable and good faith determination that shares of
such Designated Portfolio are not reasonably available to meet the requirements
of the Contracts; or
(c) termination by the Company by written notice to the
Fund, the Adviser and the Underwriter with respect to any Designated Portfolio
if the shares of such Designated Portfolio are not registered, issued or sold
in accordance with applicable state and/or federal securities laws or such law
precludes the use of such shares to fund the Contracts issued or to be issued
by the Company; or
(d) termination by the Fund, the Adviser or Underwriter
in the event that formal administrative proceedings are instituted against the
Company or any affiliate by the NASD, the SEC, or the Insurance Commissioner or
like official of any state or any other regulatory body regarding the Company's
duties under this Agreement or related to the sale of the Contracts, the
operation of any Account, or the purchase of the shares of a Designated
Portfolio or the shares of any Unaffiliated Fund, provided, however, that the
Fund, the Adviser or Underwriter 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 Company to perform its obligations under
this Agreement; or
(e) termination by the Company in the event that formal
administrative proceedings are instituted against the Fund, the Adviser or
Underwriter by the NASD, the SEC, or any state securities or insurance
department or any other regulatory body, provided, however, that the Company
determines in its sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse effect upon the ability
of the Fund or Underwriter to perform its obligations under this Agreement; or
(f) termination by the Company by written notice to the Fund,
the Adviser and the Underwriter with respect to any Designated Portfolio in the
event that such Designated
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<PAGE> 20
Portfolio ceases to qualify as a Regulated Investment Company under Subchapter
M or fails to comply with the Section 817(h) diversification requirements
specified in Article VI hereof, or if the Company reasonably believes that such
Designated Portfolio may fail to so qualify or comply; or
(g) termination by the Fund, the Adviser or Underwriter
by written notice to the Company in the event that the Contracts fail to meet
the qualifications specified in Article VI hereof: or
(h) termination by any of the Fund, the Adviser or the
Underwriter by written notice to the Company, if any of the Fund, the Adviser
or the Underwriter, respectively, shall determine, in their sole judgement
exercised in good faith, that the Company has suffered a material adverse
change in its business, operations, financial condition, insurance company
rating or prospects since the date of this Agreement or is the subject of
material adverse publicity; or
(i) termination by the Company by written notice to the
Fund, the Adviser and the Underwriter, if the Company shall determine, in its
sole judgment exercised in good faith, that the Fund, the Adviser or the
Underwriter has suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement or is the
subject of material adverse publicity and that material adverse change or
publicity will have a material adverse effect on the Fund's or the
Underwriter's ability to perform its obligations under this Agreement; or
(j) at the option of Company, as one party, or the Fund,
the Adviser and the Underwriter, as one party, upon the other party's material
breach of any provision of this Agreement upon 30 days' notice and opportunity
to cure; or
(k) termination by the Company by written notice to the
Fund, the Adviser and the Underwriter with respect to any Designated Portfolio
in the event that such Portfolio ceases to qualify as a Regulated Investment
Company under Subchapter M or fails to comply with the Section 817(h)
diversification requirements specified in Article VI hereof, or if the Company
reasonably believes that such Portfolio may fail to so qualify or comply.
10.2 Effect of Termination. Notwithstanding any termination of
this Agreement, the Fund and the Underwriter shall, at the option of the
Company, continue to make available additional shares of a Designated Portfolio
pursuant to the terms and conditions of this Agreement, for all Contracts in
effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, the owners of the Existing
Contracts may in such event be permitted to reallocate investments in the
Designated Portfolios, redeem investments in the Designated Portfolios and/or
invest in the Designated Portfolios upon the making of additional purchase
payments under the Existing Contracts. The parties agree that this Section 10.2
shall not apply to any termination under Article VII and the effect of such
Article VII termination shall be governed by Article VII of this Agreement. The
parties further
20
<PAGE> 21
agree that this Section 10.2 shall not apply to any termination under Section
10.1(g) of this Agreement.
10.3 Notwithstanding any termination of this Agreement, each
party's obligation under Article VIII to indemnify the other parties shall
survive.
ARTICLE XI
Notices
----------
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
Kemper Variable Series
222 South Riverside Plaza
Chicago, IL 60606
Attention: Secretary
If to the Company:
Farmers New World Life Insurance Company
__________________________
__________________________
Attention: ______________
If to the Adviser:
Scudder Kemper Investments, Inc.
222 South Riverside Plaza
Chicago, IL 60606
Attention: Secretary
If to the Underwriter:
Kemper Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60606
Attention: Secretary
21
<PAGE> 22
ARTICLE XII
Miscellaneous
--------------
12.1 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.
12.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.3 If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
12.4 Each party hereto shall cooperate with each other party and
all appropriate governmental authorities (including without limitation the SEC,
the NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Delaware Insurance Commissioner with any information or
reports in connection with services provided under this Agreement that such
Commissioner may request in order to ascertain whether the variable annuity
operations of the Company are being conducted in a manner consistent with the
Delaware variable annuity laws and regulations and any other applicable law or
regulations.
12.5 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.
12.6 This Agreement or any of the rights and obligations hereunder
may not be assigned by any party without the prior written consent of all
parties hereto.
12.7 All persons are expressly put on notice of the Fund's
Agreement and Declaration of Trust and all amendments thereto, all of which on
file with the Secretary of the Commonwealth of Massachusetts, and the
limitation of shareholder and trustee liability contained therein. This
Agreement has been executed by and on behalf of the Fund by its representatives
as such representatives and not individually, and the obligations of the Fund
with respect to a Designated Portfolio hereunder are not binding upon any of
the trustees, officers or shareholders of the Fund individually, but are
binding upon only the assets and property of such Designated Portfolio. All
parties dealing with the Fund with respect to a Designated Portfolio shall look
solely to the assets of such Designated Portfolio for the enforcement of any
claims against the Fund hereunder.
22
<PAGE> 23
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed in its name and on behalf by its duly authorized representative and
its seal to be hereunder affixed hereto as of the date first above written.
COMPANY: Farmers New World Life Insurance Company
By: ____________________________________
Title: ____________________________________
FUND: Kemper Variable Series
By: ____________________________________
Title: ____________________________________
ADVISER: Scudder Kemper Investments, Inc.
By: ____________________________________
Title: ____________________________________
UNDERWRITER: Kemper Distributors, Inc.
By: ____________________________________
Title: ____________________________________
23
<PAGE> 24
SCHEDULE A
NAME OF SEPARATE ACCOUNT AND DATE
ESTABLISHED BY BOARD OF DIRECTORS
Farmers Annuity Separate Account A (4/6/99)
Farmers Variable Life Separate Account A (4/6/99)
CONTRACTS FUNDED BY SEPARATE ACCOUNT
DESIGNED PORTFOLIOS
A-1
<PAGE> 25
SCHEDULE B
EXPENSES
1. In the event the prospectus, SAI, annual report or other communication
of the Fund is combined with a document of another party, the Fund will
pay the costs based upon the relative number of pages attributable to
the Fund.
<TABLE>
<CAPTION>
======================================== ===================================== =====================================
RESPONSIBLE
ITEM FUNCTION PARTY
<S> <C> <C>
======================================== ===================================== =====================================
PROSPECTUS
- ---------------------------------------- ------------------------------------- -------------------------------------
Update Typesetting Fund (1)
- ---------------------------------------- ------------------------------------- -------------------------------------
New Sales: Printing Company
Distribution Company
- ---------------------------------------- ------------------------------------- -------------------------------------
Existing Printing Fund (1)
Owners:
Distribution Fund (1)
- ---------------------------------------- ------------------------------------- -------------------------------------
- ---------------------------------------- ------------------------------------- -------------------------------------
STATEMENT OF Same as Prospectus Same
ADDITIONAL
INFORMATION
- ---------------------------------------- ------------------------------------- -------------------------------------
PROXY MATERIALS OF THE FUND Typesetting Fund
Printing Fund
Distribution Fund
- ---------------------------------------- ------------------------------------- -------------------------------------
- ---------------------------------------- ------------------------------------- -------------------------------------
ANNUAL REPORTS & OTHER COMMUNICATIONS
WITH SHAREHOLDERS OF THE FUND
- ---------------------------------------- ------------------------------------- -------------------------------------
All Typesetting Fund (1)
- ---------------------------------------- ------------------------------------- -------------------------------------
Marketing: Printing Company
Distribution Company
- ---------------------------------------- ------------------------------------- -------------------------------------
Existing Owners: Printing Fund (1)
Distribution Fund (1)
- ---------------------------------------- ------------------------------------- -------------------------------------
</TABLE>
B-1
<PAGE> 26
<TABLE>
<S> <C> <C>
- ---------------------------------------- ------------------------------------- -------------------------------------
OPERATIONS OF FUND All operations and related expenses, Fund
including the cost registration and
qualification of the Fund's shares,
preparation and filing of the Fund's
prospectus and registration
statement, proxy materials and
reports, the preparation of all
statements and notices required by
any federal or state law and all
taxes on the issuance of the Fund's
shares, and all costs of management
of the business affairs of the Fund.
======================================== ===================================== =====================================
</TABLE>
B-2
<PAGE> 1
EXHIBIT 8(b)
PARTICIPATION AGREEMENT
PARTICIPATION AGREEMENT (the "Agreement") made by and between SCUDDER VARIABLE
LIFE INVESTMENT FUND (the "Fund"), a Massachusetts business trust created under
a Declaration of Trust dated March 15, 1985, as amended, with a principal place
of business in Boston, Massachusetts and Farmers New World Life Insurance
Company, a Washington corporation (the "Company"), with a principal place of
business in 3003 77th Avenue, S.E., Mercer Island, Washington, on behalf of one
or more separate accounts of the Company, as set forth on Schedule A hereto, as
it may be amended from time to time, upon written notice to the Fund in
accordance with Paragraph 10 herein (each, an "Account").
WHEREAS, the Fund acts as the investment vehicle for the separate
accounts established for variable life insurance policies and variable annuity
contracts (collectively referred to herein as "Variable Insurance Products") to
be offered by insurance companies which have entered into participation
agreements substantially identical to this Agreement ("Participating Insurance
Companies") and their affiliated insurance companies; and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares of beneficial interest without par value ("Shares"), and
additional series of Shares may be established, each designated a "Portfolio"
and representing the interest in a particular managed portfolio of securities;
and
WHEREAS, each Portfolio of the Fund, except the Money Market
Portfolio, is divided into two classes of Shares, and additional classes of
Shares may be established; and
WHEREAS, the Parties desire to evidence their agreement as to certain
other matters,
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereto agree as
follows:
1. Duty of Fund to Sell.
The Fund shall make its Shares available for purchase at the
applicable net asset value per Share by Participating Insurance Companies and
their affiliates and separate accounts on those days on which the Fund
calculates its net asset value pursuant to rules of the Securities and Exchange
Commission (the "SEC"); provided, however, that the Trustees of the Fund may
refuse
<PAGE> 2
to sell Shares of any Portfolio to any person, or suspend or terminate the
offering of Shares of any Portfolio, if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion of the
Trustees, acting in good faith and in light of their duties under federal and
any applicable state laws, necessary in the best interest of the shareholders
of any Portfolio.
The Company's orders for such Shares of the Portfolios and one or more
classes thereof which are available for purchase under this Agreement, as set
forth on Schedule B hereto, as it may be amended from time to time, shall be
executed on a daily basis at the net asset value per Share next computed after
receipt by the Fund of the order for the Shares. The Company's order may net
the purchase orders and redemption requests for each Portfolio or class
thereof. For purposes of this Paragraph 1, the Company shall be the designee of
the Fund for receipt of such orders from the Account(s), and receipt by such
designee shall constitute receipt by the Fund; provided that the Fund receives
notice of such order by 10:00 a.m., New York time on the next following
Business Day. "Business Day" shall mean any day on which the New York Stock
Exchange is open for trading and on which the Fund calculates its net asset
value per Share pursuant to the rules of the SEC.
The Company shall pay for Shares on the next Business Day after an
order to purchase Shares is made in accordance with the provisions hereof.
Payment shall be made by wiring federal funds to the Fund or to its designated
custodial account by 2:00 p.m., New York time. For purposes of Paragraph 1,
upon receipt by the Fund of the federal funds so wired, such funds shall cease
to be the responsibility of the Company and shall become the responsibility of
the Fund. If payment in federal funds for any purchase is not received by the
Fund or its designated custodian or is received after 2:00 p.m., New York time,
the Company shall promptly upon the Fund's written request, reimburse the Fund
for any charges, costs, fees, interest, or other expenses incurred by the Fund
in connection with any advances to, or borrowings or overdrafts by, the Fund,
or any similar expenses incurred by the Fund as a result of transactions
effected by the Fund based upon such purchase order.
The Fund agrees to redeem for cash, at the Company's request, any full
or fractional
2
<PAGE> 3
Shares held by the Company, executing such requests on a daily basis at the net
asset value per Share next computed after receipt by the Fund of the request
for redemption. The Company's request may net any purchase orders and
redemption requests for each Portfolio or class thereof. For purposes of this
Paragraph 1, the Company shall be the designee of the Fund for receipt of
requests for redemption from the Account(s), and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption by 10:00 a.m., New York time on the next following
Business Day.
Payment for Shares redeemed shall be made by wiring federal funds to
the Company by 2:00 p.m., New York time, on the next Business Day after the
Fund receives the request for redemption. If payment in federal funds for any
redemption request is received by the Company after 2:00 p.m., New York time,
the Fund shall promptly upon the Company's written request, reimburse the
Company for any charges, costs, fees, interest, or other expenses incurred by
the Company as a result of such failure to provide redemption proceeds within
the specified time. Notwithstanding the foregoing, the Trustees of the Fund may
suspend the right of redemption or postpone the date of payment or satisfaction
upon redemption: (a) for any period during which the New York Stock Exchange is
closed, other than customary week-end and holiday closings, and during which
trading on the New York Stock Exchange is restricted; (b) for any period during
which an emergency, as determined by the SEC, exists as a result of which
disposal by the Fund of securities owned by it is not reasonably practicable or
it is not reasonably practicable for the Fund fairly to determine the value of
its net assets; and (c) for such other periods as the SEC may by order permit
for the protection of holders of the Shares. The Fund shall not bear any
responsibility whatsoever for the proper disbursement or crediting of
redemption proceeds by the Company; the Company alone shall be responsible for
such action.
Issuance and transfer of the Shares will be by book entry only. Stock
certificates will not be issued to the Company or any Account. Shares ordered
from the Fund will be recorded in an appropriate title for each Account or the
appropriate subaccount thereof.
The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to the Company of any income dividends or capital gain
distributions payable on
3
<PAGE> 4
the Shares. The Company hereby elects to receive all such income dividends and
capital gain distributions as are payable on the Shares of the Portfolios and
classes thereof in additional Shares of that Portfolio or class thereof. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of Shares so issued as payment of such dividends and
distributions. The Fund shall to the extent practicable provide advance notice
to Company of any date on which the Fund reasonably expects to make a dividend
distribution.
2. Fund Materials.
The Fund, at its expense, shall provide the Company or its designee
with camera-ready copy or, at the Company's request, computer diskette versions
of all prospectuses, statements of additional information, annual and
semi-annual reports and proxy materials (collectively, "Fund Materials") to be
printed and distributed by the Company or its broker/dealer to the Company's
existing or prospective contract owners, as appropriate. The Company agrees to
bear the cost of printing and distributing such Fund Materials.
The Fund shall provide such other assistance as is reasonably
necessary in order for the Company once each year (or more frequently if the
prospectus and/or statement of additional information ("SAI") for the Fund is
amended during the year) to have the prospectus for the Account(s), with
respect to the Variable Insurance Products, and the Fund's prospectus printed
together in one document, and to have the SAI for the Fund and the SAI for the
Account(s), with respect to the Variable Insurance Products, printed together
in one document. Alternatively, the Company may print the Fund's prospectus
and/or its SAI in combination with other investment companies' prospectuses and
statements of additional information. The Fund will cooperate with the Company
in preparing and filing with the SEC, pursuant to Rule 497 under the 1933 Act,
appropriate versions of the Fund's prospectus and/or SAI.
3. Requirement to Execute Participation Agreement; Requests.
Each Participating Insurance Company shall, prior to purchasing Shares
in the Fund, execute and deliver a participation agreement in a form
substantially identical to this Agreement.
The Fund shall make available, upon written request from the
Participating Insurance
4
<PAGE> 5
Company given in accordance with Paragraph 9, to each Participating Insurance
Company which has executed an Agreement and which Agreement has not been
terminated pursuant to Paragraph 8 (i) a list of all other Participating
Insurance Companies, and (ii) a copy of the Agreement as executed by any other
Participating Insurance Company.
The Fund shall also make available upon request to each Participating
Insurance Company which has executed an Agreement and Agreement has not been
terminated pursuant to Paragraph 8, the net asset value of any Portfolio of the
Fund as of any date upon which the Fund calculates the net asset value of its
Portfolios for the purpose of purchase and redemption of Shares.
The Fund shall make the net asset value per Share for each Portfolio
and class thereof available to the Company on a daily basis as soon as
reasonably practical after the net asset value per Share is calculated
(normally by 6:00 p.m., New York time) and shall use its best efforts to make
such net asset value per Share available by 7:00 p.m., New York time.
Each party to this Agreement shall have the right to rely on
information or confirmations provided by any other party (or by any affiliate
of any other party), and shall not be liable in the event that an error results
from any incorrect information or confirmations supplied by any other party. If
an error is made in reliance upon incorrect information or confirmations, any
amount required to make an account of a Variable Insurance Product owner whole
shall be borne by the party who provided the incorrect information or
confirmation.
4. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Fund
and each of its Trustees and officers and each person, if any, who controls the
Fund within the meaning of Section 15 of the Securities Act of 1933 (the "Act")
against any and all losses, claims, damages, liabilities or litigation
(including legal and other expenses), arising out of the acquisition of any
Shares by any person, to which the Fund or such Trustees, officers or
controlling person may become subject under the Act, under any other statute,
at common law or otherwise, which (i) may be based upon any wrongful act by the
Company, any of its employees or representatives, any affiliate of or any
person acting on behalf of the Company or a principal underwriter of its
5
<PAGE> 6
insurance products, or (ii) may be based upon any untrue statement or alleged
untrue statement of a material fact contained in a registration statement or
prospectus covering Shares 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 to
the Fund by the Company, or (iii) may be based on any untrue statement or
alleged untrue statement of a material fact contained in a registration
statement or prospectus covering insurance products sold by the Company or any
insurance company which is an affiliate thereof, or any amendments 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, unless such statement or omission was
made in reliance upon information furnished to the Company or such affiliate by
or on behalf of the Fund; provided, however, that in no case (i) is the
Company's indemnity in favor of a Trustee or officer or any other person deemed
to protect such Trustee or officer or other person against any liability to
which any such person would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of his duties or
by reason of his reckless disregard of obligations and duties under this
Agreement or (ii) is the Company to be liable under its indemnity agreement
contained in this Paragraph 4 with respect to any claim made against the Fund
or any person indemnified unless the Fund or such person, as the case may be,
shall have notified the Company in writing pursuant to Paragraph 10 within a
reasonable time after the summons or other first legal process giving
information of the nature of the claims shall have been served upon the Fund or
upon such person (or after the Fund or such person shall have received notice
of such service on any designated agent), but failure to notify the Company of
any such claim shall not relieve the Company from any liability which it has to
the Fund or any person against whom such action is brought otherwise than on
account of its indemnity agreement contained in this Paragraph 4. The Company
shall be entitled to participate, at its own expense, in the defense, or, if it
so elects, to assume the defense of any suit brought to enforce any such
liability, but, if it elects to assume the defense, such defense shall be
conducted by counsel chosen by it
6
<PAGE> 7
and satisfactory to the Fund, to its officers and Trustees, or to any
controlling person or persons, defendant or defendants in the suit. In the
event that the Company elects to assume the defense of any such suit and retain
such counsel, the Fund, such officers and Trustees or controlling person or
persons, defendant or defendants in the suit, shall bear the fees and expenses
of any additional counsel retained by them, but, in case the Company does not
elect to assume the defense of any such suit, the Company will reimburse the
Fund, such officers and Trustees or controlling person or persons, defendant or
defendants in such suit, for the reasonable fees and expenses of any counsel
retained by them. The Company agrees promptly to notify the Fund pursuant to
Paragraph 10 of the commencement of any litigation or proceedings against it or
its directors or officers in connection with the issue and sale of any Shares.
(b) The Fund agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls
the Company within the meaning of Section 15 of the Act against any and all
losses, claims, damages, liabilities or litigation (including legal and other
expenses) to which it or such directors, officers or controlling person may
become subject under the Act, under any other statute, at common law or
otherwise, arising out of the acquisition of any Shares by any person which (i)
may be based upon any wrongful act by the Fund, any of its employees or
representatives, any affiliate of or any person acting on behalf of the Fund or
a principal underwriter of the Fund, or (ii) may be based upon any untrue
statement or alleged untrue statement of a material fact contained in a
registration statement or prospectus covering Shares 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 unless such statement or omission was made in reliance
upon information furnished to the Fund by the Company or (iii) may be based on
any untrue statement or alleged untrue statement of a material fact contained
in a registration statement or prospectus covering insurance products sold by
the Company or any insurance company which is an affiliate thereof, or any
amendment 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
7
<PAGE> 8
reliance upon information furnished to the Company or such affiliate by or on
behalf of the Fund; provided, however, that in no case (i) is the Fund's
indemnity in favor of a director or officer or any other person deemed to
protect such director or officer or other person against any liability to which
any such person would otherwise be subject by reason of wilful misfeasance, bad
faith, or gross negligence in the performance of his duties or by reason of his
reckless disregard of obligations and duties under this Agreement or (ii) is
the Fund to be liable under its indemnity agreement contained in this Paragraph
4 with respect to any claims made against the Company or any such director,
officer or controlling person unless it or such director, officer or
controlling person, as the case may be, shall have notified the Fund in writing
pursuant to Paragraph 10 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 it or upon such director, officer or controlling person (or
after the Company or such director, officer or controlling person shall have
received notice of such service on any designated agent), but failure to notify
the Fund of any claim shall not relieve it from any liability which it may have
to the Company or any person against whom such action is brought otherwise than
on account of its indemnity agreement contained in this Paragraph. The Fund
will be entitled to participate at its own expense in the defense, or, if it so
elects, to assume the defense of any suit brought to enforce any such
liability, but if the Fund elects to assume the defense, such defense shall be
conducted by counsel chosen by it and satisfactory to the Company, its
directors, officers or controlling person or persons, defendant or defendants,
in the suit. In the event the Fund elects to assume the defense of any such
suit and retain such counsel, the Company, its directors, officers or
controlling person or persons, defendant or defendants in the suit, shall bear
the fees and expenses of any additional counsel retained by them, but, in case
the Fund does not elect to assume the defense of any such suit, it will
reimburse the Company or such directors, officers or controlling person or
persons, defendant or defendants in the suit, for the reasonable fees and
expenses of any counsel retained b them. The Fund agrees promptly to notify the
Company pursuant to Paragraph 10 of the commencement of any litigation or
proceedings against it or any of its officers or Trustees in connection with
the issuance or sale of any Shares.
8
<PAGE> 9
The provisions of this Section 4 shall survive the termination of the
Agreement.
5. Procedure for Resolving Irreconcilable Conflicts.
(a) The Trustees of the Fund will monitor the operations of the
Fund for the existence of any material irreconcilable conflict among the
interests of all the contract holders and policy owners of Variable Insurance
Products (the "Participants") of all separate accounts investing in the Fund.
An irreconcilable material conflict may arise, among other things, from: (a) an
action by any state insurance regulatory authority; (b) a change in applicable
insurance laws or regulations; (c) a tax ruling or provision of the Internal
Revenue Code or the regulations thereunder; (d) any other development relating
to the tax treatment of insurers, contract holders or policy owners or
beneficiaries of Variable Insurance Products; (e) the manner in which the
investments of any Portfolio are being managed; (f) a difference in voting
instructions given by variable annuity contract holders, on the one hand, and
variable life insurance policy owners, on the other hand, or by the contract
holders or policy owners of different participating insurance companies; or (g)
a decision by an insurer to override the voting instructions of Participants.
(b) The Company will be responsible for reporting any potential
or existing conflicts to the Trustees of the Fund. The Company will be
responsible for assisting the Trustees in carrying out their responsibilities
under this Paragraph 5(b) and Paragraph 5(a), by providing the Trustees with
all information reasonably necessary for the Trustees to consider the issues
raised. The Fund will also request its investment adviser to report to the
Trustees any such conflict which comes to the attention of the adviser.
(c) If it is determined by a majority of the Trustees of the
Fund, or a majority of its disinterested Trustees, that a material
irreconcilable conflict exists involving the Company, the Company shall, at its
expense, and to the extent reasonably practicable (as determined by a majority
of the disinterested Trustees), take whatever steps are necessary to eliminate
the irreconcilable material conflict, including withdrawing the assets
allocable to some or all of the separate accounts from the Fund or any
Portfolio or class thereof and reinvesting such assets in a different
investment medium, including another Portfolio of the Fund or class thereof,
offering to the affected Participants the option of making such a change or
establishing a new funding
9
<PAGE> 10
medium including a registered investment company.
For purposes of this Paragraph 5(c), the Trustees, or the
disinterested Trustees, shall determine whether or not any proposed action
adequately remedies any irreconcilable material conflict. In the event of a
determination of the existence of an irreconcilable material conflict, the
Trustees shall cause the Fund to take such action, such as the establishment of
one or more additional Portfolios or classes, as they in their sole discretion
determine to be in the interest of all shareholders and Participants in view of
all applicable factors, such as cost, feasibility, tax, regulatory and other
considerations. In no event will the Fund be required by this Paragraph 5(c) to
establish a new funding medium for any variable contract or policy.
The Company shall not be required by this Paragraph 5(c) to establish
a new funding medium for any variable contract or policy if an offer to do so
has been declined by a vote of a majority of the Participants materially
adversely affected by the material irreconcilable conflict. The Company will
recommend to its Participants that they decline an offer to establish a new
funding medium only if the Company believes it is in the best interest of the
Participants.
(d) The Trustees' determination of the existence of an
irreconcilable material conflict and its implications promptly shall be
communicated to all Participating Insurance Companies by written notice thereof
delivered or mailed, first class postage prepaid.
6. Voting Privileges.
The Company shall be responsible for assuring that its separate
account or accounts participating in the Fund shall use a calculation method of
voting procedures substantially the same as the following: those Participants
permitted to give instructions and the number of Shares for which instructions
may be given will be determined as of the record date for the Fund
shareholders' meeting, which shall not be more than 60 days before the date of
the meeting. Whether or not voting instructions are actually given by a
particular Participant, all Fund shares held in any separate account or
sub-account thereof and attributable to policies or contracts will be voted
for, against, or withheld from voting on any proposition in the same proportion
as (i) the aggregate record date cash value held in such sub-account for
policies or contracts giving instructions, respectively, to vote for, against,
or withhold votes on such proposition, bears to (ii)
10
<PAGE> 11
the aggregate record date cash value held in the sub-account for all policies
or contracts for which voting instructions are received. Owners of policies or
contracts continued in effect under lapse options will not be permitted to give
voting instructions. Shares held in any other insurance company general or
separate account or sub-account thereof will be voted in the proportion
specified in the second preceding sentence for shares attributable to policies
or contracts.
The Company will provide pass-through voting privileges as required by
Paragraph 6 of this Agreement and to all owners of Variable Insurance Products
which are registered under the Act and/or the 1940 Act so long as the SEC
continues to interpret the 1940 Act as requiring pass-through voting
privileges. The owners of Variable Insurance Products to whom the Company will
provide pass-through voting privileges pursuant to this Agreement are
hereinafter referred to as "Pass-through Voters". Accordingly, the Company,
when applicable, will distribute to Pass-through Voters all proxy material
furnished and will vote Shares of the Portfolios held in its Account(s) in a
manner consistent with voting instructions timely received from Pass-through
Voters. The Company will vote Shares for which it has not received timely
voting instructions, as well as Shares it owns, in the same proportion as it
votes those Shares for which it has received voting instructions. The Company
reserves the right to disregard the voting instructions of Pass-through Voters
to the extent such action is permitted by Rules 6e-2 or 6e-3(T) under the 1940
Act and is permitted under applicable state insurance laws affecting Fund.
7. Duration and Termination.
This Agreement shall continue in force until terminated in accordance
with the provisions herein.
This Agreement shall terminate in accordance with the following
provisions:
(a) At the option of the Company or the Fund at any time
upon 180 days' notice, unless a shorter time is
agreed to by the parties;
(b) At the option of the Company, if Shares are not
reasonably available to meet the requirements of the
Variable Insurance Products as determined by the
Company. Prompt notice of election to terminate
shall be furnished
11
<PAGE> 12
by the Company, said termination to be effective ten
(10) days after receipt of notice unless the Fund
makes available a sufficient number of Shares to
reasonably meet the requirements of the Variable
Insurance Products within said ten-day period;
(c) At the option of the Company, upon the institution
of formal proceedings against the Fund or the
principal underwriter for the Shares by the SEC, the
National Association of Securities Dealers, Inc.
(the "NASD"), or any other regulatory body, the
expected or anticipated ruling, judgment or outcome
of which would, in the Company's reasonable
judgment, materially impair Fund's ability to meet
and perform Fund's obligations and duties hereunder.
Prompt notice of election to terminate shall be
furnished by the Company with said termination to be
effective upon receipt of notice;
(d) At the option of the Fund, upon the institution of
formal proceedings against the Company or the
principal underwriter for the Variable Insurance
Products by the SEC, the NASD, or any other
regulatory body, the expected or anticipated ruling,
judgment or outcome of which would, in the Fund's
reasonable judgment, materially impair the Company's
ability to meet and perform its obligations and
duties hereunder. Prompt notice of election to
terminate shall be furnished by the Fund with said
termination to be effective upon receipt of notice;
(e) In the event Shares are not registered, issued or
sold in accordance with applicable federal and/or
state law and any applicable rules and regulations
thereunder, or such law precludes the use of such
Shares as the underlying investment media for
Variable Insurance Products issued or to be issued
by the Company. Termination shall be effective upon
such occurrence without notice;
(f) Upon the receipt of any necessary regulatory
approvals, or requisite vote
12
<PAGE> 13
of Pass-through Voters having an interest in the
Portfolios, to substitute for Shares of the
Portfolios the shares of another investment company
in accordance with the terms of the applicable
Variable Insurance Products. The Company shall give
sixty (60) days' written notice to the Fund of any
proposed request for regulatory approvals or vote to
replace the Portfolios' Shares;
(g) At the option of the Company, upon the Fund's breach
of any material provision of this Agreement, which
breach has not been cured to the Company's
satisfaction within thirty (30) days after written
notice of such breach is delivered to the Fund;
(h) At the option of the Fund, upon the Company's breach
of any material provision of this Agreement, which
breach has not been cured to the Fund's satisfaction
within thirty (30) days after written notice of such
breach is delivered to the Company;
(i) In the event this Agreement is assigned without the
prior written consent of the Company and the Fund.
Termination shall be effective immediately upon such
occurrence without notice.
This Agreement may be terminated at any time, at the option of either
of the Company or the Fund, when neither the Company, any insurance company nor
the separate account or accounts of such insurance company which is an
affiliate thereof which is not a Participating Insurance Company own any Shares
of the Fund or may be terminated by either party to the Agreement upon a
determination by a majority of the Trustees of the Fund, or a majority of its
disinterested Trustees, following certification thereof by a Participating
Insurance Company given in accordance with Paragraph 10 that an irreconcilable
conflict exists among the interests of (i) all contract holders and policy
holders of Variable Insurance Products of all separate accounts or (ii) the
interests of the Participating Insurance Companies investing in the Fund.
Notwithstanding any termination of this Agreement and unless the
further sale of Shares of the Portfolios is proscribed by applicable law or the
SEC or other regulatory body, the Fund
13
<PAGE> 14
shall, at the Company's option, continue to make available additional Shares,
as provided below, pursuant to the terms and conditions of this Agreement, for
all Variable Insurance Products in effect on the effective date of termination
of this Agreement (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, the owners of the Existing Contracts shall be
permitted to reallocate investments in the Fund, redeem investments in the Fund
and/or invest in the Fund upon the payment of additional premiums under the
Existing Contracts.
8. Compliance.
The Fund will comply with the provisions of Section 4240(a) of the New
York Insurance Law.
Each Portfolio of the Fund will comply with the provisions of Section
817(h) of the Internal Revenue Code of 1986, as amended (the "Code"), relating
to diversification requirements for variable annuity, endowment and life
insurance contracts. Specifically, each Portfolio will comply with either (i)
the requirement of Section 817(h)(1) of the Code that its assets be adequately
diversified, or (ii) the "Safe Harbor for Diversification" specified in Section
817(h)(2) of the Code, or (iii) in the case of variable life insurance
contracts only, the diversification requirement of Section 817(h)(1) of the
Code by having all or part of its assets invested in U.S. Treasury securities
which qualify for the "Special Rule for Investments in United States
Obligations" specified in Section 817(h)(3) of the Code. The Fund will notify
the Company immediately upon having a reasonable basis for believing that a
Portfolio has ceased to comply with the requirements of Section 817(h) of the
Code or that the Portfolio might not so comply in the future and will
immediately take all steps necessary to adequately diversify the Portfolio to
achieve compliance.
The provisions of Paragraphs 5 and 7 of this Agreement shall be
interpreted in a manner consistent with any Rule or order of the Securities and
Exchange Commission under the Investment Company Act of 1940, as amended,
applicable to the parties hereto.
No Shares of any Portfolio of the Fund may be sold to the general
public.
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<PAGE> 15
9. Notices.
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
Scudder Variable Life Investment Fund
Two International Place
Boston, Massachusetts 02110
(617) 295-45480
Attn: William M. Thomas
If to the Company:
Farmers New World Life Insurance Company
[Address]
Attn:
10. [_____________] Law to Apply.
This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The State of
_________________.
11. Miscellaneous.
The name "Scudder Variable Life Investment Fund" is the designation of
the Trustees for the time being under a Declaration of Trust dated March 15,
1985, as amended, and all persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Trustees, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund. No Portfolio shall
be liable for any obligations properly attributable to any other Portfolio.
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. This Agreement may be
executed simultaneously in two or more counterparts, each of which taken
together shall constitute one and the same instrument.
15
<PAGE> 16
12. Entire Agreement.
This Agreement incorporates the entire understanding and agreement
among the parties hereto, and supersedes any and all prior understandings and
agreements between the parties hereto with respect to the subject matter
hereof.
16
<PAGE> 17
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the _____ day
of _________________, 1999.
SEAL SCUDDER VARIABLE LIFE
INVESTMENT FUND
By: _______________________________
William M. Thomas
President
SEAL FARMERS NEW WORLD LIFE INSURANCE
COMPANY
By: _______________________________
Its: _______________________________
17
<PAGE> 1
EXHIBIT 8(c)
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT (the "Agreement") made by and between
SCUDDER KEMPER INVESTMENTS, INC., a Delaware corporation ("Scudder Kemper"),
with a principal place of business in Boston, Massachusetts and Farmers New
World Life Insurance Company, a Washington corporation (the "Company"), with a
principal place of business in 3003 77th Avenue, S.E., Mercer Island,
Washington, on behalf of one or more separate accounts of the Company, as set
forth on Schedule A hereto, as it may be amended from time to time, upon
written notice to the Fund in accordance with Paragraph 9 herein (the
"Account").
WHEREAS, Scudder Kemper has caused to be organized Scudder Variable
Life Investment Fund (the "Fund"), a Massachusetts business trust created under
a Declaration of Trust dated March 15, 1985, as amended, the beneficial
interest in which is divided into several series, each designated a "Portfolio"
and representing the interest in a particular managed portfolio of securities,
each of which series (except Money Market Portfolio) is divided into two
classes of shares of beneficial interest; and
WHEREAS, the purpose of the Fund is to act as the investment vehicle
for the separate accounts established for variable life insurance policies and
variable annuity contracts to be offered by insurance companies which have
entered into indemnification agreements substantially identical to this
Agreement; and
WHEREAS, the parties desire to express their agreement as to certain
other matters;
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereto agree as
follows:
1. Additional Definitions.
For purposes of this Agreement, the following definitions shall apply:
(a) "Shares" means shares of beneficial interest, without par
value, of any class of any Portfolio, now or hereafter created, of the Fund.
<PAGE> 2
2. Access to Other Products.
Scudder Kemper shall permit an Account to participate in any
registered investment company other than the Fund which is intended as the
funding vehicle for insurance products and for which Scudder Kemper or an
affiliate of Scudder Kemper acts as investment adviser, on the same basis as
other insurance companies are permitted to participate in such a registered
investment company. This provision shall not require Scudder Kemper to make
available to the Company shares of any investment company which is organized
solely as the funding vehicle for insurance products offered by a single
insurance company or a group of affiliated insurance companies.
3. Right to Review and Approve Sales Materials.
The Company shall furnish, or shall cause to be furnished, to Scudder
Kemper or its designee, at least 10 business days prior to its intended use,
each piece of promotional material in which Scudder Kemper or the Fund is
named. No such material shall be used unless Scudder Kemper or its designee
shall have approved such use in writing, or 10 business days shall have elapsed
without approval, rejection or objection since receipt by Scudder Kemper or its
designee of such material.
Scudder Kemper shall furnish, or shall cause to be furnished, to the
Company or its designee, at least 10 business days prior to its intended use,
each piece of promotional material in which the Company or its separate
account(s) is named. No such material shall be used unless the Company or its
designee shall have approved such use in writing, or 10 business days shall
have elapsed without approval, rejection or objection since receipt by the
Company or its designee of such material.
4. Sales Organization Meetings.
Representatives of Scudder Kemper or its designee shall meet with the
sales organizations of the Company at such reasonable times and places as may
be agreed upon by the Company and Scudder Kemper or its designee for the
purpose of educating sales personnel about the Fund.
5. Administration of Separate Accounts
(a) Administrative services to owners of variable life insurance
policies and/or
2
<PAGE> 3
variable annuity contracts issued by the Company shall be the responsibility of
the Company and shall not be the responsibility of Scudder Kemper. Scudder
Kemper recognizes the Company as the sole shareholder of Fund Shares issued
under the Participation Agreement, dated as of the ___ day of ______, 1999, by
and between the Company on behalf of its separate accounts and the Fund (the
"Participation Agreement"). From time to time, Scudder Kemper may pay amounts
from its past profits to the Company for providing certain administrative
services for the Fund or its Portfolios, or for providing owners of variable
life insurance policies and/or variable annuity contracts with other services
that relate to the Fund. These services may include, among other things,
aggregating allocation, transfer, and liquidation orders of the Accounts,
printing and mailing to owners of variable life insurance policies and/or
variable annuity contracts copies of the Portfolios' prospectuses and other
materials that the Fund is required by law or otherwise required to provide to
its shareholders, but that the Company is not otherwise required to provide to
owners of variable life insurance policies and/or variable annuity contracts,
providing financial consultants with advice with respect to inquiries related
to the Portfolios (not including information about performance or related to
sales), and such other related services as the Fund and the Company may from
time to time agree. In consideration of the savings resulting from such
arrangement, and to compensate the Company for its costs, Scudder Kemper agrees
to pay the Company an amount equal to 15 basis points (.15%) per annum of the
average aggregate amount invested by the Company in the Portfolios under the
Participation Agreement. Payment of such amounts by Scudder Kemper will not
increase the fees paid by the Fund, the Portfolios or their shareholders.
(b) The parties agree that Scudder Kemper's payments to the
Company are for administrative services only and do not constitute payment in
any manner for investment advisory services or for costs of distribution.
(c) For the purposes of computing the administrative fee
reimbursement contemplated hereby, the average aggregate amount invested by the
Company over a one-month period shall be computed by totaling the Company's
aggregate investment (Share net asset value multiplied by total number of
Shares held by the Company) on each business day during the month and dividing
by the total number of business days during each month.
3
<PAGE> 4
(d) The Company will calculate the reimbursement of
administrative expenses at the end of each calendar quarter and the Company
shall send a detailed statement of each such fee computation to Scudder Kemper.
Scudder Kemper will make such reimbursement to the Company within thirty days
thereafter.
6. Duration.
This Agreement shall continue in force until terminated in accordance
with the following provisions:
(a) At the option of the Company or Scudder Kemper at any time
upon 180 days' notice, unless a shorter time is agreed to by the parties;
(b) Contemporaneously with the termination of the Participation
Agreement;
(c) In the event this Agreement is assigned without the prior
written consent of the Company and Scudder Kemper. Termination shall be
effective immediately upon such occurrence without notice. Provided, however,
the obligation of each party hereto to indemnify the other party hereto shall
continue with respect to all losses, claims, damages, liabilities or litigation
based upon the acquisition of Shares purchased as the funding vehicle for any
variable life insurance policy or variable annuity contract issued by the
Company or any affiliated insurance company.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless Scudder
Kemper and each of its directors and officers and each person, if any, who
controls Scudder Kemper within the meaning of Section 15 of the Securities Act
of 1933 (the "Act") or any person controlled by or under common control with
Scudder Kemper ("affiliate") against any and all losses, claims, damages,
liabilities or litigation (including legal and other expenses) to which Scudder
Kemper or such directors, officers or affiliate may become subject under the
Act, under any other statute, at common law or otherwise, arising out of the
acquisition of any Shares by any person which (i) may be based upon any
wrongful act by the Company, any of its employees or representatives, any
affiliate of or any person acting on behalf of the Company or a principal
underwriter of its insurance products, or (ii) may be based upon any untrue
statement or alleged untrue statement of a material fact contained in a
registration statement or prospectus covering
4
<PAGE> 5
Shares 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 statement or
omission was made in reliance upon information furnished to Scudder Kemper or
the Fund by the Company, provided, however, that in no case (i) is the
Company's indemnity in favor of a director or officer or any other person
deemed to protect such director or officer or other person against any
liability to which any such person would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of his
duties or by reason of his reckless disregard of obligations and duties under
this Agreement or (ii) is the Company to be liable under its indemnity
agreement contained in this Paragraph 7 with respect to any claim made against
Scudder Kemper or any person indemnified unless Scudder Kemper or such person,
as the case may be, shall have notified the Company in writing pursuant to
Paragraph 9 within a reasonable time after the summons or other first legal
process giving information of the nature of the claims shall have been served
upon Scudder Kemper or upon such person (or after Scudder Kemper or such person
shall have received notice of such service on any designated agent), but
failure to notify the Company of any such claim shall not relieve the Company
from any liability which it may have to Scudder Kemper or any person against
whom such action is brought otherwise than on account of the indemnity
agreement contained in this Paragraph 7. The Company shall be entitled to
participate, at its own expense, in the defense, or, if it so elects, to assume
the defense of any suit brought to enforce any such liability, but, if it
elects to assume the defense, such defense shall be conducted by counsel chosen
by it and satisfactory to Scudder Kemper, its officers and directors, or to any
affiliates, defendant or defendants in the suit. In the event that the Company
elects to assume the defense of any such suit and retain such counsel, Scudder
Kemper, such officers and directors or affiliates, defendant or defendants in
the suit, shall bear the fees and expenses of any additional counsel retained
by them, but, in case the Company does not elect to assume the defense of any
such suit, the Company will reimburse Scudder Kemper, such officers and
directors or affiliates, defendant or defendants in such suit, for the
reasonable fees and expenses of any counsel retained by them. The Company
agrees promptly to notify Scudder Kemper pursuant to Paragraph 9 of the
commencement of any litigation or proceedings
5
<PAGE> 6
against it or any of its directors or officers in connection with the issue and
sale of any Shares.
(b) Scudder Kemper agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the Act or any person
controlled by or under common control with the Company ("affiliate") against
any and all losses, claims, damages, liabilities or litigation (including legal
and other expenses) to which it or such directors, officers or affiliate may
become subject under the Act, under any other statute, at common law or
otherwise, arising out of the acquisition of any Shares by any person which (i)
may be based upon any wrongful act by Scudder Kemper, any of its employees or
representatives, any affiliate of or any person acting on behalf of Scudder
Kemper or a principal underwriter of the Fund, or (ii) may be based upon any
untrue statement or alleged untrue statement of a material fact contained in a
registration statement or prospectus covering Shares 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 statement or omission was made in reliance upon
information furnished to the Fund or the Company by Scudder Kemper; provided,
however, that in no case (i) is Scudder Kemper's indemnity in favor of a
director or officer or any other person deemed to protect such director or
officer or other person against any liability to which any such person would
otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of his duties or by reason of his reckless
disregard of obligations and duties under this Agreement or (ii) is Scudder
Kemper to be liable under its indemnity agreement contained in this Paragraph 7
with respect to any claims made against the Company or any person indemnified
unless the Company or such person as the case may be, shall have notified
Scudder Kemper in writing pursuant to Paragraph 9 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 it or upon such director, officer or
controlling person (or after the Company or such director, officer or
controlling person shall have received notice of such service on any designated
agent), but failure to notify Scudder Kemper of any claim shall not relieve it
from any liability which it may have to the Company or any person against whom
such action is brought otherwise than on account of its indemnity agreement
contained in this Paragraph 7. Scudder
6
<PAGE> 7
Kemper will be entitled to participate at its own expense in the defense, or,
if it so elects, to assume the defense of any suit brought to enforce any such
liability, but if Scudder Kemper elects to assume the defense, such defense
shall be conducted by counsel chosen by it and satisfactory to the Company, its
directors, officers or affiliates, defendant or defendants, in the suit. In the
event Scudder Kemper elects to assume the defense of any such suit and retain
such counsel, the Company, its directors, officers or affiliates, defendant or
defendants in the suit, shall bear the fees and expenses of any additional
counsel retained by them, but, in case Scudder Kemper does not elect to assume
the defense of any such suit, it will reimburse the Company or such directors,
officers or affiliates, defendant or defendants in the suit, for the reasonable
fees and expenses of any counsel retained by them. Scudder Kemper agrees
promptly to notify the Company pursuant to Paragraph 8 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 any Shares.
(c) Scudder Kemper agrees to indemnify and hold harmless the
Company and each of its directors and officers against any and all losses,
claims, damages, liabilities or litigation arising from the imposition of
additional federal income taxes on the Company or any policyholder and/or
contract holder solely as a result of a Final Determination that any Portfolio
has failed (x) to comply with the diversification requirements of section
817(h) of the Internal Revenue Code of 1986, as amended (the "Code"), relating
to the diversification requirements for variable annuity, endowment and life
insurance contracts, or (y) to qualify as a regulated investment company within
the meaning of section 851 of the Code; provided, however, that (i) Scudder
Kemper shall have no liability under this Paragraph 7(c) if such failure is
caused by a third party who is not an employee or agent of Scudder Kemper
(e.g., the Fund's custodian or another service provider), and (ii) in no case
is Scudder Kemper's indemnity under this Paragraph 7(c) deemed to protect any
person against any liability to which that person would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the performance
of that person's duties or by reason of reckless disregard by that person of
obligations under this Agreement.
The Company agrees that if the Internal Revenue Service asserts in
writing in connection with any governmental audit or review of the Company or,
to the Company's knowledge, of any
7
<PAGE> 8
policyholder and/or contract holder, that any Portfolio has failed to comply
with the diversification requirements of section 817(h) of the Code or the
Company otherwise becomes aware of any facts that could give rise to any claim
against Scudder Kemper as a result of such a failure or alleged failure, (i)
the Company shall promptly notify Scudder Kemper pursuant to Paragraph 9 of
such assertion or potential claim; (ii) the Company shall consult with Scudder
Kemper as to how to minimize any liability that may arise as a result of such
failure or alleged failure; (iii) the Company shall use its best efforts to
minimize any liability of Scudder Kemper for indemnification resulting from
such failure, including, without limitation, demonstrating, pursuant to
Treasury Regulations Section 1.817-5(a) (2), to the Commissioner of the
Internal Revenue Service that such failure was inadvertent; provided, however,
this Paragraph 7(c) shall not be construed to require the Company to jeopardize
its or any policyholder's and/or contract holder's standing or position with
respect to any such failure or alleged failure; (iv) the Company shall permit
Scudder Kemper and its legal and accounting advisors to participate in any
conferences, settlement discussions or other administrative or judicial
proceedings or contests (including judicial appeals thereof) with the Internal
Revenue Service, any policyholder and/or contract holder or any other claimant
regarding any claims that could give rise to indemnification by Scudder Kemper
as a result of such a failure or alleged failure; (v) any written materials to
be submitted by the Company to the Internal Revenue Service, any policyholder
and/or contract holder or any other claimant in connection with any of the
foregoing proceedings or contests (including, without limitation, any such
materials to be submitted to the Internal Revenue Service pursuant to Treasury
Regulations Section 1.817-5(a) (2)), shall be provided by the Company to
Scudder Kemper (together with any supporting information or analysis, but
excluding any privileged materials) at least 10 business days prior to the day
on which such proposed materials are to be submitted; (vi) the Company shall
provide Scudder Kemper and its advisors with such cooperation as Scudder Kemper
shall reasonably request (including, without limitation, by permitting Scudder
Kemper and its accounting and legal advisors to review the relevant books and
records of the Company) in order to facilitate Scudder Kemper's review of any
written submissions provided to it pursuant to the preceding clause or its
assessment of the validity or amount of any claim against it arising from such
a failure or alleged failure; (vii) the
8
<PAGE> 9
Company shall not with respect to any claim of the IRS or any policyholder
and/or contract holder that would give rise to a claim for indemnification
against Scudder Kemper (a) compromise or settle any claim, (b) accept any
adjustment on audit, or (c) forego any allowable judicial appeals, without the
express written consent of Scudder Kemper, which shall not be unreasonably
withheld, provided that the Company shall not be required to appeal any adverse
judicial decision unless Scudder Kemper shall have provided an opinion of
independent counsel to the effect that a reasonable basis (consistent with
Formal Opinion 85-352 of the American Bar Association) exists for taking such
appeal; and (viii) Scudder Kemper shall have no liability as a result of such
failure or alleged failure if the Company fails to comply with any of the
foregoing clauses (i) through (vii). Should Scudder Kemper refuse to give its
written consent to any compromise or settlement of any claim or liability
hereunder, the Company may, in its discretion, authorize Scudder Kemper to act
in the name of the Company in, and to control the conduct of, such conferences,
discussions, proceedings, contests or appeals and all administrative or
judicial appeals thereof, and in that event Scudder Kemper shall bear the fees
and expenses associated with the conduct of the proceedings that it is so
authorized to control.
For purposes of this Paragraph 7(c), "Final Determination" shall mean,
with respect to any claim, a settlement of such claim (including the acceptance
of an adjustment proposed by the Internal Revenue Service) or a decision of a
court of competent jurisdiction with respect to such claim that has become
final after either the (i) exhaustion of allowable appeals or (2) expiration of
the time to take any such appeal with respect to the claim.
8. [ ] Law to Apply.
This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The State of
________________________.
9. Notices.
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
9
<PAGE> 10
If to Scudder Kemper:
Scudder Kemper Investments, Inc.
Two International Place
Boston, Massachusetts 02110
(617) 295-4548
Attn: William M. Thomas
If to the Company:
Farmers New World Life Insurance Company
______________________________________
______________________________________
Attn:_________________________________
9. Miscellaneous.
The captions in the 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. This Agreement may be
executed simultaneously in two or more counterparts, each of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the ____ day
of _________________, 1999.
SEAL SCUDDER KEMPER INVESTMENTS, INC.
By: __________________________________
Authorized Officer
SEAL FARMERS NEW WORLD LIFE INSURANCE COMPANY
By:____________________________________
Name:
Title:
10
<PAGE> 1
EXHIBIT 8(d)
JANUS ASPEN SERIES
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT is made this _____ day of ___________, 1999, between
JANUS ASPEN SERIES, an open-end management investment company organized as a
Delaware business trust (the "Trust"), JANUS CAPITAL CORPORATION, a Colorado
corporation (the "Adviser"), and FARMERS NEW WORLD LIFE INSURANCE COMPANY, a
life insurance company organized under the laws of the State of Washington (the
"Company"), on its own behalf and on behalf of each segregated asset account of
the Company set forth on Schedule A, as may be amended from time to time (the
"Accounts").
W I T N E S S E T H:
WHEREAS, the Trust is registered with the Securities and Exchange
Commission ("SEC") as an open-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), and the Trust has
registered its shares under the Securities Act of 1933, as amended (the "1933
Act"); and
WHEREAS, the Trust desires to act as an investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts to be offered by insurance companies that have entered into
participation agreements with the Trust (the "Participating Insurance
Companies"); and
WHEREAS, the Trust issues shares of beneficial interest, divided into
several series of shares, each series representing an interest in a particular
managed portfolio of securities and other assets (the "Portfolios"); and
WHEREAS, the Trust has received an order from the SEC 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 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 variable annuity and
variable life insurance separate accounts of both affiliated and unaffiliated
life insurance companies and certain qualified pension and retirement plans
(the "Exemptive Order"); and
WHEREAS, the Company desires to utilize shares of one or more
Portfolios as an investment vehicle for variable life insurance and/or variable
annuity contracts ("Contracts") funded by the Accounts; and
WHEREAS, the Adviser is registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state
securities laws; and
<PAGE> 2
WHEREAS, the Adviser serves as investment adviser to the Trust.
NOW THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE I.
Sale of Trust Shares
1.1. The Trust shall make shares of its Portfolios available to the
Accounts at the net asset value next computed after receipt of such purchase
order by the Trust (or its agent), as established in accordance with the
provisions of the then current prospectus of the Trust. Shares of a particular
Portfolio of the Trust shall be ordered in such quantities and at such times as
determined by the Company to be necessary to meet the requirements of the
Contracts. The Trustees of the Trust (the "Trustees") may refuse to sell shares
of any Portfolio to any person, or suspend or terminate the offering of shares
of any Portfolio if such action is required by law or by regulatory authorities
having jurisdiction or is, in the sole discretion of the Trustees acting in
good faith and in light of their fiduciary duties under federal and any
applicable state laws, necessary in the best interests of the shareholders of
such Portfolio.
1.2. The Trust will redeem any full or fractional shares of any
Portfolio when requested by the Company on behalf of an Account at the net
asset value next computed after receipt by the Trust (or its agent) of the
request for redemption, as established in accordance with the provisions of the
then current prospectus of the Trust.
1.3. For the purposes of Sections 1.1 and 1.2, the Trust hereby
appoints the Company as its agent for the limited purpose of receiving and
accepting purchase and redemption orders resulting from investment in and
payments under the Contracts. Receipt by the Company shall constitute receipt
by the Trust provided that i) such orders are received by the Company in good
order prior to the time the net asset value of each Portfolio is priced in
accordance with its prospectus and ii) the Trust receives notice of such orders
by 11:00 a.m. New York time on the next following Business Day. "Business Day"
shall mean any day on which the New York Stock Exchange is open for trading and
on which the Trust calculates its net asset value pursuant to the Rules of the
SEC.
1.4. Purchase orders that are transmitted to the Trust in accordance
with Section 1.3 shall be paid for by the Company no later than 4 p.m. New York
time on the same Business Day that the Trust receives notice of the order. The
Trust shall pay and transmit the proceeds of redemption orders that are
transmitted to the Trust in accordance with Section 1.3 no later than 12:00
noon New York time on the same Business Day that the Trust receives notice of
the redemption, except that the Trust reserves the right to postpone payment
upon redemption consistent with Section 22(e) of the 1940 Act and any rules
thereunder. Payments for such purchase orders will be made net of any
redemptions received on the same day as the purchase. Payments shall be made in
federal funds transmitted by wire.
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1.5. Issuance and transfer of the Trust's shares will be by book entry
only. Stock certificates will not be issued to the Company or the Account.
Shares ordered from the Trust will be recorded in the appropriate title for
each Account or the appropriate subaccount of each Account.
1.6. The Trust shall furnish prompt notice to the Company of any
income dividends or capital gain distributions payable on the Trust's shares.
The Company hereby elects to receive all such income dividends and capital gain
distributions as are payable on a Portfolio's shares in additional shares of
that Portfolio. The Trust shall notify the Company of the number of shares so
issued as payment of such dividends and distributions.
1.7. The Trust shall make the closing net asset value per share for
each Portfolio available to the Company on a daily basis as soon as reasonably
practical after the closing net asset value per share is calculated and shall
use its best efforts to make such net asset value per share available by 6 p.m.
New York time. In the event the Trust is unable to make the 6 p.m. deadline
stated herein, it shall provide additional time for the Company to place orders
for the purchase and redemption of shares. Such additional time shall be equal
to the additional time which the Trust takes to make the closing net asset
value available to the Company. Any material error in the calculation or
reporting of the closing net asset value per share shall be reported
immediately upon discovery to the Company. In such event the Company shall be
entitled to an adjustment to the number of shares purchased or redeemed to
reflect the correct closing net asset value per share and the Trust or the
Adviser shall bear the cost of correcting such errors. Any error of a lesser
amount shall be corrected in the next Business Day's net asset value per share.
1.8. The Trust agrees that its shares will be sold only to
Participating Insurance Companies and their separate accounts and to certain
qualified pension and retirement plans to the extent permitted by the Exemptive
Order. No shares of any Portfolio will be sold directly to the general public.
The Company agrees that Trust shares will be used only for the purposes of
funding the Contracts and Accounts listed in Schedule A, as amended from time
to time.
1.9. The Trust agrees that all Participating Insurance Companies shall
have the obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding to those contained in Section 2.8 and
Article IV of this Agreement.
ARTICLE II.
Obligations of the Parties
2.1. The Trust shall prepare and be responsible for filing with the
SEC and any state regulators requiring such filing all shareholder reports,
notices, proxy materials (or similar materials such as voting instruction
solicitation materials), prospectuses, profiles and statements of additional
information of the Trust. The Trust shall bear the costs of registration and
qualification of its shares, preparation and filing of the documents listed in
this Section 2.1. and all taxes to which an issuer is subject on the issuance
and transfer of its shares.
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2.2. At the option of the Company, the Trust shall either (a) provide
the Company (at the Company's expense) with as many copies of the Trust's
current prospectus, profile, annual report, semi-annual report and other
shareholder communications, including any amendments or supplements to any of
the foregoing, as the Company shall reasonably request; or (b) provide the
Company with a camera ready copy of such documents in a form suitable for
printing. The Trust shall provide the Company with a copy of its statement of
additional information in a form suitable for duplication by the Company. The
Trust shall also provide the Company with such other assistance as is
reasonably necessary in order for the parties hereto once each year (or as
often as is required by the SEC) to have the prospectus for the Contracts and
the prospectus or profile for the Portfolios printed together in one document.
The prospectus, profile and statement of additional information provided by the
Trust shall relate either to all Portfolios of the Trust or only selected
Portfolios of the Trust, as the Company shall reasonably request. The Trust (at
its expense) shall provide the Company with copies of any Trust-sponsored proxy
materials in such quantity as the Company shall reasonably require for
distribution to Contract owners.
2.3. The Company shall bear the costs of printing and distributing the
Trust's prospectus, profile, statement of additional information, shareholder
reports and other shareholder communications to owners of and applicants for
policies for which the Trust is serving or is to serve as an investment
vehicle. The Company shall bear the costs of distributing proxy materials (or
similar materials such as voting solicitation instructions) to Contract owners.
The Company assumes sole responsibility for ensuring that such materials are
delivered to Contract owners in accordance with applicable federal and state
securities laws.
2.4. The Company agrees and acknowledges that the Adviser is the sole
owner of the name and mark "Janus" and that all use of any designation
comprised in whole or part of Janus (a "Janus Mark") under this Agreement shall
inure to the benefit of the Adviser. Except as provided in Section 2.5, the
Company shall not use any Janus Mark on its own behalf or on behalf of the
Accounts or Contracts in any registration statement, advertisement, sales
literature or other materials relating to the Accounts or Contracts without the
prior written consent of the Adviser. Upon termination of this Agreement for
any reason, the Company shall cease all use of any Janus Mark(s) as soon as
reasonably practicable.
2.5. The Company shall furnish, or cause to be furnished, to the Trust
(or its designee), a copy of the initial Contract prospectus and statement of
additional information in which the Trust or the Adviser is first named prior
to the filing of such document with the SEC. The Company shall furnish, or
shall cause to be furnished, to the Trust (or its designee) a copy of each
subsequent Contract prospectus and statement of additional information in which
the Trust or the Adviser is named concurrently with the filing of such document
with the SEC provided that there are no material changes in disclosure related
to the Trust or the Adviser. The Trust may, in its reasonable discretion,
request that the Company modify any references to the Trust or the Adviser in
subsequent filings. The 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 or the Adviser is named, at least five
Business Days prior to its use or concurrently with
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<PAGE> 5
the filing of such document with the National Association of Securities
Dealers, Inc. ("NASD"), whichever is greater. No such material shall be used if
the Trust (or its designee) reasonably objects to such use within five Business
Days after receipt of such material.
2.6 The Trust shall furnish, or cause to be furnished, to the Company
(or its designee), a copy of any initial Trust prospectus and statement of
additional information in which the Company is first named prior to the filing
of such document with the SEC. The Trust shall furnish, or shall cause to be
furnished, to the Company (or its designee) a copy of each subsequent Trust
prospectus, profile and statement of additional information in which the
Company is named concurrently with the filing of such document with the SEC
provided that there are no material changes in disclosure related to the
Company. The Company may, in its reasonable discretion, request that the Trust
modify any references to the Company in subsequent filings. The Trust shall
furnish, or shall cause to be furnished to the Company (or its designee) each
piece of sales literature or other promotional material in which the Company is
named, at least five Business Days prior to its use or concurrently with the
filing of such document with the NASD, whichever is greater. No such material
shall be used if the Company (or its designee) reasonably objects to such use
within five Business Days after receipt of such material.
2.7. The Company shall not give any information or make any
representations or statements on behalf of the Trust or the Adviser or
concerning the Trust or the Adviser in connection with the sale of the
Contracts other than information or representations contained in and accurately
derived from the registration statement, prospectus or profile for the Trust
shares (as such registration statement, profile and prospectus may be amended
or supplemented from time to time), reports of the Trust, Trust-sponsored proxy
statements, or in sales literature or other promotional material approved by
the Trust or its designee or the Adviser, except as required by legal process
or regulatory authorities or with the written permission of the Trust or its
designee or the Adviser.
2.8. Neither the Trust nor the Adviser shall give any information or
make any representations or statements on behalf of the Company or concerning
the Company, the Accounts or the Contracts other than information or
representations contained in and accurately derived from the registration
statement or prospectus for the Contracts (as such registration statement and
prospectus may be amended or supplemented from time to time), or in materials
approved by the Company for distribution including sales literature or other
promotional materials, except as required by legal process or regulatory
authorities or with the written permission of the Company.
2.9. The Trust or the Adviser will provide the Company with as much
advance notice as is reasonably practicable of any material change affecting
the Portfolios (including, but not limited to, any material change in its
registration statement or prospectus affecting the Portfolios and any proxy
solicitation sponsored by the Trust or the Adviser affecting the Portfolios)
and consult with the Company in order to implement any such change in an
orderly manner,
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<PAGE> 6
recognizing the expenses of changes and attempting to minimize such expenses by
implementing them in conjunction with regular annual updates of the prospectus
for the Contracts.
2.10. The Trust and the Adviser agree to maintain a blanket fidelity
bond or similar coverage for the benefit of the Trust in an amount not less
than the minimal coverage required by Section 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time under the 1940 Act.
2.11. So long as, and to the extent that the SEC interprets the 1940
Act to require passthrough voting privileges for variable policyowners, the
Company will provide pass-through voting privileges to owners of policies whose
cash values are invested, through the Accounts, in shares of the Trust. The
Trust shall require all Participating Insurance Companies to calculate voting
privileges in the same manner and the Company shall be responsible for assuring
that the Accounts calculate voting privileges in the manner established by the
Trust. With respect to each Account, the Company will vote shares of the Trust
held by the Account and for which no timely voting instructions from
policyowners are received as well as shares it owns that are held by that
Account, in the same proportion as those shares for which voting instructions
are received. The Company and its agents will in no way recommend or oppose or
interfere with the solicitation of proxies for Trust shares held by Contract
owners without the prior written consent of the Trust, which consent may be
withheld in the Trust's sole discretion, except in the event that the Company
determines, in reliance on an opinion of counsel, that a proxy proposal would
result in a violation of applicable insurance laws.
2.12. The Trust and Adviser shall use their best efforts to maintain
qualification of each Portfolio as a Regulated Investment Company under
Subchapter M of the Internal Revenue Code of 1986, as amended ("Code") and
shall notify the Company immediately upon having a reasonable basis for
believing that a Portfolio has ceased to so qualify or that it might not so
qualify in the future. The Trust and the Adviser acknowledge that compliance
with Subchapter M is an essential element of compliance with Section 817(h).
2.13. Each Portfolio of the Trust shall comply with the requirements
of Section 817(h) of the Code and the regulations issued thereunder relating to
the diversification requirements for variable life insurance policies and
variable annuity contracts, and the Trust and Adviser shall notify the Company
immediately upon having a reasonable basis for believing that any Portfolio has
ceased or might cease to comply. In addition, the Trust and Adviser will
immediately take all steps necessary to adequately diversify the Portfolio to
achieve compliance.
2.14. The Trust shall provide the Company or its designee with reports
certifying compliance with the aforesaid Section 817(h) diversification and
Subchapter M qualification requirements on a quarterly basis.
ARTICLE III.
Representations and Warranties
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3.1. The Company represents and warrants that it is an insurance
company duly organized and in good standing under the laws of the State of
Washington and that it has legally and validly established each Account as a
segregated asset account under such law on the date set forth in Schedule A.
3.2. The Company represents and warrants that each of the Accounts (1)
has been registered as a unit investment trust in accordance with the
provisions of the 1940 Act or, alternatively (2) has not been registered in
proper reliance upon an exclusion from registration under the 1940 Act.
3.3. The Company represents and warrants that the Contracts or
interests in the Accounts (1) are or, prior to issuance, will be registered as
securities under the 1933 Act or, alternatively (2) are not registered because
they are properly exempt from registration under the 1933 Act or will be
offered exclusively in transactions that are properly exempt from registration
under the 1933 Act. The Company further represents and warrants that the
Contracts will be issued and sold in compliance in all material respects with
all applicable federal and state laws; and the sale of the Contracts shall
comply in all material respects with state insurance suitability requirements.
3.4. The Trust represents and warrants that it is duly organized and
validly existing under the laws of the State of Delaware.
3.5. The Trust represents and warrants that the Trust shares offered
and sold pursuant to this Agreement are registered under the 1933 Act and the
Trust is registered under the 1940 Act. The Trust shall amend its registration
statement under the 1933 Act and the 1940 Act from time to time as required in
order to effect the continuous offering of its shares. The Trust shall register
and qualify its shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Trust.
3.6. The Trust and the Adviser represent and warrant that the
investments of each Portfolio will comply with the diversification requirements
set forth in Section 817(h) of the Code and the rules and regulations
thereunder.
3.7. The Adviser represents and warrants that it is registered as an
investment adviser under the Investment Advisers Act of 1940, as amended, and
any applicable state securities laws.
ARTICLE IV.
Potential Conflicts
4.1. The parties acknowledge that the Trust's shares may be made
available for investment to other Participating Insurance Companies. In such
event, the Trustees will monitor the Trust for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
Participating Insurance Companies. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory
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authority; (b) a change in applicable federal or state insurance, tax, or
securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretative letter, or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial decision
in any relevant proceeding; (d) the manner in which the investments of any
Portfolio are being managed; (e) a difference in voting instructions given by
variable annuity contract and variable life insurance contract owners; or (f) a
decision by an insurer to disregard the voting instructions of contract owners.
The Trustees shall promptly inform the Company if they determine that an
irreconcilable material conflict exists and the implications thereof.
4.2. The Company agrees to promptly report any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist the
Trustees in carrying out their responsibilities under the Exemptive Order by
providing the Trustees with all information reasonably necessary for the
Trustees to consider any issues raised including, but not limited to,
information as to a decision by the Company to disregard Contract owner voting
instructions.
4.3. If it is determined by a majority of the Trustees, or a majority
of the disinterested Trustees, that a material irreconcilable conflict exists
that affects the interests of Contract owners, the Company shall, in
cooperation with other Participating Insurance Companies whose contract owners
are also affected, at its expense and to the extent reasonably practicable (as
determined by the Trustees) take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, which steps could include: (a)
withdrawing the assets allocable to some or all of the Accounts from the Trust
or any Portfolio and reinvesting such assets in a different investment medium,
including (but not limited to) another Portfolio of the Trust, or submitting
the question of whether or not such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
Contract owners the option of making such a change; and (b) establishing a new
registered management investment company or managed separate account.
4.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard Contract owner voting instructions and
that decision represents a minority position or would preclude a majority vote,
the 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
such 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 disinterested 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. Until the
end of such six (6) month period, the Trust shall continue to accept and
implement orders by the Company for the purchase and redemption of shares of
the Trust.
4.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Trust and
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terminate this Agreement with respect to such Account within six (6) months
after the Trustees inform the Company in writing that it has determined that
such decision has created an irreconcilable material conflict; provided,
however, that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by a
majority of the disinterested Trustees. Until the end of such six (6) month
period, the Trust shall continue to accept and implement orders by the Company
for the purchase and redemption of shares of the Trust.
4.6. For purposes of Sections 4.3 through 4.6 of this Agreement, a
majority of the disinterested Trustees shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no
event will the Company be required to establish a new funding medium for the
Contracts if an offer to do so has been declined by vote of a majority of
Contact owners materially adversely affected by the irreconcilable material
conflict. In the event that the Trustees determine that any proposed action
does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Trust and terminate this
Agreement within six (6) months after the Trustees inform the Company in
writing of the foregoing determination; provided, however, that such withdrawal
and termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested
Trustees.
4.7. The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so that the
Trustees may fully carry out the duties imposed upon them by the Exemptive
Order, and said reports, materials and data shall be submitted more frequently
if deemed appropriate by the Trustees.
4.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Exemptive Order) on terms and conditions materially
different from those contained in the Exemptive Order, then 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 such rules are applicable.
ARTICLE V.
Indemnification
5.1. Indemnification By the Company. The Company agrees to indemnify
and hold harmless the Trust, the Adviser, and each of their Trustees or
Directors, officers, employees and agents and each person, if any, who controls
the Trust or the Adviser within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Article V)
against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Company) or expenses
(including the reasonable costs of investigating or defending any alleged loss,
claim, damage, liability or expense and reasonable legal counsel fees incurred
in connection therewith) (collectively, "Losses"), to which the
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Indemnified Parties may become subject under any statute or regulation, or at
common law or otherwise, insofar as such Losses:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in a registration
statement, prospectus or profile for the Contracts or in the Contracts
themselves or in sales literature generated or approved by the Company on
behalf of the Contracts or Accounts (or any amendment or supplement to any of
the foregoing) (collectively, "Company Documents" for the purposes of this
Article V), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
indemnity shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance upon and
was accurately derived from written information furnished to the Company by or
on behalf of the Trust or the Adviser for use in Company Documents or otherwise
for use in connection with the sale of the Contracts or Trust shares; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and accurately derived
from Trust Documents as defined in Section 5.2(a)) or wrongful conduct of the
Company or persons under its control, with respect to the sale or acquisition
of the Contracts or Trust shares; or
(c) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Trust Documents as defined in
Section 5.2(a) or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading if such statement or omission was made in reliance upon and
accurately derived from written information furnished to the Trust or the
Adviser by or on behalf of the Company; or
(d) arise out of or result from any failure by the Company to
provide the services or furnish the materials required under the terms of this
Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Company.
5.2. Indemnification By the Trust and the Adviser. The Trust and
Adviser agree to indemnify and hold harmless the Company and each of its
directors, officers, employees and agents and each person, if any, who controls
the Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Article V) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Adviser) or expenses (including the reasonable costs
of investigating or defending any alleged loss, claim, damage, liability or
expense and reasonable legal counsel fees incurred in connection therewith)
(collectively, "Losses"), to which the Indemnified Parties may become subject
under any statute or regulation, or at common law or otherwise, insofar as such
Losses:
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(a) 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 Trust (or any amendment or supplement thereto),
(collectively, "Trust Documents" for the purposes of this Article V), or arise
out of or are based upon the omission or the alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this indemnity shall not apply
as to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and was accurately derived from
written information furnished to the Trust by or on behalf of the Company for
use in Trust Documents or otherwise for use in connection with the sale of the
Contracts or Trust shares; or
(b) arise out of or result from statements or representations
(other than statements or representations contained in and accurately derived
from Company Documents) or wrongful conduct of the Trust or persons under its
control, with respect to the sale or acquisition of the Contracts or Trust
shares; or
(c) arise out of or result from any untrue statement or alleged
untrue statement of a material fact contained in Company Documents or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading if
such statement or omission was made in reliance upon and accurately derived
from written information furnished to the Company by or on behalf of the Trust;
or
(d) arise out of or result from any failure by the Trust or the
Adviser to provide the services or furnish the materials required under the
terms of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by the Trust or Adviser in this Agreement
or arise out of or result from any other material breach of this Agreement by
the Trust or Adviser (including a failure whether unintentional, or in good
faith, or otherwise, to comply with the diversification and other qualification
requirements specified in Article II of this agreement); or
(f) arise out of or result from the materially incorrect or
untimely calculation or reporting of the daily net asset value per share or
dividend or capital gain distribution rate.
5.3. None of the parties to this Agreement shall be liable under the
indemnification provisions of Sections 5.1 or 5.2, as applicable, with respect
to any Losses incurred or assessed against an Indemnified Party that arise from
such Indemnified Party's willful misfeasance, bad faith or negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
5.4. None of the parties to this Agreement shall be liable under the
indemnification provisions of Sections 5.1 or 5.2, as applicable, with respect
to any claim made against an Indemnified Party unless such Indemnified Party
shall have notified the other parties in writing within a reasonable time after
the summons, or other first written notification, giving information
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of the nature of the claim shall have been served upon or otherwise received by
such Indemnified Party (or after such Indemnified Party shall have received
notice of service upon or other notification to any designated agent), but
failure to notify the party against whom indemnification is sought of any such
claim or shall not relieve that party from any liability which it may have to
the Indemnified Party in the absence of Sections 5.1 and 5.2.
5.5. In case any such action is brought against the Indemnified
Parties, the indemnifying party shall be entitled to participate, at its own
expense, in the defense of such action. The indemnifying party also shall be
entitled to assume the defense thereof, with counsel reasonably satisfactory to
the party named in the action. After notice from the indemnifying party to the
Indemnified Party of an election to assume such defense, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the indemnifying party will not be liable to the Indemnified Party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable
costs of investigation.
ARTICLE VI.
Termination
6.1 This Agreement shall terminate as to the sale and issuance of
new Contracts:
(a) at the option of any party, for any reason upon ninety (90)
days advance written notice to the other parties, unless a shorter time period
is agreed to in writing by the parties to this Agreement;
(b) at the option of the Company, upon one week advance written
notice to the Trust, if the Trust shares are not reasonably available to meet
the requirements of the Contracts as determined by the Company;
(c) at the option of the Company, immediately upon institution of
formal proceedings against the Trust or Adviser by the NASD, SEC, or any other
regulatory body that are deemed by the Company to materially affect the
performance of the obligations under this Agreement;
(d) at the option of the Trust or the Adviser, immediately upon
institution of formal proceedings against the broker-dealer or broker-dealers
marketing the Contracts, the Account, or the Company by the NASD, SEC, or any
other regulatory body that are deemed by the Trust or Adviser to materially
affect the performance of the obligations under this Agreement;
(e) upon the requisite vote of Contract owners having an interest
in the Trust, or SEC approval of an application pursuant to Section 26(b) of
the 1940 Act, to substitute for the Trust's shares the shares of another
investment company in accordance with the terms of the applicable Contacts. The
Company will give forty-five (45) days written notice to the Trust of any
proposed application or vote to replace the Trust's shares. The Trust and
Adviser shall cooperate with the Company in connection with such application;
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(f) upon assignment (as defined in Section 2(a)(4) of the 1940
Act) of the Agreement, unless made with the written consent of all other
parties hereto;
(g) if the Trust's shares are not registered, issued or sold in
conformance with Federal law or such law precludes the use of the Trust's
shares as an underlying investment medium for Contracts issued or to be issued
by the Company. Prompt notice shall be given by each party should such
situation occur;
(h) by any party to the Agreement upon a determination by a
majority of the Trustees of the Trust, or a majority of its disinterested
Trustees, that an irreconcilable material conflict exists;
(i) at the option of the Trust or Adviser if the Contracts cease
to qualify as annuity contracts or life insurance contracts, as applicable,
under the Code or if the Contracts are not registered, issued or sold in
accordance with applicable state and/or federal law: or
(j) if the need for substitution of the shares of another
investment company, pursuant to Section 26(b) of the 1940 Act, arises out of
the Trust's failure to be registered, issued or sold in conformance with
federal law, including applicable tax law, the expenses of obtaining such order
shall be reimbursed by the Trust or Adviser. The Trust and Adviser shall
cooperate with the Company in connection with such application; or
(k) at the option of the Company by written notice to the Trust
and Adviser with respect to any Portfolio in the event that such Portfolio
ceases to qualify as a Regulated Investment Company under Subchapter M or fails
to comply with the Section 817(h) diversification requirements specified in
Article II hereof, or if the Company reasonably believes that such Portfolio
may fail to so qualify or comply.
6.2 Notwithstanding any termination of this Agreement, the Trust
shall, at the option of the Company, continue to make available additional
shares of the Trust (or any Portfolio) pursuant to the terms and conditions of
this Agreement for all Contracts in effect on the effective date of termination
of this Agreement provided that the Company continues to pay the costs set
forth in Section 2.3.
6.3 The provisions of Articles III and V shall survive the
termination of this Agreement, and the provisions of Article IV and Section
2.11 shall survive the termination of this Agreement as long as shares of the
Trust are held on behalf of Contract owners in accordance with Section 6.2.
Specifically, without limitation, the owners of any existing Contracts shall be
permitted to transfer or reallocate investment under the Contracts, redeem
investments in any Portfolio and/or invest in the Trust upon the making of
additional premium payments under the existing Contracts.
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<PAGE> 14
ARTICLE VII.
Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Trust:
100 Fillmore Street, Suite 300
Denver, Colorado 80206
Attention: David C. Tucker, Esq.
If to the Company:
_____________________________
_____________________________
Attention: _________________
If to the Adviser:
100 Fillmore Street, Suite 300
Denver, Colorado 80206
Attention: David C. Tucker, Esq.
ARTICLE VIII.
Miscellaneous
8.1. 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.
8.2. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3. If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
8.4. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of State of __________.
8.5. The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be
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<PAGE> 15
satisfied solely out of the assets of the Trust and that no Trustee, officer,
agent or holder of shares of beneficial interest of the Trust shall be
personally liable for any such liabilities.
8.6. Each party shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
8.7. The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
8.8. The parties to this Agreement acknowledge and agree that this
Agreement shall not be exclusive in any respect.
8.9. Neither this Agreement nor any rights or obligations hereunder
may be assigned by either party without the prior written approval of the other
party.
8.10. No provisions of this Agreement may be amended or modified in
any manner except by a written agreement properly authorized and executed by
both parties.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Participation Agreement as of the date and year first
above written.
FARMERS NEW WORLD LIFE INSURANCE COMPANY
By: ___________________________________
Name: ___________________________________
Title:___________________________________
JANUS ASPEN SERIES
By: ___________________________________
Name: ___________________________________
Title:___________________________________
JANUS CAPITAL CORPORATION
By: ___________________________________
Name: ___________________________________
Title:___________________________________
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<PAGE> 16
Schedule A
Separate Accounts and Associated Contracts
Name of Separate Account and Contracts Funded
Date Established by Board of Directors By Separate Account
- --------------------------------------- -------------------
Farmers Annuity Separate Account A (4/6/99)
Farmers Variable Life Separate Account A (4/6/99)
<PAGE> 1
EXHIBIT 8(e)
PARTICIPATION AGREEMENT
AMONG
FARMERS NEW WORLD LIFE INSURANCE COMPANY,
PIMCO VARIABLE INSURANCE TRUST,
AND
PIMCO FUNDS DISTRIBUTORS LLC
THIS AGREEMENT, dated as of the _____ day of _________, 1999, by and
among Farmers New World Life Insurance Company (the "Company"), a Washington
life insurance company, on its own behalf and on behalf of each segregated
asset account of the Company set forth on Schedule A hereto as may be amended
from time to time (each account hereinafter referred to as the "Account"),
PIMCO Variable Insurance Trust (the "Fund"), a Delaware business trust, and
PIMCO Funds Distributors LLC (the "Underwriter"), a Delaware limited liability
company.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance and variable annuity
contracts (the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and
Underwriter ("Participating Insurance Companies");
WHEREAS, the shares of beneficial interest of the Fund are divided
into several series of shares, each designated a "Portfolio" and representing
the interest in a particular managed portfolio of securities and other assets;
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission (the "SEC") granting Participating Insurance Companies and
variable annuity and variable life insurance separate accounts exemptions from
the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment
Company Act of 1940, as amended, (the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T)(b)(15) thereunder, if and to the extent necessary to permit shares of
the Fund to be sold to and held by variable annuity and variable life insurance
separate accounts of both affiliated and unaffiliated life insurance companies
(the "Mixed and Shared Funding Exemptive Order");
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under
the Securities Act of 1933, as amended (the "1933 Act");
WHEREAS, Pacific Investment Management Company (the "Adviser"), which
serves as investment adviser to the Fund, is duly registered as an investment
adviser under the federal Investment Advisers Act of 1940, as amended;
<PAGE> 2
WHEREAS, the Company has issued or will issue certain variable life
insurance and/or variable annuity contracts supported wholly or partially by
the Account (the "Contracts"), and said Contracts are listed in Schedule A
hereto, as it may be amended from time to time by mutual written agreement;
WHEREAS, the Account is duly established and maintained as a
segregated asset account, duly established by the Company, on the date shown
for such Account on Schedule A hereto, to set aside and invest assets
attributable to the aforesaid Contracts;
WHEREAS, the Underwriter, which serves as distributor to the Fund, is
registered as a broker dealer with the SEC under the Securities Exchange Act of
1934, as amended (the "1934 Act"), and is a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios") on behalf of the Account to fund the
aforesaid Contracts, and the Underwriter is authorized to sell such shares to
the Account at net asset value.
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Fund has granted to the Underwriter exclusive authority
to distribute the Fund's shares, and has agreed to instruct, and has so
instructed, the Underwriter to make available to the Company for purchase on
behalf of the Account Fund shares of those Designated Portfolios selected by
the Underwriter. Pursuant to such authority and instructions, and subject to
Article X hereof, the Underwriter agrees to make available to the Company for
purchase on behalf of the Account, shares of those Designated Portfolios listed
on Schedule A to this Agreement, such purchases to be effected at net asset
value in accordance with Section 1.3 of this Agreement. Notwithstanding the
foregoing, (i) Fund series (other than those listed on Schedule A) in existence
now or that may be established in the future will be made available to the
Company only as the Underwriter may so provide, and (ii) the Board of Trustees
of the Fund (the "Board") may suspend or terminate the offering of Fund shares
of any Designated Portfolio or class thereof, if such action is required by law
or by regulatory authorities having jurisdiction or if, in the sole discretion
of the Board acting in good faith and in light of its fiduciary duties under
federal and any applicable state laws, suspension or termination is necessary
in the best interests of the shareholders of such Designated Portfolio.
1.2. The Fund shall redeem, at the Company's request, any full or
fractional Designated Portfolio shares held by the Company on behalf of the
Account, such redemptions to be effected at net asset value in accordance with
Section 1.3 of this Agreement. Notwithstanding
2
<PAGE> 3
the foregoing, (i) the Company shall not redeem Fund shares attributable to
Contract owners except in the circumstances permitted in Section 10.3 of this
Agreement, and (ii) the Fund may delay redemption of Fund shares of any
Designated Portfolio to the extent permitted by the 1940 Act, and any rules,
regulations or orders thereunder.
1.3. Purchase and Redemption Procedures
(a) The Fund hereby appoints the Company as an agent of
the Fund for the limited purpose of receiving purchase and redemption requests
on behalf of the Account (but not with respect to any Fund shares that may be
held in the general account of the Company) for shares of those Designated
Portfolios made available hereunder, based on allocations of amounts to the
Account or subaccounts thereof under the Contracts and other transactions
relating to the Contracts or the Account. Receipt of any such request (or
relevant transactional information therefor) on any day the New York Stock
Exchange is open for trading and on which the Fund calculates its net asset
value pursuant to the rules of the SEC (a "Business Day") by the Company as
such limited agent of the Fund prior to the time that the Fund ordinarily
calculates its net asset value as described from time to time in the Fund
Prospectus (which as of the date of execution of this Agreement is 4:00 p.m.
Eastern Time) shall constitute receipt by the Fund on that same Business Day,
provided that the Fund receives notice of such request by 11 a.m. Eastern Time
on the next following Business Day.
(b) The Company shall pay for shares of each Designated
Portfolio on the same day that it notifies the Fund of a purchase request for
such shares. Payment for Designated Portfolio shares shall be made in federal
funds transmitted to the Fund by wire to be received by the Fund by 4:00 p.m.
Eastern Time on the day the Fund is notified of the purchase request for
Designated Portfolio shares (unless the Fund determines and so advises the
Company that sufficient proceeds are available from redemption of shares of
other Designated Portfolios effected pursuant to redemption requests tendered
by the Company on behalf of the Account). If federal funds are not received on
time, such funds will be invested, and Designated Portfolio shares purchased
thereby will be issued, as soon as practicable and the Company shall promptly,
upon the Fund's request, reimburse the Fund for any charges, costs, fees,
interest or other expenses incurred by the Fund in connection with any advances
to, or borrowing or overdrafts by, the Fund, or any similar expenses incurred
by the Fund, as a result of portfolio transactions effected by the Fund based
upon such purchase request. Upon receipt of federal funds so wired, such funds
shall cease to be the responsibility of the Company and shall become the
responsibility of the Fund.
(c) Payment for Designated Portfolio shares redeemed by
the Account or the Company shall be made in federal funds transmitted by wire
to the Company or any other designated person on the next Business Day after
the Fund is properly notified of the redemption order of such shares (unless
redemption proceeds are to be applied to the purchase of shares of other
Designated Portfolios in accordance with Section 1.3(b) of this Agreement),
except that the Fund reserves the right to redeem Designated Portfolio shares
in assets other than cash and to delay payment of redemption proceeds to the
extent permitted under Section 22(e) of the 1940
3
<PAGE> 4
Act and any Rules thereunder, and in accordance with the procedures and
policies of the Fund as described in the then current prospectus. The Fund
shall not bear any responsibility whatsoever for the proper disbursement or
crediting of redemption proceeds by the Company; the Company alone shall be
responsible for such action.
(d) Any purchase or redemption request for Designated
Portfolio shares held or to be held in the Company's general account shall be
effected at the closing net asset value per share next determined after the
Fund's receipt of such request, provided that, in the case of a purchase
request, payment for Fund shares so requested is received by the Fund in
federal funds prior to close of business for determination of such value, as
defined from time to time in the Fund Prospectus.
1.4. The Fund shall use its best efforts to make the closing net
asset value per share for each Designated Portfolio available to the Company by
6:30 p.m. Eastern Time each Business Day, and in any event, as soon as
reasonably practicable after the closing net asset value per share for such
Designated Portfolio is calculated, and shall calculate such closing net asset
value in accordance with the Fund's Prospectus. In the event the Fund is unable
to make the 6:30 p.m. deadline stated herein, it shall provide additional time
for the Company to place orders for the purchase and redemption of shares. Such
additional time shall be equal to the additional time which the Fundt takes to
make the closing net asset value available to the Company. Neither the Fund,
any Designated Portfolio, the Underwriter, nor any of their affiliates shall be
liable for any information provided to the Company pursuant to this Agreement
which information is based on incorrect information supplied by the Company or
any other Participating Insurance Company to the Fund or the Underwriter. Any
material error in the calculation or reporting of the closing net asset value
per share shall be reported immediately upon discovery to the Company. In such
event the Company shall be entitled to an adjustment to the number of shares
purchased or redeemed to reflect the correct closing net asset value per share
and the Fund shall bear the cost of correcting such errors. Any error of a
lesser amount shall be corrected in the next Business Day's net asset value per
share.
1.5. The Fund shall furnish notice (by wire or telephone followed
by written confirmation) to the Company as soon as reasonably practicable of
any income dividends or capital gain distributions payable on any Designated
Portfolio shares. The Company, on its behalf and on behalf of the Account,
hereby elects to receive all such dividends and distributions as are payable on
any Designated Portfolio shares in the form of additional shares of that
Designated Portfolio. The Company reserves the right, on its behalf and on
behalf of the Account, to revoke this election and to receive all such
dividends and capital gain distributions in cash. The Fund shall notify the
Company promptly of the number of Designated Portfolio shares so issued as
payment of such dividends and distributions.
1.6. Issuance and transfer of Fund shares shall be by book entry
only. Stock certificates will not be issued to the Company or the Account.
Purchase and redemption orders for Fund shares shall be recorded in an
appropriate ledger for the Account or the appropriate subaccount of the
Account.
4
<PAGE> 5
1.7. (a) The parties hereto acknowledge that the arrangement
contemplated by this Agreement is not exclusive; the Fund's shares may be sold
to other insurance companies (subject to Section 1.8 hereof) and the cash value
of the Contracts may be invested in other investment companies, provided,
however, that until this Agreement is terminated pursuant to Article X, the
Company shall promote the Designated Portfolios on the same basis as other
funding vehicles available under the Contracts. Funding vehicles other than
those listed on Schedule A to this Agreement may be available for the
investment of the cash value of the Contracts, provided, however, (i) any such
vehicle or series thereof, has investment objectives or policies that are
substantially different from the investment objectives and policies of the
Designated Portfolios available hereunder; (ii) the Company gives the Fund and
the Underwriter 45 days written notice of its intention to make such other
investment vehicle available as a funding vehicle for the Contracts; and (iii)
unless such other investment company was available as a Funding vehicle for the
Contracts prior to the date of this Agreement and the Company has so informed
the Fund and the Underwriter prior to their signing this Agreement, the Fund or
Underwriter consents in writing to the use of such other vehicle, such consent
not to be unreasonably withheld.
(b) The Company shall not, without prior notice to the
Underwriter (unless otherwise required by applicable law), take any action to
operate the Account as a management investment company under the 1940 Act.
(c) The Company shall not, without prior notice to the
Underwriter (unless otherwise required by applicable law), induce Contract
owners to change or modify the Fund or change the Fund's distributor or
investment adviser.
(d) The Company shall not, without prior notice to the
Fund, induce Contract owners to vote on any matter submitted for consideration
by the shareholders of the Fund in a manner other than as recommended by the
Board of Trustees of the Fund.
1.8. The Underwriter and the Fund shall sell Fund shares only to
Participating Insurance Companies and their separate accounts and to persons or
plans ("Qualified Persons") that communicate to the Underwriter and the Fund
that they qualify to purchase shares of the Fund under Section 817(h) of the
Internal Revenue Code of 1986, as amended (the "Code") and the regulations
thereunder without impairing the ability of the Account to consider the
portfolio investments of the Fund as constituting investments of the Account
for the purpose of satisfying the diversification requirements of Section
817(h). The Underwriter and the Fund shall not sell Fund shares to any
insurance company or separate account unless an agreement complying with
Article VI of this Agreement is in effect to govern such sales, to the extent
required. The Company hereby represents and warrants that it and the Account
are Qualified Persons. The Fund reserves the right to cease offering shares of
any Designated Portfolio in the discretion of the Fund.
ARTICLE II. Representations and Warranties
5
<PAGE> 6
2.1. The Company represents and warrants that the Contracts (a)
are, or prior to issuance will be, registered under the 1933 Act, or (b) are
not registered because they are properly exempt from registration under the
1933 Act or will be offered exclusively in transactions that are properly
exempt from registration under the 1933 Act. The Company further represents and
warrants that the Contracts will be issued and sold in compliance in all
material respects with all applicable federal securities and state securities
and insurance laws and that the sale of the Contracts shall comply in all
material respects with state insurance suitability requirements. The Company
further represents and warrants that it is an insurance company duly organized
and in good standing under applicable law, that it has legally and validly
established the Account prior to any issuance or sale thereof as a segregated
asset account under Washington insurance laws, and that it (a) has registered
or, prior to any issuance or sale of the Contracts, 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, or alternatively
(b) has not registered the Account in proper reliance upon an exclusion from
registration under the 1940 Act. The Company shall register and qualify the
Contracts or interests therein as securities in accordance with the laws of the
various states only if and to the extent deemed advisable by the Company.
2.2. The Fund represents and warrants that Fund shares sold
pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with applicable state and
federal securities laws and that the Fund is and shall remain registered under
the 1940 Act. The Fund shall amend the registration statement for its shares
under the 1933 Act and the 1940 Act from time to time as required in order to
effect the continuous offering of its shares. The 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 Fund or the Underwriter.
2.3. The Fund may make payments to finance distribution expenses
pursuant to Rule 12b-1 under the 1940 Act. Prior to financing distribution
expenses pursuant to Rule 12b-1, the Fund will have the Board, a majority of
whom are not interested persons of the Fund, formulate and approve a plan
pursuant to Rule 12b-1 under the 1940 Act to finance distribution expenses.
2.4. The Fund makes no representations as to whether any aspect of
its operations, including, but not limited to, investment policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states.
2.5. The Fund represents that it is lawfully organized and validly
existing under the laws of the State of Delaware and that it does and will
comply in all material respects with the 1940 Act.
2.6. The Underwriter represents and warrants that it is a member
in good standing of the NASD and is registered as a broker-dealer with the SEC.
The Underwriter further represents that it will sell and distribute the Fund
shares in accordance with any applicable state and federal securities laws.
6
<PAGE> 7
2.7. The Fund and the Underwriter represent and warrant that all
of their trustees/directors, officers, employees, investment advisers, and
other individuals or entities dealing with the money and/or securities of the
Fund are and shall continue to be at all times covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund in an amount not less than
the minimum coverage as required currently by Rule 17g-1 of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.8. The Company represents and warrants that all of its
[DIRECTORS], officers, employees, and other individuals/entities employed or
controlled by the Company dealing with the money and/or securities of the
Account are covered by a blanket fidelity bond or similar coverage for the
benefit of the Account, in an amount not less than [$5 MILLION]. The aforesaid
bond includes coverage for larceny and embezzlement and is issued by a
reputable bonding company. The Company agrees to hold for the benefit of the
Fund and to pay to the Fund any amounts lost from larceny, embezzlement or
other events covered by the aforesaid bond to the extent such amounts properly
belong to the Fund pursuant to the terms of this Agreement. The Company agrees
to make all reasonable efforts to see that this bond or another bond containing
these provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies.
2.9 The Fund represents and warrants that the investments of each
Portfolio will comply with the diversification requirements set forth in
Section 817(h) of the Code and the rules and regulations thereunder.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Underwriter shall provide the Company with as many copies
of the Fund's current prospectus (describing only the Designated Portfolios
listed on Schedule A) or, to the extent permitted, the Fund's profiles as the
Company may reasonably request. The Company shall bear the expense of printing
copies of the current prospectus and profiles for the Contracts that will be
distributed to existing Contract owners, and the Company shall bear the expense
of printing copies of the Fund's prospectus and profiles that are used in
connection with offering the Contracts issued by the Company. If requested by
the Company in lieu thereof, the Fund shall provide such documentation
(including a final copy of the new prospectus on diskette at the Fund's
expense) and other assistance as is reasonably necessary in order for the
Company once each year (or more frequently if the prospectus for the Fund is
amended) to have the prospectus for the Contracts and the Fund's prospectus or
profile printed together in one document (such printing to be at the Company's
expense).
3.2. The Fund's prospectus shall state that the current Statement
of Additional Information ("SAI") for the Fund is available, and the
Underwriter (or the Fund), at its expense, shall provide a reasonable number of
copies of such SAI free of charge to the Company for itself and for any owner
of a Contract who requests such SAI.
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<PAGE> 8
3.3. The Fund shall provide the Company with information regarding
the Fund's expenses, which information may include a table of fees and related
narrative disclosure for use in any prospectus or other descriptive document
relating to a Contract. The Company agrees that it will use such information in
the form provided. The Company shall provide prior written notice of any
proposed modification of such information, which notice will describe in detail
the manner in which the Company proposes to modify the information, and agrees
that it may not modify such information in any way without the prior consent of
the Fund.
3.4. The Fund, at its expense, shall provide the Company with
copies of its proxy material, reports to shareholders, and other communications
to shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners.
3.5. The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of
such portfolio for which instructions have been
received,
so long as and to the extent that the SEC continues to interpret the 1940 Act
to require pass-through voting privileges for variable contract owners or to
the extent otherwise required by law. The Company will vote Fund shares held in
any segregated asset account in the same proportion as Fund shares of such
portfolio for which voting instructions have been received from Contract
owners, to the extent permitted by law.
3.6. Participating Insurance Companies shall be responsible for
assuring that each of their separate accounts participating in a Designated
Portfolio calculates voting privileges as required by the Shared Funding
Exemptive Order and consistent with any reasonable standards that the Fund may
adopt and provide in writing.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to
the Fund or its designee, each piece of sales literature or other promotional
material that the Company develops and in which the Fund (or a Designated
Portfolio thereof) or the Adviser or the Underwriter is named. No such material
shall be used until approved by the Fund or its designee, and the Fund will use
its best efforts for it or its designee to review such sales literature or
promotional material within ten Business Days after receipt of such material.
The Fund or its designee reserves the right to reasonably object to the
continued use of any such sales literature or other
8
<PAGE> 9
promotional material in which the Fund (or a Designated Portfolio thereof) or
the Adviser or the Underwriter is named, and no such material shall be used if
the Fund or its designee so object.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund or
the Adviser or the Underwriter in connection with the sale of the Contracts
other than the information or representations contained in the registration
statement or profiles or prospectus or SAI for the Fund shares, as such
registration statement and profiles and prospectus or SAI may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or
its designee or by the Underwriter, except with the permission of the Fund or
the Underwriter or the designee of either.
4.3. The Fund and the Underwriter, or their designee, shall
furnish, or cause to be furnished, to the Company, each piece of sales
literature or other promotional material that it develops and in which the
Company, and/or its Account, is named. No such material shall be used until
approved by the Company, and the Company will use its best efforts to review
such sales literature or promotional material within five Business Days after
receipt of such material. The Company reserves the right to reasonably object
to the continued use of any such sales literature or other promotional material
in which the Company and/or its Account is named, and no such material shall be
used if the Company so objects.
4.4. The Fund and the Underwriter shall not give any information
or make any representations on behalf of the Company or concerning the Company,
the Account, or the Contracts other than the information or representations
contained in a registration statement and prospectus (which shall include an
offering memorandum, if any, if the Contracts issued by the Company or
interests therein are not registered under the 1933 Act), or SAI for the
Contracts, as such registration statement, prospectus, or SAI may be amended or
supplemented from time to time, or in published reports for the Account which
are in the public domain or approved by the Company for distribution to
Contract owners, or in sales literature or other promotional material approved
by the Company or its designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete
copy of all registration statements, profiles, prospectuses, SAIs, reports,
proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, promptly after the
filing of such document(s) with the SEC or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete
copy of all registration statements, prospectuses (which shall include an
offering memorandum, if any, if the Contracts issued by the Company or
interests therein are not registered under the 1933 Act), SAIs, reports,
solicitations for voting instructions, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Contracts or the Account,
promptly after the filing of such document(s) with the SEC or other regulatory
authorities. The Company shall provide to the
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<PAGE> 10
Fund and the Underwriter any complaints received from the Contract owners
pertaining to the Fund or the Designated Portfolio.
4.7. The Fund will provide the Company with as much notice as is
reasonably practicable of any proxy solicitation for any Designated Portfolio,
and of any material change in the Fund's registration statement, particularly
any change resulting in a change to the registration statement or prospectus
for any Account. The Fund will work with the Company so as to enable the
Company to solicit proxies from Contract owners, or to make changes to its
prospectus or registration statement, in an orderly manner. The Fund will make
reasonable efforts to attempt to have changes affecting Contract prospectuses
become effective simultaneously with the annual updates for such prospectuses.
4.8. For purposes of this Article IV, the phrase "sales literature
and other promotional materials" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
SAIs, shareholder reports, proxy materials, and any other communications
distributed or made generally available with regard to the Fund.
ARTICLE V. Fees and Expenses
5.1. The Fund and the Underwriter shall pay no fee or other
compensation to the Company under this Agreement, except that if the Fund or
any Portfolio adopts and implements a plan pursuant to Rule 12b-1 to finance
distribution expenses, then the Fund or Underwriter may make payments to the
Company or to the underwriter for the Contracts if and in amounts agreed to by
the Underwriter in writing, and such payments will be made out of existing fees
otherwise payable to the Underwriter, past profits of the Underwriter, or other
resources available to the Underwriter. Currently, no such payments are
contemplated.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of
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<PAGE> 11
all statements and notices required by any federal or state law and all taxes
on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of distributing the
Fund's prospectus to owners of Contracts issued by the Company and of
distributing the Fund's proxy materials and reports to such Contract owners.
ARTICLE VI. Diversification and Qualification
6.1. The Fund will invest its assets in such a manner as to ensure
that the Contracts will be treated as annuity or life insurance contracts,
whichever is appropriate, under the Code and the regulations issued thereunder
(or any successor provisions). Without limiting the scope of the foregoing,
each Designated Portfolio has complied and will continue to comply with Section
817(h) of the Code and Treasury Regulation Section 1.817-5, and any Treasury
interpretations thereof, relating to the diversification requirements for
variable annuity, endowment, or life insurance contracts, and any amendments or
other modifications or successor provisions to such Section or Regulations. In
the event of a breach of this Article VI by the Fund, it will (a) take all
reasonable steps to notify the Company of such breach and (b) immediately take
all necessary steps to adequately diversify the Fund so as to achieve
compliance within the grace period afforded by Regulation 1.817-5.
6.2. The Fund represents that it is or will be qualified as a
Regulated Investment Company under Subchapter M of the Code, and that it will
use its best efforts to maintain such qualification (under Subchapter M or any
successor or similar provisions) and that it will notify the 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. The Fund acknowledges
that compliance with Subchapter M is an essential element of compliance with
Section 817(h).
6.3. The Fund shall provide the Company or its designee with
reports certifying compliance with the aforesaid Section 817(h) diversification
and Subchapter M qualification requirements on a quarterly basis.
6.4. The Company represents that the Contracts are currently, and
at the time of issuance shall be, treated as life insurance or annuity
insurance contracts, under applicable provisions of the Code, and that it will
make every effort to maintain such treatment, and that it will notify the Fund
and the Underwriter immediately upon having a reasonable basis for believing
the Contracts have ceased to be so treated or that they might not be so treated
in the future. The Company agrees that any prospectus offering a contract that
is a "modified endowment contract" as that term is defined in Section 7702A of
the Code (or any successor or similar provision), shall identify such contract
as a modified endowment contract.
ARTICLE VII. Potential Conflicts
11
<PAGE> 12
The following provisions shall apply only upon issuance of the Mixed
and Shared Funding Order and the sale of shares of the Fund to variable life
insurance separate accounts, and then only to the extent required under the
1940 Act.
7.1. The Board will monitor the Fund for the existence of any
material irreconcilable conflict between the interests of the Contract owners
of all separate accounts investing in the Fund. An irreconcilable material
conflict may arise for a variety of reasons, including: (a) an action by any
state insurance regulatory authority; (b) a change in applicable federal or
state insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any similar
action by insurance, tax, or securities regulatory authorities; (c) an
administrative or judicial decision in any relevant proceeding; (d) the manner
in which the investments of any Portfolio are being managed; (e) a difference
in voting instructions given by variable annuity contract and variable life
insurance contract owners; or (f) a decision by an insurer to disregard the
voting instructions of contract owners. The Board shall promptly inform the
Company if it determines that an irreconcilable material conflict exists and
the implications thereof.
7.2. The Company will report any potential or existing conflicts
of which it is aware to the Board. The Company will assist the Board in
carrying out its responsibilities under the Mixed and Shared Funding Exemptive
Order, by providing the Board with all information reasonably necessary for the
Board to consider any issues raised. This includes, but is not limited to, an
obligation by the Company to inform the Board whenever Contract owner voting
instructions are disregarded.
7.3. If it is determined by a majority of the Board, or a majority
of its disinterested members, that a material irreconcilable conflict exists,
the Company and other Participating Insurance Companies shall, at their expense
and to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a
vote of all affected contract owners and, as appropriate, segregating the
assets of any appropriate group (i.e., annuity contract owners, life insurance
contract owners, or variable contract owners of one or more Participating
Insurance Companies) that votes in favor of such segregation, or offering to
the affected contract owners the option of making such a change; and (2)
establishing a new registered management investment company or managed separate
account.
7.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard Contract owner voting instructions and
that decision represents a minority position or would preclude a majority vote,
the Company may be required, at the Fund's election, to withdraw the Account's
investment in the Fund and terminate this Agreement with respect to each
Account; provided, however, that such withdrawal and termination shall be
limited to the
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<PAGE> 13
extent required by the foregoing material irreconcilable conflict as determined
by a majority of the disinterested members of the Board. Any such withdrawal and
termination must take place within six (6) months after the Fund gives written
notice that this provision is being implemented, and until the end of that six
month period the Fund shall continue to accept and implement orders by the
Company for the purchase (and redemption) of shares of the Fund.
7.5. If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to the Company
conflicts with the majority of other state regulators, then the Company will
withdraw the affected Account's investment in the Fund and terminate this
Agreement with respect to such Account within six months after the Board
informs the Company in writing that it has determined that such decision has
created an irreconcilable material conflict; provided, however, that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
disinterested members of the Board. Until the end of the foregoing six month
period, the Fund shall continue to accept and implement orders by the Company
for the purchase (and redemption) of shares of the Fund.
7.6. For purposes of Section 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but
in no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contract if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination; provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested members of the Board.
7.7. If and to the extent the Mixed and Shared Funding Exemption
Order or any amendment thereto contains terms and conditions different from
Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement, then the
Fund and/or the Participating Insurance Companies, as appropriate, shall take
such steps as may be necessary to comply with the Mixed and Shared Funding
Exemptive Order, and Sections 3.4, 3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of this
Agreement shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in the Mixed and Shared
Funding Exemptive Order or any amendment thereto. If and to the extent that
Rule 6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide
exemptive relief from any provision of the 1940 Act or the rules promulgated
thereunder with respect to mixed or shared funding (as defined in the Mixed and
Shared Funding Exemptive Order) on terms and conditions materially different
from those contained in the Mixed and Shared Funding Exemptive Order, then (a)
the Fund and/or the Participating Insurance Companies, as appropriate, shall
take such steps as may be necessary to
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<PAGE> 14
comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to
the extent such rules are applicable; and (b) Sections 3.5, 3.6, 7.1., 7.2,
7.3, 7.4, and 7.5 of this Agreement shall continue in effect only to the extent
that terms and conditions substantially identical to such Sections are
contained in such Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By the Company
8.1(a). The Company agrees to indemnify and hold harmless the
Fund and the Underwriter and each of its trustees/directors and officers, and
each person, if any, who controls the Fund or Underwriter within the meaning of
Section 15 of the 1933 Act or who is under common control with the Underwriter
(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 Company) or litigation
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements:
(i) arise out of or are based upon any untrue statement
or alleged untrue statements of any material fact contained
in the registration statement, prospectus (which shall
include a written description of a Contract that is not
registered under the 1933 Act), or SAI for the Contracts or
contained in the Contracts or sales literature for the
Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of the
Fund for use in the registration statement, prospectus or SAI
for the Contracts or in the Contracts or sales literature (or
any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the registration statement, prospectus, SAI, or
sales literature of the Fund not supplied by the Company or
persons under its control) or wrongful conduct of the Company
or its agents or persons under the Company's authorization or
control, with respect to the sale or distribution of the
Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, SAI, or sales literature of the Fund
or any amendment thereof or supplement thereto or the
omission or
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<PAGE> 15
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 to the Fund by or on
behalf of the Company; or
(iv) arise as a result of any material failure by the
Company to provide the services and furnish the materials
under the terms of this Agreement (including a failure,
whether unintentional or in good faith or otherwise, to
comply with the qualification requirements specified in
Article VI of this Agreement); or
(v) arise out of or result from any material breach of
any representation and/or warranty made by the Company in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Company; or
(vi) as limited by and in accordance with the provisions
of Sections 8.1(b) and 8.1 (c) hereof.
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith,
or gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of its obligations or
duties under this Agreement.
8.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the 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 such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the Company of
any such claim shall not relieve the Company 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 an Indemnified Party, the Company shall be entitled to
participate, at its own expense, in the defense of such action. The Company
also shall be entitled to assume the defense thereof, with counsel satisfactory
to the party named in the action. After notice from the Company to such party
of the Company's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Company will not be liable to such party under this Agreement for any legal
or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.1(d). The Indemnified Parties will promptly notify the
Company of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Fund shares or the Contracts or the
operation of the Fund.
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<PAGE> 16
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless
the Company and each of its directors and officers and each person, if any, who
controls the 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 the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements:
(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 profile or prospectus or SAI or
sales literature of the Fund (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that
this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and
in conformity with information furnished to the Underwriter
or Fund by or on behalf of the Company for use in the
registration statement, profile, prospectus or SAI for the
Fund or in sales literature (or any amendment or supplement)
or otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the registration statement, prospectus, SAI or
sales literature for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful conduct
of the Fund or Underwriter or persons under their control,
with respect to the sale or distribution of the Contracts or
Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, SAI or sales literature covering the
Contracts, or any amendment thereof or supplement thereto, or
the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statement or statements therein not misleading, if such
statement or omission was made in reliance upon information
furnished to the Company by or on behalf of the Fund or the
Underwriter; or
(iv) arise as a result of any failure by the Fund or the
Underwriter to provide the services and furnish the materials
under the terms of this Agreement (including a failure of the
Fund, whether unintentional or in good faith or
16
<PAGE> 17
otherwise, to comply with the diversification and other
qualification requirements specified in Article VI of this
Agreement); or
(v) arise out of or result from any material breach of
any representation and/or warranty made by the Underwriter in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith,
or gross negligence in the performance or such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the Underwriter
of any such claim shall not relieve the Underwriter from any liability which it
may have to the Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision. In case any such action is
brought against the Indemnified Party, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by
it, and the Underwriter will not be liable to such party under this Agreement
for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable
costs of investigation.
The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
8.3. Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the 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, expenses, damages, liabilities (including
amounts paid in settlement with the written consent of the Fund) or litigation
(including legal
17
<PAGE> 18
and other expenses) to which the Indemnified Parties may be required to pay or
may become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, expenses, damages, liabilities or expenses (or
actions in respect thereof) or settlements, are related to the operations of
the Fund and:
(i) arise as a result of any failure by the Fund to
provide the services and furnish the materials under the
terms of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply with
the diversification and other qualification requirements
specified in Article VI of this Agreement); or
(ii) arise out of or result from any material breach of
any representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Fund; or
(iii) arise out of or result from the materially incorrect
or untimely calculation or reporting of the daily net asset
value per share or dividend or capital gain distribution
rate.
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith,
or gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company, the Fund, the Underwriter or the
Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Fund in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such party of the Fund's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Fund will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
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<PAGE> 19
8.3(d). The Company and the Underwriter agree promptly to
notify the Fund of the commencement of any litigation or proceeding against it
or any of its respective officers or directors in connection with the
Agreement, the issuance or sale of the Contracts, the operation of the Account,
or the sale or acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of ___________.
9.2. This Agreement shall be subject to the provisions of the
1933, 1934 and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the SEC
may grant (including, but not limited to, any Mixed and Shared Funding
Exemptive Order) and the terms hereof shall be interpreted and construed in
accordance therewith. If, in the future, the Mixed and Shared Funding Exemptive
Order should no longer be necessary under applicable law, then Article VII
shall no loner apply.
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and effect until
the first to occur of:
(a) termination by any party, for any reason with
respect to some or all Designated Portfolios, by
three (3) months advance written notice delivered to
the other parties; or
(b) termination by the Company by written notice to the
Fund and the Underwriter based upon the Company's
determination that shares of the Fund are not
reasonably available to meet the requirements of the
Contracts; or
(c) termination by the Company by written notice to the
Fund and the Underwriter in the event any of the
Designated Portfolio's shares are not registered,
issued or sold in accordance with applicable state
and/or federal law or such law precludes the use of
such shares as the underlying investment media of
the Contracts issued or to be issued by the Company;
or
(d) termination by the Fund or Underwriter in the event
that formal administrative proceedings are
instituted against the Company by the NASD, the SEC,
the Insurance Commissioner or like official of any
state or any other regulatory body regarding the
Company's duties under this Agreement or related to
the sale of the Contracts, the operation of any
Account, or the purchase of the Fund's shares;
provided, however, that the Fund or Underwriter
determines in its sole judgment exercised in good
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<PAGE> 20
faith, that any such administrative proceedings will
have a material adverse effect upon the ability of
the Company to perform its obligations under this
Agreement; or
(e) termination by the Company in the event that formal
administrative proceedings are instituted against
the Fund or Underwriter by the NASD, the SEC, or any
state securities or insurance department or any
other regulatory body; provided, however, that the
Company determines in its sole judgment exercised in
good faith, that any such administrative proceedings
will have a material adverse effect upon the ability
of the Fund or Underwriter to perform its
obligations under this Agreement; or
(f) termination by the Company by written notice to the
Fund and the Underwriter with respect to any
Designated Portfolio in the event that such
Portfolio ceases to qualify as a Regulated
Investment Company under Subchapter M or fails to
comply with the Section 817(h) diversification
requirements specified in Article VI hereof, or if
the Company reasonably believes that such Portfolio
may fail to so qualify or comply; or
(g) termination by the Fund or Underwriter by written
notice to the Company in the event that the
Contracts fail to meet the qualifications specified
in Article VI hereof; or
(h) termination by either the Fund or the Underwriter by
written notice to the Company, if either one or both
of the Fund or the Underwriter respectively, shall
determine, in their sole judgment exercised in good
faith, that the Company has suffered a material
adverse change in its business, operations,
financial condition, or prospects since the date of
this Agreement or is the subject of material adverse
publicity; or
(i) termination by the Company by written notice to the
Fund and the Underwriter, if the Company shall
determine, in its sole judgment exercised in good
faith, that the Fund, Adviser, or the Underwriter
has suffered a material adverse change in its
business, operations, financial condition or
prospects since the date of this Agreement or is the
subject of material adverse publicity; or
(j) termination by the Fund or the Underwriter by
written notice to the Company, if the Company gives
the Fund and the Underwriter the written notice
specified in Section 1.7(a)(ii) hereof and at the
time such notice was given there was no notice of
termination outstanding under any other provision of
this Agreement; provided, however, any termination
under
20
<PAGE> 21
this Section 10.l(j) shall be effective forty-five
days after the notice specified in Section
1.7(a)(ii) was given; or
(k) termination by the Company upon any substitution of
the shares of another investment company or series
thereof for shares of a Designated Portfolio of the
Fund in accordance with the terms of the Contracts,
provided that the Company has given at least 45 days
prior written notice to the Fund and Underwriter of
the date of substitution; or
(l) termination by any party in the event that the
Fund's Board of Trustees determines that a material
irreconcilable conflict exists as provided in
Article VII.
10.2. Notwithstanding any termination of this Agreement, the Fund
and the Underwriter shall, at the option of the Company, continue to make
available additional shares of the Fund pursuant to the terms and conditions of
this Agreement, for all Contracts in effect on the effective date of
termination of this Agreement (hereinafter referred to as "Existing
Contracts"), unless the Underwriter requests that the Company seek an order
pursuant to Section 26(b) of the 1940 Act to permit the substitution of other
securities for the shares of the Designated Portfolios. The Underwriter agrees
to split the cost of seeking such an order, and the Company agrees that it
shall reasonably cooperate with the Underwriter and seek such an order upon
request. Specifically, the owners of the Existing Contracts may be permitted to
reallocate investments in the Fund, redeem investments in the Fund and/or
invest in the Fund upon the making of additional purchase payments under the
existing Contracts (subject to any such election by the Underwriter). The
parties agree that this Section 10.2 shall not apply to any terminations under
Article VII and the effect of such Article VII terminations shall be governed
by Article VII of this Agreement. The parties further agree that this Section
10.2 shall not apply to any terminations under Section 10.1 (g) of this
Agreement.
10.3. The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract owner initiated
or approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), (iii) upon 45
days prior written notice to the Fund and Underwriter, as permitted by an order
of the SEC pursuant to Section 26(b) of the 1940 Act, but only if a
substitution of other securities for the shares of the Designated Portfolios is
consistent with the terms of the Contracts, or (iv) as permitted under the
terms of the Contract. Upon request, the Company will promptly furnish to the
Fund and the Underwriter reasonable assurance that any redemption pursuant to
clause (ii) above is a Legally Required Redemption. Furthermore, except in
cases where permitted under the terms of the Contacts, the Company shall not
prevent Contract owners from allocating payments to a Portfolio that was
otherwise available under the Contracts without first giving the Fund or the
Underwriter 45 days notice of its intention to do so.
21
<PAGE> 22
10.4. Notwithstanding any termination of this Agreement, each
party's obligation under Article VIII to indemnify the other parties shall
survive.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund: PIMCO Variable Insurance Trust
840 Newport Center Drive, Suite 300
Newport Beach, CA 92660
If to the Company: [Name]
[Title]
Farmers New World Life Insurance Company
______________________
______________________
If to Underwriter: PIMCO Funds Distributors LLC
2187 Atlantic Street
Stamford, CT 06902
ARTICLE XII. Miscellaneous
12.1. All persons dealing with the Fund must look solely to the
property of the Fund, and in the case of a series company, the respective
Designated Portfolios listed on Schedule A hereto as though each such
Designated Portfolio had separately contracted with the Company and the
Underwriter for the enforcement of any claims against the Fund. The parties
agree that neither the Board, officers, agents or shareholders of the Fund
assume any personal liability or responsibility for obligations entered into by
or on behalf of the Fund.
12.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and
addresses of the owners of the Contracts and all information reasonably
identified as confidential in writing by any other party hereto and, except as
permitted by this Agreement, shall not disclose, disseminate or utilize such
names and addresses and other confidential information without the express
written consent of the affected party until such time as such information has
come into the public domain.
12.3. 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.
22
<PAGE> 23
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. 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.
12.6. Each party hereto shall cooperate with each other party and
all appropriate governmental authorities (including without limitation the SEC,
the NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the [Washington Insurance Commissioner] with any information
or reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable annuity
operations of the Company are being conducted in a manner consistent with the
Washington variable annuity laws and regulations and any other applicable law
or regulations.
12.7. The rights, remedies and obligations contained in this
Agreement are cumulative and are in addition to any and all rights, remedies,
and obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
12.8. This Agreement or any of the rights and obligations hereunder
may not be assigned by any party without the prior written consent of all
parties hereto.
12.9. The Company shall furnish, or shall cause to be furnished, to
the Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles) filed with any
state or federal regulatory body or otherwise made available
to the public, as soon as practicable and in any event within
90 days after the end of each fiscal year; and
(b) any registration statement (without exhibits) and financial
reports of the Company filed with the Securities and Exchange
Commission or any state insurance regulatory, as soon as
practicable after the filing thereof.
23
<PAGE> 24
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
FARMERS NEW WORLD LIFE INSURANCE COMPANY:
By its authorized officer
By: ___________________________________
Title:___________________________________
Date: ___________________________________
PIMCO VARIABLE INSURANCE TRUST
By its authorized officer
By: ___________________________________
Title:___________________________________
Date: ___________________________________
PIMCO FUNDS DISTRIBUTORS LLC
By its authorized officer
By: ___________________________________
Title:___________________________________
Date: ___________________________________
24
<PAGE> 25
SCHEDULE A
PIMCO Variable Insurance Trust Portfolios:
PIMCO Low Duration Portfolio
PIMCO Foreign Bond Portfolio
Farmers New World Life Insurance
Company Separate Accounts:
Farmers Annuity Separate Account A (4/6/99)
Farmers Variable Life Separate Account A (4/6/99)
Dated:_____________________, 1999
<PAGE> 1
EXHIBIT 8(f)
PARTICIPATION AGREEMENT
AMONG
TEMPLETON VARIABLE PRODUCTS SERIES FUND,
FRANKLIN TEMPLETON DISTRIBUTORS, INC.
AND
FARMERS NEW WORLD LIFE INSURANCE COMPANY
THIS AGREEMENT made as of _________ __, 1999, among Templeton Variable
Products Series Fund (the "Trust"), an open-end management investment company
organized as a business trust under Massachusetts law, Franklin Templeton
Distributors, Inc., a California corporation, the Trust's principal underwriter
("Underwriter"), and Farmers New World Life Insurance Company, a life insurance
company organized under the laws of the State of Washington (the "Company") on
its own behalf and on behalf of each segregated asset account of the Company set
forth in Schedule A, as may be amended from time to time (the "Accounts").
WITNESSETH:
WHEREAS, the Trust is registered with the Securities and Exchange
Commission (the "SEC") as an open-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), and has an
effective registration statement relating to the offer and sale of the various
series of its shares under the Securities Act of 1933, as amended (the "1933
Act");
WHEREAS, the Trust and the Underwriter desire that Trust shares be used
as an investment vehicle for separate accounts established for variable life
insurance policies and variable annuity contracts to be offered by life
insurance companies which have entered into fund participation agreements with
the Trust (the "Participating Insurance Companies");
WHEREAS, the beneficial interest in the Trust is divided into several
series of shares, each series representing an interest in a particular managed
portfolio of securities and other assets, and certain of those series, named in
Schedule B, (the "Portfolios") are to be made available for purchase by the
Company for the Accounts; and
WHEREAS, the Trust has received an order from the SEC, dated November
16, 1993 (File No. 812-8546), 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 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 variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies and certain qualified
pension and retirement plans (the "Shared Funding Exemptive Order");
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act unless an exemption from registration
under the 1940 Act is
<PAGE> 2
available and the Trust has been so advised; and has registered or will register
certain variable annuity contracts and variable life insurance policies, listed
on Schedule C attached hereto, under which the portfolios are to be made
available as investment vehicles (the "Contracts") under the 1933 Act unless
such interests under the Contracts in the Accounts are exempt from registration
under the 1933 Act and the Trust has been so advised;
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such account on Schedule A hereto, to set aside
and invest assets attributable to one or more Contracts; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and is a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD"); and
WHEREAS, each investment adviser listed on Schedule B (each, an
"Adviser") is duly registered as an investment adviser under the Investment
Advisers Act of 1940, as amended ("Advisers Act") and any applicable state
securities laws;
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid Contracts and the Underwriter
is authorized to sell such shares to unit investment trusts such as each Account
at net asset value;
NOW THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
ARTICLE I.
PURCHASE AND REDEMPTION OF TRUST PORTFOLIO SHARES
1.1 For purposes of this Article I, the Company shall be the Trust's
agent for receipt of purchase orders and requests for Redemption relating to
each Portfolio from each Account, provided that the Company notifies the Trust
of such purchase orders and requests for Redemption by 11:00 a.m. Eastern time
on the next following Business Day, as defined in Section 1.3.
1.2 The Trust agrees to make shares of the Portfolios available to the
Accounts for purchase at the net asset value per share next computed after
receipt of a purchase order by the Trust (or its agent), as established in
accordance with the provisions of the then current prospectus of the Trust
describing Portfolio purchase procedures on those days on which the Trust
calculates its net asset value pursuant to rules of the SEC, and the Trust will
calculate such net asset value on each day on which the New York Stock Exchange
("NYSE") is open for trading. The Company will transmit orders from time to time
to the Trust for the purchase of
2
<PAGE> 3
shares of the Portfolios. The Trustees of the Trust (the "Trustees") may refuse
to sell shares of any Portfolio to any person, or suspend or terminate the
offering of shares of any Portfolio if such action is required by law or by
regulatory authorities having jurisdiction or if, in the sole discretion of the
Trustees acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, such action is deemed in the best
interests of the shareholders of such Portfolio.
1.3 The Company shall submit payment for the purchase of shares of a
Portfolio on behalf of an Account no later than the close of business (4:00 p.m.
Eastern Time) on the next Business Day after the Trust receives the purchase
order. Payment shall be made in federal funds transmitted by wire to the Trust
or its designated custodian. Upon receipt by the Trust of the federal funds so
wired, such funds shall cease to be the responsibility of the Company and shall
become the responsibility of the Trust for this purpose. "Business Day" shall
mean any day on which the NYSE is open for trading and on which the Trust
calculates its net asset value pursuant to the rules of the SEC.
1.4 The Trust will redeem for cash any full or fractional shares of
any Portfolio, when requested by the Company on behalf of an Account, at the
closing net asset value next computed after receipt by the Trust (or its agent)
of the request for Redemption, as established in accordance with the provisions
of the then current prospectus of the Trust describing Portfolio Redemption
procedures. The Trust shall make payment for such shares in the manner
established from time to time by the Trust. Redemption with respect to a
Portfolio will normally be paid to the Company for an Account in federal funds
transmitted by wire to the Company before the close of business on the next
Business Day after the receipt of the request for Redemption. Such payment may
be delayed if, for example, the Portfolio's cash position so requires or if
extraordinary market conditions exist, but in no event shall payment be delayed
for a greater period than is permitted by the 1940 Act.
1.5 Payments for the purchase of shares of the Trust's Portfolios by
the Company under Section 1.3 and payments for the Redemption of shares of the
Trust's Portfolios under Section 1.4 may be netted against one another on any
Business Day for the purpose of determining the amount of any wire transfer on
that Business Day.
1.6 Issuance and transfer of the Trust's Portfolio shares will be by
book entry only. Stock certificates will not be issued to the Company or the
Account. Portfolio Shares purchased from the Trust will be recorded in the
appropriate title for each Account or the appropriate subaccount of each
Account.
1.7 The Trust shall furnish, on or before the ex-dividend date, notice
to the Company of any income dividends or capital gain distributions payable on
the shares of any Portfolio of the Trust. The Company hereby elects to receive
all such income dividends and capital gain distributions as are payable on a
Portfolio's shares in additional shares of the Portfolio. The Trust shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
3
<PAGE> 4
1.8 The Trust shall calculate the closing net asset value of each
Portfolio on each Business Day, as defined in section 1.3. The Trust shall make
the closing net asset value per share for each Portfolio available to the
Company or its designated agent on a daily basis as soon as reasonably practical
after the net asset value per share is calculated (normally by 6:30 p.m. Eastern
time) and shall use its best efforts to make such closing net asset value per
share available by 7:00 p.m. Eastern time each Business Day. In the event the
Trust is unable to make the 7:00 p.m. deadline stated herein, it shall provide
additional time for the Company to place orders for the purchase and redemption
of shares. Such additional time shall be equal to the additional time which the
Trust takes to make the closing net asset value available to the Company.
1.9 The Trust agrees that its Portfolio shares will be sold only to
Participating Insurance Companies and their separate accounts and to certain
qualified pension and retirement plans to the extent permitted by the Shared
Funding Exemptive Order. No shares of any Portfolio will be sold directly to the
general public. The Company agrees that it will use Trust shares only for the
purposes of funding the Contracts through the Accounts listed in Schedule A, as
amended from time to time.
1.10 The Company agrees that all net amounts available under the
Contracts shall be invested in the Trust, in such other Funds advised by an
Adviser or its affiliates as may be mutually agreed to in writing by the parties
hereto, or in the Company's general account, provided that such amounts may also
be invested in an investment company other than the Trust if: (a) such other
investment company, or series thereof, has investment objectives or policies
that are substantially different from the investment objectives and policies of
the Portfolios; or (b) the Company gives the Trust and the Underwriter 45 days
written notice of its intention to make such other investment company available
as a funding vehicle for the Contracts; or (c) such other investment company is
available as a funding vehicle for the Contracts at the date of this Agreement
and the Company so informs the Trust and the Underwriter prior to their signing
this Agreement (a list of such investment companies appearing on Schedule D to
this Agreement); or (d) the Trust or Underwriter consents to the use of such
other investment company.
1.11 The Trust agrees that all Participating Insurance Companies shall
have the obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding to those contained in Section 2.10 and
Article IV of this Agreement.
1.12 Each party to this Agreement shall have the right to rely on
information or confirmations provided by any other party (or by any affiliate of
any other party), and shall not be liable in the event that an error results
from any incorrect information or confirmations supplied by any other party. If
an error is made in reliance upon incorrect information or confirmations, any
amount required to make a Contract owner's account whole shall be borne by the
party who provided the incorrect information or confirmation. Specifically, the
Trust shall report any material error in the calculation or reporting of the
closing net asset value per share immediately upon discovery to the Company. In
such event the Company shall be entitled to an
4
<PAGE> 5
adjustment to the number of shares purchased or redeemed to reflect the correct
closing net asset value per share and the Trust shall bear the cost of
correcting such errors. Any error of a lesser amount shall be corrected in the
next Business Day's net asset value per share.
ARTICLE II.
OBLIGATIONS OF THE PARTIES; FEES AND EXPENSES
2.1 The Trust shall prepare and be responsible for filing with the SEC
and any state regulators requiring such filing all shareholder reports, notices,
proxy materials (or similar materials such as voting instruction solicitation
materials), prospectuses, profiles and statements of additional information of
the Trust. The Trust shall bear the costs of registration and qualification of
its shares of the Portfolios, preparation and filing of the documents listed in
this Section 2.1 and all taxes to which an issuer is subject on the issuance and
transfer of its shares.
2.2 At the option of the Company, the Trust or the Underwriter shall
either (a) provide the Company with as many copies of portions of the Trust's
current prospectus, profiles, annual report, semi-annual report and other
shareholder communications, including any amendments or supplements to any of
the foregoing, pertaining specifically to the Portfolios as the Company shall
reasonably request; or (b) provide the Company with a camera ready copy of such
documents in a form suitable for printing and from which information relating to
series of the Trust other than the Portfolios has been deleted to the extent
practicable. The Trust or the Underwriter shall provide the Company with a copy
of its current statement of additional information, including any amendments or
supplements, in a form suitable for duplication by the Company. Expenses of
furnishing such documents for marketing purposes shall be borne by the Company
and expenses of furnishing such documents for current Contract owners invested
in the Trust shall be borne by the Trust or the Underwriter.
2.3 The Trust (at its expense) shall provide the Company with copies
of any Trust-sponsored proxy materials in such quantity as the Company shall
reasonably require for distribution to Contract owners. The Company shall bear
the costs of distributing proxy materials (or similar materials such as voting
solicitation instructions), prospectuses and statements of additional
information to Contract owners. The Company assumes sole responsibility for
ensuring that such materials are delivered to Contract owners in accordance with
applicable federal and state securities laws.
2.4 If and to the extent required by law, the Company shall: (i)
solicit voting instructions from Contract owners; (ii) vote the Trust shares in
accordance with the instructions received from Contract owners; and (iii) vote
Trust shares for which no instructions have been received in the same proportion
as Trust shares of such Portfolio for which instructions have been received; so
long as and to the extent that the SEC continues to interpret the 1940 Act to
require passthrough voting privileges for variable Contract owners. The Company
reserves the right to vote Trust shares held in any segregated asset account in
its own right to the extent permitted by law.
5
<PAGE> 6
2.5 Except as provided in section 2.6, the Company shall not use any
designation comprised in whole or part of the names or marks "Franklin" or
"Templeton" or any other Trademark relating to the Trust or Underwriter without
prior written consent, and upon termination of this Agreement for any reason,
the Company shall cease all use of any such name or mark as soon as reasonably
practicable.
2.6 The Company shall furnish, or cause to be furnished to the Trust
or its designee, at least one complete copy of each registration statement,
prospectus, statement of additional information, retirement plan disclosure
information or other disclosure documents or similar information, as applicable
(collectively "disclosure documents") as well as any report, solicitation for
voting instructions, sales literature and other promotional materials, and all
amendments to any of the above that relate to the Contracts or the Accounts
prior to its first use. The 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 or an Adviser is named, at least 5
Business Days prior to its use. No such material shall be used if the Trust or
its designee reasonably objects to such use within five Business Days after
receipt of such material. For purposes of this paragraph, "sales literature or
other promotional material" includes, but is not limited to, portions of the
following that use any Trademark related to the Trust or Underwriter or refer to
the Trust or affiliates of the Trust: advertisements (such as material published
or designed for use in a newspaper, magazine or other periodical, radio,
television, telephone or tape recording, videotape display, signs or billboards,
motion pictures or electronic communication or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts or
any other advertisement, sales literature or published article or electronic
communication), educational or training materials or other communications
distributed or made generally available to some or all agents or employees, and
disclosure documents, shareholder reports and proxy materials.
2.7 The Company and its agents shall not give any information or make
any representations or statements on behalf of the Trust or concerning the
Trust, the Underwriter or an Adviser in connection with the sale of the
Contracts other than information or representations contained in and accurately
derived from the registration statement, profile or prospectus for the Trust
shares (as such registration statement, profile and prospectus may be amended or
supplemented from time to time), annual and semi-annual reports of the Trust,
Trust-sponsored proxy statements, or in sales literature or other promotional
material approved by the Trust or its designee, except as required by legal
process or regulatory authorities or with the written permission of the Trust or
its designee.
2.8 The Trust shall use its best efforts to provide the Company, on a
timely basis, with such information about the Trust, the Portfolios and each
Adviser, in such form as the Company may reasonably require, as the Company
shall reasonably request in connection with the preparation of disclosure
documents and annual and semi-annual reports pertaining to the Contracts.
6
<PAGE> 7
2.9 The Trust shall not give any information or make any
representations or statements on behalf of the Company or concerning the
Company, the Accounts or the Contracts other than information or representations
contained in and accurately derived from disclosure documents for the Contracts
(as such disclosure documents may be amended or supplemented from time to time)
or in materials approved by the Company for distribution including sales
literature or other promotional materials, except as required by legal process
or regulatory authorities or with the written permission of the Company.
2.10 So long as, and to the extent that, the SEC interprets the 1940
Act to require pass-through voting privileges for Contract owners, the Company
will provide pass-through voting privileges to Contract owners whose Contract
values are invested, through the registered Accounts, in shares of one or more
Portfolios of the Trust. The Trust shall require all Participating Insurance
Companies to calculate voting privileges in the same manner and the Company
shall be responsible for assuring that the Accounts calculate voting privileges
in the manner established by the Trust. With respect to each registered Account,
the Company will vote shares of each Portfolio of the Trust held by a registered
Account and for which no timely voting instructions from Contract owners are
received in the same proportion as those shares held by that registered Account
for which voting instructions are received. The Company and its agents will in
no way recommend or oppose or interfere with the solicitation of proxies for
Portfolio shares held to fund the Contracts without the prior written consent of
the Trust, which consent may be withheld in the Trust's sole discretion.
2.11 The Trust and Underwriter shall pay no fee or other compensation
to the Company under this Agreement except as provided on Schedule E, if
attached. Nevertheless, the Trust or the Underwriter or an affiliate may make
payments (other than pursuant to a Rule 12b-1 Plan) to the Company or its
affiliates or to the Contracts' Underwriter in amounts agreed to by the
Underwriter in writing and such payments may be made out of fees otherwise
payable to the Underwriter or its affiliates, profits of the Underwriter or its
affiliates, or other resources available to the Underwriter or its affiliates.
2.12 Notwithstanding any other provision of this Agreement, the Trust
and the Underwriter agree to reimburse the Company for costs for printing,
mailing, and tabulation of any Trust or Underwriter initiated proxies.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 The Company represents and warrants that it is an insurance
company duly organized and in good standing under the laws of its state of
incorporation and that it has legally and validly established each Account as a
segregated asset account under such law as of the date set forth in Schedule A.
3.2 The Company represents and warrants that, with respect to each
Account, (1) the Company has registered or, prior to any issuance or sale of the
Contracts, will register the
7
<PAGE> 8
Account as a unit investment trust in accordance with the provisions of the 1940
Act to serve as a segregated asset account for the Contracts, or (2) if the
Account is exempt from registration as an investment company under Section 3(c)
of the 1940 Act, the Company will make every effort to maintain such exemption
and will notify the Trust and the Adviser immediately upon having a reasonable
basis for believing that such exemption no longer applies or might not apply in
the future.
3.3 The Company represents and warrants that, with respect to each
Contract, (1) the Contract will be registered under the 1933 Act, or (2) if the
Contract is exempt from registration under Section 3(a)(2) of the 1933 Act or
under Section 4(2) and Regulation D of the 1933 Act, the Company will make every
effort to maintain such exemption and will notify the Trust and the Adviser
immediately upon having a reasonable basis for believing that such exemption no
longer applies or might not apply in the future. The Company further represents
and warrants that the Contracts will be sold by broker-dealers, or their
registered representatives, who are registered with the SEC under the 1934 Act
and who are members in good standing of the NASD; the Contracts will be issued
and sold in compliance in all material respects with all applicable federal and
state laws; and the sale of the Contracts shall comply in all material respects
with state insurance suitability requirements.
For any unregistered Accounts which are exempt from registration under
the '40 Act in reliance upon Sections 3(c)(1) or 3(c)(7) thereof, the Company
represents and warrants that:
(a) each Account and sub-account thereof has a principal
underwriter which is registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended;
(b) Trust shares are and will continue to be the only
investment securities held by the corresponding Account
sub-accounts; and
(c) with regard to each Portfolio, the Company, on behalf of the
corresponding sub-account, will:
(1) seek instructions from all Contract owners with regard
to the voting of all proxies with respect to Trust
shares and vote such proxies only in accordance with
such instructions or vote such shares held by it in
the same proportion as the vote of all other holders
of such shares; and
(2) refrain from substituting shares of another security
for such shares unless the SEC has approved such
substitution in the manner provided in Section 26 of
the '40 Act.
8
<PAGE> 9
3.4 The Trust represents and warrants that it is duly organized and
validly existing under the laws of the State of Massachusetts and that it does
and will comply in all material respects with the 1940 Act and the rules and
regulations thereunder.
3.5 The Trust represents and warrants that the Portfolio shares
offered and sold pursuant to this Agreement will be registered under the 1933
Act and the Trust shall be registered under the 1940 Act prior to and at the
time of any issuance or sale of such shares. The Trust shall amend its
registration statement under the 1933 Act and the 1940 Act from time to time as
required in order to effect the continuous offering of its shares. The Trust
shall register and qualify its shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Trust or
the Underwriter.
3.6 The Trust represents and warrants that the investments of each
Portfolio will comply with the diversification requirements for variable
annuity, endowment or life insurance contracts set forth in Section 817(h) of
the Internal Revenue Code of 1986, as amended ("Code"), and the rules and
regulations thereunder, including without limitation Treasury Regulation
1.817-5, and will notify the Company immediately upon having a reasonable basis
for believing any Portfolio has ceased to comply or might not so comply and will
in that event immediately take all necessary steps to adequately diversify the
Portfolio to achieve compliance within the grace period afforded by Regulation
1.817-5.
3.7 The Trust represents and warrants that it is currently qualified
as a "regulated investment company" under Subchapter M of the Code, that it will
use its best efforts to maintain such qualification and will notify the Company
immediately upon having a reasonable basis for believing it has ceased to so
qualify or might not so qualify in the future. The Trust acknowledges that
compliance with Subchapter M is an essential element of compliance with Section
817(h). The Trust shall provide the Company or its designee with reports
certifying compliance with the aforesaid Section 817(h) diversification and
Subchapter M qualification requirements on a quarterly basis.
3.8 The Trust represents and warrants that should it ever desire to
make any payments to finance distribution expenses pursuant to Rule 12b-1 under
the 1940 Act, the Trustees, including a majority who are not "interested
persons" of the Trust under the 1940 Act ("disinterested Trustees") will
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
3.9 The Trust represents and warrants that it, its directors,
officers, employees and others dealing with the money or securities, or both, of
a Portfolio shall at all times be covered by a blanket fidelity bond or similar
coverage for the benefit of the Trust in an amount not less that the minimum
coverage required by Rule 17g-1 or other regulations under the 1940 Act. Such
bond shall include coverage for larceny and embezzlement and be issued by a
reputable bonding company.
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3.10 The Company represents and warrants that all of its [DIRECTORS],
officers, employees, investment advisers, and other individuals or entities
dealing with the money and/or securities of the Trust are and shall be at all
times covered by a blanket fidelity bond or similar coverage for the benefit of
the Trust, in an amount not less than [$5 MILLION]. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company. The Company agrees to make all reasonable efforts to see that
this bond or another bond containing these provisions is always in effect, and
agrees to notify the Trust and the Underwriter in the event that such coverage
no longer applies.
3.11 The Underwriter represents that each Adviser is duly organized and
validly existing under applicable corporate law and that it is registered and
will during the term of this Agreement remain registered as an investment
adviser under the Advisers Act.
3.12 The Trust currently intends for one or more Classes to make
payments to finance its distribution expenses, including service fees, pursuant
to a Plan adopted under Rule 12b-1 under the 1940 Act ("Rule 12b-1"), although
it may determine to discontinue such practice in the future. To the extent that
any Class of the Trust finances its distribution expenses pursuant to a Plan
adopted under Rule 12b-1, the Trust undertakes to comply with any then current
SEC and SEC staff interpretations concerning Rule 12b-1 or any successor
provisions.
ARTICLE IV.
POTENTIAL CONFLICTS
4.1 The parties acknowledge that a Portfolio's shares may be made
available for investment to other Participating Insurance Companies. In such
event, the Trustees will monitor the Trust for the existence of any material
irreconcilable conflict between the interests of the Contract owners of all
Participating Insurance Companies. An irreconcilable material conflict may arise
for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Trust shall promptly inform the Company of any determination by the
Trustees that an irreconcilable material conflict exists and of the implications
thereof.
4.2 The Company agrees to promptly report any potential or existing
conflicts of which it is aware to the Trustees. The Company will assist the
Trustees in carrying out their responsibilities under the Shared Funding
Exemptive Order by providing the Trustees with all information reasonably
necessary for the Trustees to consider any issues raised including, but not
limited to, information as to a decision by the Company to disregard contract
owner voting
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instructions. All communications from the Company to the Trustees may be made in
care of the Trust.
4.3 If it is determined by a majority of the Trustees, or a majority
of the disinterested Trustees, that a material irreconcilable conflict exists
that affects the interests of Contract owners, the Company shall, in cooperation
with other Participating Insurance Companies whose contract owners are also
affected, at its own expense and to the extent reasonably practicable (as
determined by the Trustees) take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, which steps could include: (a)
withdrawing the assets allocable to some or all of the Accounts from the Trust
or any Portfolio and reinvesting such assets in a different investment medium,
including (but not limited to) another Portfolio of the Trust, or submitting the
question of whether or not such withdrawal should be implemented to a vote of
all affected Contract owners and, as appropriate, withdrawal of the assets of
any appropriate group (i.e., annuity contract owners, life insurance policy
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such withdrawal, or offering to the affected
Contract owners the option of making such a change; and (b) establishing a new
registered management investment company or managed separate account.
4.4 If a material irreconcilable conflict arises because of a decision
by the Company to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the 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 such
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 disinterested 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. Until the end of such
six (6) month period, the Trust shall continue to accept and implement orders by
the Company for the purchase and redemption of shares of the Trust.
4.5 If a material irreconcilable conflict arises because a particular
state insurance regulators decision applicable to the Company conflicts with a
majority of other state regulators, then the Company will withdraw the affected
Account's investment in the Trust and terminate this Agreement with respect to
such Account within six (6) months after the Trustees inform the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested Trustees. Until the
end of such six (6) month period, the Trust shall continue to accept and
implement orders by the Company for the purchase and redemption of shares of the
Trust.
4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a
majority of the disinterested 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.
In the event that the Trustees determine that any proposed
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action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Trust and terminate this
Agreement within six (6) months after the Trustees inform the Company in writing
of the foregoing determination; provided, however, that such withdrawal and
termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested
Trustees.
4.7 The Company shall at least annually submit to the Trustees such
reports, materials or data as the Trustees may reasonably request so that the
Trustees may fully carry out the duties imposed upon them by the Shared Funding
Exemptive Order, and said reports, materials and data shall be submitted more
frequently if reasonably deemed appropriate by the Trustees.
4.8 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended,
or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then 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 such rules are
applicable.
ARTICLE V.
INDEMNIFICATION
5.1 Indemnification By the Company
(a) The Company agrees to indemnify and hold harmless the
Underwriter, the Trust and each of its Trustees, officers,
employees and agents and each person, if any, who controls the
Trust within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" and individually the
"Indemnified Party", for purposes of this Article V) against any
and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Company, which
consent shall not be unreasonably withheld) or expenses including
the reasonable costs of investigating or defending any alleged
loss, claim, damage, liability or expense and reasonable legal
counsel fees incurred in connection therewith) (collectively,
"Losses") to which the Indemnified Parties may become subject
under any statute or regulation, or at common law or otherwise,
insofar as such Losses are related to the sale or acquisition of
Trust 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 a disclosure document for the Contracts or in
the Contracts themselves or in sales literature generated or
approved by the Company on behalf of the
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Contracts or Accounts (or any amendment or supplement to any
of the foregoing) (collectively, "Company Documents" for the
purposes of this Article V), or arise out of or are based
upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that
this indemnity shall not apply as to any Indemnified Party
if such statement or omission or such alleged statement or
omission was made in reliance upon and was accurately
derived from written information furnished to the Company by
or on behalf of the Trust for use in Company Documents or
otherwise for use in connection with the sale of the
Contracts or Trust shares; or
(ii) arise out of or result from statements or
representations (other than statements or representations
contained in and accurately derived from Trust Documents as
defined in Section 5.2(a)(i) or wrongful conduct of the
Company or persons under its control, with respect to the
sale or acquisition of the Contracts or Trust shares; or
(iii) arise out of or result from any untrue statement
or alleged untrue statement of a material fact contained in
Trust Documents as defined in Section 5.2(a)(i) or the
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading if such statement or
omission was made in reliance upon and accurately derived
from written information furnished to the Trust by or on
behalf of the Company; or
(iv) arise out of or result from any failure by the
Company to provide the services or furnish the materials
required under the terms of this Agreement; or
(v) arise out of or result from any material breach
of any representation and/or warranty made by the Company in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Company.
(b) The Company shall not be liable under this
indemnification provision with respect to any Losses to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations and duties under this Agreement or to the Trust or
Underwriter, whichever is applicable. The Company shall also not
be liable under this indemnification provision with respect to any
claim made against an Indemnified Party unless such Indemnified
Party shall have notified the Company in writing within a
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reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been
served upon such Indemnified Party (or after such Indemnified
Party shall have received notice of such service on any designated
agent), but failure to notify the Company of any such claim shall
not relieve the Company 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 Company shall be entitled to participate, at its own expense,
in the defense of such action. The Company also shall be entitled
to assume the defense thereof, with counsel satisfactory to the
party named in the action. After notice from the Company to such
party of the Company's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Company will not be
liable to such party under this Agreement for any legal or other
expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
(c) The Indemnified Parties will promptly notify the
Company of the commencement of any litigation or proceedings
against them in connection with the issuance or sale of the Trust
shares or the Contracts or the operation of the Trust.
5.2 Indemnification By The Underwriter
(a) The Underwriter agrees to indemnify and hold harmless
the Company, the underwriter of the Contracts and each of its
directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act
(collectively the "Indemnified Parties" and individually an
"Indemnified Party" for purposes of this Section 5.2) against any
and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Underwriter,
which consent shall not be unreasonably withheld) or expenses
(including the reasonable costs of investigating or defending any
alleged loss, claim, damage, liability or expense and reasonable
legal counsel fees incurred in connection therewith)
(collectively, "Losses") to which the Indemnified Parties may
become subject under any statute, at common law or otherwise,
insofar as such Losses are related to the sale or acquisition of
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, prospectus, profile
or sales literature of the Trust (or any amendment or
supplement to any of the foregoing) (collectively, the
"Trust Documents") or arise out of or are based upon the
omission or the alleged omission to state therein a material
fact required to be stated
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<PAGE> 15
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall
not apply as to any Indemnified Party if such statement or
omission of such alleged statement or omission was made in
reliance upon and in conformity with information furnished
to the Underwriter or Trust by or on behalf of the Company
for use in the Registration Statement, profile or prospectus
for the Trust or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale
of the contracts or Trust shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the disclosure documents or sales literature
for the Contracts not supplied by the Underwriter or persons
under its control) or wrongful conduct of the Trust, Adviser
or Underwriter or persons under their control, with respect
to the sale or distribution of the Contracts or Trust
shares; or
(iii) arise out of any untrue statement or alleged
untrue statement of a material fact contained in a
disclosure document or sales literature covering the
Contracts, or any amendment thereof or supplement thereto,
or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if
such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the
Trust; or
(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 qualification representation specified in Section 3.7 of
this Agreement and the diversification requirements
specified in Section 3.6 of this Agreement); or
(v) arise out of or result from any material breach
of any representation and/or warranty made by the
Underwriter in this Agreement or arise out of or result from
any other material breach of this Agreement by the
Underwriter; as limited by and in accordance with the
provisions of Sections 5.2(b) and 5.2(c) hereof.
(b) The Underwriter shall not be liable under this
indemnification provision with respect to any Losses to which an
Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
obligations
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and duties under this Agreement or to each Company or the Account,
whichever is applicable.
(c) The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against
an Indemnified Party unless such Indemnified Party shall have
notified the Underwriter in writing within a reasonable time after
the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified
Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify
the Underwriter of any such claim shall not relieve the
Underwriter from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the
Underwriter will be entitled to participate, at its own expense,
in the defense thereof. The Underwriter also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Underwriter to such
party of the Underwriter's election to assume the defense thereof,
the Indemnified Party shall bear the expenses of any additional
counsel retained by it, and the Underwriter will not be liable to
such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of
investigation.
(d) The Company agrees to notify the Underwriter, in a
commercially reasonable period of time, of the commencement of any
litigation or proceedings against it or any of the Company's
officers or directors in connection with the issuance or sale of
the Contracts or the operation of each Account.
5.3 Indemnification By The Trust
(a) The Trust agrees to indemnify and hold harmless the
Company, and each of its directors and officers and each person,
if any, who controls the Company within the meaning of Section 15
of the 1933 Act (collectively, the "Indemnified Parties" for
purposes of this Section 5.3) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with
the written consent of the Trust, which consent shall not be
unreasonably withheld) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements result from the gross negligence,
bad faith or willful misconduct of the Board or any member
thereof, are related to the operations of the Trust, and:
(i) arise as a result of any failure by the Trust to
provide the services and furnish the materials
under the terms of this
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Agreement (including a failure, whether
unintentional or in good faith or otherwise, to
comply with the diversification and other
qualification requirements specified in Article
VI of this Agreement); or
(ii) arise out of or result from any material breach
of any representation and/or warranty made by
the Trust in this Agreement or arise out of or
result from any other material breach of this
Agreement by the Trust; or
(iii) arise out of or result from the materially
incorrect or untimely calculation or reporting
of the daily net asset value per share or
dividend or capital gain distribution rate;
as limited by and in accordance with the provisions of Section
5.3(b) and 5.3(c) hereof.
It is understood and expressly stipulated that neither the holders
of shares of the Trust nor any Trustee, officer, agent or employee
of the Trust shall be personally liable hereunder, nor shall any
resort to be had to other private property for the satisfaction of
any claim or obligation hereunder, but the Trust only shall be
liable.
(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
any Indemnified Party as such may arise from such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of
such Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to the Company, the Trust, the
Underwriter or each Account, whichever is applicable.
(c) The Trust shall not be liable under this
indemnification provision with respect to any claim made against
an Indemnified Party unless such Indemnified Party shall have
notified the Trust in writing within a reasonable time after the
summons or other first legal process giving information of the
nature of the claims shall have been served upon such Indemnified
Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify
the Trust of any such claim shall not relieve the Trust from any
liability which it may have to the Indemnified Party against whom
such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought
against the Indemnified Parties, the Trust will be entitled to
participate, at its own expense, in the defense thereof. The Trust
also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from
the Trust to such party of the Trust's
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election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel
retained by it, and the Trust will not be liable to such party
under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
(d) The Company and the Underwriter 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, with respect to the operation of either the
Account, or the sale or acquisition of share of the Trust.
ARTICLE VI.
TERMINATION
6.1 This Agreement may be terminated by any party in its entirety or
with respect to one, some or all Portfolios or any reason by ninety (90) days
advance written notice delivered to the other parties, and shall terminate
immediately in the event of its assignment, as that term is used in the 1940
Act.
6.2 This Agreement may be terminated immediately:
(a) at the option of the Trust or Underwriter, if the Company
notifies the Trust or the Underwriter that the exemption from
registration under Section 3(c) of the 1940 Act no longer applies, or
might not apply in the future, to the unregistered Accounts, or that
the exemption from registration under Section 4(2) or Regulation D
promulgated under the 1933 Act no longer applies or might not apply in
the future, to interests under the unregistered Contracts; or
(b) at the option of the Trust or Underwriter, if either one
or both of the Trust or the Underwriter respectively, shall determine,
in their sole judgment exercised in good faith, that the Company has
suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement or is
the subject of material adverse publicity; or
(c) at the option of the Trust or Underwriter, if the Company
gives the Trust and the Underwriter the written notice specified in
Section 1.10 hereof and at the same time such notice was given there
was no notice of termination outstanding under any other provision of
this Agreement; provided, however, that any termination under this
Section 6.2(c) shall be effective forty-five (45) days after the notice
specified in Section 1.10 was given; or
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(d) at the option of the Company, upon one week advance written
notice to the Trust, if the Trust shares are not reasonably available
to meet the requirements of the Contracts as determined by the Company;
(e) at the option of the Company, immediately upon institution
of formal proceedings against the Trust or Underwriter by the NASD,
SEC, or any other regulatory body that are deemed by the Company to
materially affect the performance of the obligations under this
Agreement;
(f) at the option of any party, upon assignment (as defined in
Section 2(a)(4) of the 1940 Act) of the Agreement, unless made with the
written consent of all other parties hereto;
(g) at the option of the Company, if the Trust's shares are not
registered, issued or sold in conformance with Federal law or such law
precludes the use of the Trust's shares as an underlying investment
medium for Contracts issued or to be issued by the Company. Prompt
notice shall be given by each party should such situation occur;
(h) by any party to the Agreement upon a determination by a
majority of the Trustees of the Trust, or a majority of its
disinterested Trustees, that an irreconcilable material conflict
exists;
(i) at the option of the Company by written notice to the Trust
with respect to any Portfolio in the event that such Portfolio ceases
to qualify as a Regulated Investment Company under Subchapter M or
fails to comply with the Section 817(h) diversification requirements
specified in Article III hereof, or if the Company reasonably believes
that such Portfolio may fail to so qualify or comply.
6.3 If this Agreement is terminated for any reason, except under
Article IV (Potential Conflicts) above, the Trust shall, at the option of the
Company, continue to make available additional shares of any Portfolio and
redeem shares of any Portfolio pursuant to all of the terms and conditions of
this Agreement for all contracts in effect on the effective date of termination
of this Agreement. Specifically, without limitation, the owners of any existing
Contracts shall be permitted to transfer or reallocate investment under the
Contracts, redeem investments in any Portfolio and/or invest in the Trust upon
the making of additional premium payments under the existing Contracts. If this
Agreement is terminated Pursuant to Article IV, the provisions of Article IV
shall govern.
6.4 The provisions of Articles II (Representations and Warranties) and
V (Indemnification) shall survive the termination of this Agreement. All other
applicable provisions of this Agreement shall survive the termination of this
Agreement, as long as shares of the Trust are held on behalf of Contract owners
in accordance with Section 6.3, except that the Trust and the Underwriter shall
have no further obligation to sell Trust shares with respect to Contracts issued
after termination.
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6.5 The Company shall not redeem Trust shares attributable to the
Contracts (as opposed to Trust shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Trust and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Trust and the Underwriter) to the effect that any Redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Trust or
the Underwriter 90 days notice of its intention to do so.
ARTICLE VII.
NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Trust or the Underwriter:
Templeton Variable Products Series Fund or
Franklin Templeton Distributors, Inc.
500 East Broward Boulevard
Fort Lauderdale, FL 33394-3091
Attention: Barbara J. Green, Trust Secretary
WITH A COPY TO:
Franklin Resources, Inc.
777 Mariners Island Boulevard
San Mateo, CA 94404
Attention: Karen L. Skidmore, Senior Corporate Counsel
If to the Company:
Farmers New World Life Insurance Company
-------------------------
-------------------------
Attention:
---------------
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ARTICLE VIII.
MISCELLANEOUS
8.1 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.
8.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
8.3 If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
8.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of ___________.
It shall also be subject to-the provisions of the federal securities laws and
the rules and regulations thereunder and to any orders of the SEC granting
exemptive relief therefrom and the conditions of such orders. Copies of any such
orders shall be promptly forwarded by the Trust to the Company.
8.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Trust arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Trust and that no Trustee, officer, agent or holder of shares of
beneficial interest of the Trust shall be personally liable for any such
liabilities.
8.6 Each party shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
8.7 Each party hereto shall treat as confidential the names and
addresses of the Contract owners and all information reasonably identified as
confidential in writing by any other party hereto, and, except as permitted by
this Agreement or as required by legal process or regulatory authorities, shall
not disclose, disseminate, or utilize such names and addresses and other
confidential information until such time as they may come into the public
domain, without the express written consent of the affected party. Without
limiting the foregoing, no party hereto shall disclose any information that such
party has been advised is proprietary, except such information that such party
is required to disclose by any appropriate governmental authority (including,
without limitation, the SEC, the NASD, and state securities and insurance
regulators).
8.8 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.
21
<PAGE> 22
8.9 The parties to this Agreement acknowledge and agree that this
Agreement shall not be exclusive in any respect, except as provided in Section
1.10.
8.10 Neither this Agreement nor any rights or obligations hereunder may
be assigned by either party without the prior written approval of the other
party.
8.11 No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by both
parties.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Participation Agreement as of the date and year first
above written.
The Company:
Farmers New World Life Insurance Company
By its authorized officer
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
The Trust:
Templeton Variable Products Series Fund
By its authorized officer
By:
---------------------------------------------
Name: Karen L. Skidmore
Title: Assistant Vice President, Assistant Secretary
The Underwriter:
Franklin Templeton Distributors, Inc.
By its authorized officer
By:
---------------------------------------------
Name: Deborah R. Gatzek
Title: Senior Vice President, Assistant Secretary
22
<PAGE> 23
SCHEDULE A
SEPARATE ACCOUNTS OF
FARMERS NEW WORLD LIFE INSURANCE COMPANY
Farmers Annuity Separate Account A (4/6/99)
Farmers Variable Life Separate Account A (4/6/99)
A-1
<PAGE> 24
SCHEDULE B
TRUST PORTFOLIOS AND CLASSES AVAILABLE
<TABLE>
<S> <C>
Templeton Variable Products Series Adviser
- ---------------------------------- -------
Templeton Developing Markets Fund Templeton Asset Management Ltd.
-Class 2
</TABLE>
B-1
<PAGE> 25
SCHEDULE C
VARIABLE ANNUITY CONTRACTS
ISSUED BY FARMERS NEW WORLD LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
CONTRACT 1 CONTRACT 2 CONTRACT 3
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CONTRACT/PRODUCT
NAME
- ---------------------------------------------------------------------------------------------------------------------------
REGISTERED (Y/N)
- ---------------------------------------------------------------------------------------------------------------------------
REPRESENTATIVE
FORM NUMBERS
- ---------------------------------------------------------------------------------------------------------------------------
SEPARATE ACCOUNT
NAME
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT
COMPANY NAME
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT
COMPANY
PORTFOLIOS AND
CLASSES
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
C-1
<PAGE> 26
SCHEDULE D
OTHER PORTFOLIOS AVAILABLE UNDER THE CONTRACTS
Kemper- Dreman High Return Equity
Scudder VLIF International (A Shares)
Scudder VLIF Money Market
Scudder VLIF Growth and Income (A Shares)
Kemper Government Securities
Scudder VLIF Bond (A shares)
Janus Aspen Capital Appreciation Portfolio
Small Cap Growth
PIMCO Low Deviation Bond and PIMCO Foreign Bond
D-1
<PAGE> 27
SCHEDULE E
RULE 12B-1 PLANS
COMPENSATION SCHEDULE
Each Portfolio named below shall pay the following amounts pursuant to the terms
and conditions referenced below under its Class 2 Rule 12b-1 Distribution Plan,
stated as a percentage per year of Class 2's average daily net assets
represented by shares of Class 2.
<TABLE>
<CAPTION>
Portfolio Name Maximum Annual Payment Rate
- ---------------------------------------------------------------------------------------------------------
<S> <C>
TEMPLETON DEVELOPING MARKETS FUND 0.25%
</TABLE>
Agreement Provisions
If the Company, on behalf of any Account, purchases Trust Portfolio
shares ("Eligible Shares") which are subject to a Rule 12b-1 Plan adopted under
the 1940 Act (the "Plan"), the Company may participate in the Plan.
To the extent the Company or its affiliates, agents or designees
(collectively "you") you provide administrative and other services which assist
in the promotion and distribution of Eligible Shares or Variable Contracts
offering Eligible Shares, the Underwriter, the Trust or their affiliates
(collectively, "we") may pay you a Rule 12b-1 fee. "Administrative and other
services" may include, but are not limited to, furnishing personal services to
owners of Contracts which may invest in Eligible Shares ("Contract owners")
answering routine inquiries regarding a Portfolio, coordinating responses to
Contract owner inquiries regarding the Portfolios, maintaining such accounts or
providing such other enhanced services as a Trust Portfolio or Contract may
require, maintaining customer accounts and records, or providing other services
eligible for service fees as defined under NASD rules. Your acceptance of such
compensation is your acknowledgment that eligible services have been rendered.
All Rule 12b-1 fees, shall be based on the value of Eligible Shares owned by the
Company on behalf of its Accounts, and shall be calculated on the basis and at
the rates set forth in the Compensation Schedule stated above. The aggregate
annual fees paid pursuant to each Plan shall not exceed the amounts stated as
the "annual maximums" in the Portfolio's prospectus, unless an increase is
approved by shareholders as provided in the Plan. These maximums shall be a
specified percent of the value of a Portfolio's net assets attributable to
Eligible Shares owned by the Company on behalf of its Accounts (determined in
the same manner as the Portfolio uses to compute its net assets as set forth in
its effective Prospectus).
You shall furnish us with such information as shall reasonably be
requested by the Trust's Boards of Trustees ("Trustees") with respect to the
Rule 12b-1 fees paid to you pursuant to the Plans. We shall furnish to the
Trustees, for their review on a quarterly basis, a written report of the amounts
expended under the Plans and the purposes for which such expenditures were made.
E-1
<PAGE> 28
The Plans and provisions of any agreement relating to such Plans must
be approved annually by a vote of the Trustees, including the Trustees who are
not interested persons of the Trust and who have no financial interest in the
Plans or any related agreement ("Disinterested Trustees"). Each Plan may be
terminated at any time by the vote of a majority of the Disinterested Trustees,
or by a vote of a majority of the outstanding shares as provided in the Plan, on
sixty (60) days' written notice, without payment of any penalty. The Plans may
also be terminated by any act that terminates the Underwriting Agreement between
the Underwriter and the Trust, and/or the management or administration agreement
between Franklin Advisers, Inc. or Templeton Investment Counsel, Inc. or their
affiliates and the Trust. Continuation of the Plans is also conditioned on
Disinterested Trustees being ultimately responsible for selecting and nominating
any new Disinterested Trustees. Under Rule 12b-1, the Trustees have a duty to
request and evaluate, and persons who are party to any agreement related to a
Plan have a duty to furnish, such information as may reasonably be necessary to
an informed determination of whether the Plan or any agreement should be
implemented or continued. Under Rule 12b-1, the Trust is permitted to implement
or continue Plans or the provisions of any agreement relating to such Plans from
year-to-year only if, based on certain legal considerations, the Trustees are
able to conclude that the Plans will benefit each affected Trust Portfolio and
class. Absent such yearly determination, the Plans must be terminated as set
forth above. In the event of the termination of the Plans for any reason, the
provisions of this Schedule E relating to the Plans will also terminate.
Any obligation assumed by the Trust pursuant to this Agreement shall be limited
in all cases to the assets of the Trust and no person shall seek satisfaction
thereof from shareholders of the Trust. You agree to waive payment of any
amounts payable to you by Underwriter under a Plan until such time as the
Underwriter has received such fee from the Fund.
The provisions of the Plans shall control over the provisions of the
Participation Agreement, including this Schedule E, in the event of any
inconsistency.
You agree to provide complete disclosure as required by all applicable statutes,
rules and regulations of all rule 12b-1 fees received from us in the prospectus
of the contracts.
E-2
<PAGE> 1
EXHIBIT 8(g)
CONSULTING SERVICES AGREEMENT
This agreement (the "Agreement") is entered into this ___ day of
______, 1999 (the "Effective date"), by and between McCamish Systems, L.L.C.
("McCamish"), a Georgia limited liability company with its principal place of
business at 6425 Powers Ferry Road, Third Floor, Atlanta, Georgia 30339, and
Farmers New World Life Insurance Company ("Farmers"), a Washington corporation
with its principal place of business at 3003 77th Avenue SE, Mercer Island, WA
98040.
WHEREAS the parties plan to enter into a Master Administration
Agreement for the provision by McCamish, as an independent contractor, of policy
administration services to Farmers with the understanding that, in order to do
so, the VPAS(R) Life Insurance System will be enhanced by McCamish, working with
Farmers and at Farmers' cost, to incorporate changes required to support
Farmers' operations, systems and objectives; and
WHEREAS, McCamish agrees to provide certain services and resources as a
condition precedent to the execution of the aforementioned Master Administration
Agreement,
NOW, THEREFORE, Farmers and McCamish hereby agree as follows:
1. CONSULTING SERVICES:
1.1 Work Orders. "Work Orders" shall mean and refer to documents
referencing this Agreement and specifying work to be accomplished by McCamish
and to be paid for by Farmers. Work Orders shall, once executed, become a part
of this Agreement and shall define the scope of work to be accomplished in
conjunction with a specific project and shall estimate the cost for
accomplishment of this work. Project details, including, without limitation,
methodologies, deliverables, staffing (including the identified project
manager), project plans, acceptance standards, payment amounts and terms shall
be provided in the Work Order.
1.2 Services. Subject to all of the terms and conditions of this
Agreement, McCamish will perform services for Farmers as the parties may from
time to time agree to and set forth in the Work Orders (the "Services") and will
develop the materials, products, computer programs (both in source code and
object code form), documentation and other deliverables set forth in such Work
Orders (the "Work Product"), according to the specifications and schedules
contained therein (the "Specifications"). Farmers agrees that McCamish is not
responsible for providing any Services not set forth in a Work Order, unless
otherwise agreed in a Change Request as set forth in Section 5.
1.3 Work Order No. 1. As of the Effective Date, the parties have
agreed upon and set forth in Work Order No. 1 the Specifications for the initial
project to be undertaken hereunder.
<PAGE> 2
2. FARMERS AND MCCAMISH RESPONSIBILITIES:
2.1 Perform and Provide Materials. Farmers shall perform the tasks set
forth in the Work Orders, as a condition to McCamish's obligations to perform
thereunder. In addition, if requested by McCamish, Farmers shall use its best
efforts to provide McCamish, at no charge, with accurate and reliable versions
of all necessary information, data, files, documents and other records requested
by McCamish to perform the Services, and with such other resources as may be
specified in the Work Order.
2.2 Access to Facilities. McCamish shall provide Farmers and its
authorized agents full and free access, during ordinary business hours, to all
software, products, computer programs (both in source code and object code
form), documents, records, reports, books, files, procedures for safekeeping,
and other materials relative to this Agreement that are maintained by McCamish.
Farmers or its duly authorized agents including, but not limited to Farmers'
independent auditors, have the right under this Agreement to perform on-site
audits of all such material at McCamish's facilities in accordance with
reasonable procedures and at reasonable frequencies. At the request of Farmers,
McCamish will make available to Farmers, or its duly authorized agents, all
reasonably requested records and documents.
2.3 Back-Up Copies of Work Product. McCamish shall generate back-up
copies of all Work Product (including, but not limited to, back-up computer tape
files of all computer programs, software and value tables) created or modified
by McCamish pursuant to this Agreement, on a daily basis and maintain and store
such back-up copies in an off-premises location. The purpose of these back-up
procedures is to permit recovery in the event of destruction of any of the Work
Product. Farmers may review the procedures in effect and inspect the storage
facility upon demand.
2.4 Promotion of Farmers' Interests. McCamish shall endeavor to
promote the interests of Farmers as contemplated by this Agreement and shall at
all times conduct itself so as not to affect adversely the business, good
standing or reputation of itself or Farmers.
2.5 Correction of Malfunctions and Errors. In the event a malfunction
of any Work Product or any part of any Work Product causes an error or mistake
in any record, report data, information or output under the terms of any Work
Order, McCamish shall at its expense correct and reprocess such record, report,
data, information or output provided that Farmers notifies McCamish in writing
of such error or mistake as soon as practical after discovery.
2.6 Best Efforts to Meet Schedules. McCamish acknowledges that it is
of the utmost importance to Farmers that the Phase One and Phase Two Releases of
Project One be completed as of the dates stated in the "Billing and Fee
Schedules" section of Work Order No. 1. McCamish also acknowledges that Farmers
will suffer significant irreparable harm if the deliveries of Phase One or Phase
Two are not distributed to Farmers as of the dates specified therein.
Accordingly, McCamish agrees to use its best efforts to complete the Phase One
and Phase Two Releases of Project One within the month of January 2000 and April
2000
-2-
<PAGE> 3
respectively (collectively, the "Completion Dates").
2.7 Communication of Delays and Good Faith Negotiation. McCamish
agrees that if, at any time and for any reason, it appears that it will be
unable to meet either of the Completion Dates, it will immediately communicate
such information, and the reason for the delay, to Farmers. Farmers agrees to
immediately communicate any changes in the scope of Work Order No. 1, its
variable insurance products, systems, operations or software development needs
that may affect the ability of McCamish to complete the Phase One and Phase Two
Releases of Project One by the Completion Dates. If either party communicates to
the other information which makes it evident that there may be a delay in
meeting either Completion Date, both McCamish and Farmers agree to negotiate in
good faith to take whatever action(s) the parties deem appropriate to fulfill
the purposes and spirit of this Agreement and Work Order No. 1.
3. SERVICE FEE:
3.1 Charges. In consideration of the Work Product and Services
provided to Farmers hereunder, Farmers shall pay to McCamish, at the rate and
under the terms set forth in the applicable Work Order, fees for the Services
and Work Product in U.S. dollars in immediately available funds (the "Service
Fee") in accordance with the payment schedule set forth in Section 4.1.
3.2 Taxes. Farmers shall also be responsible for the payment of all
applicable sales, use and other like taxes payable in connection with the
Service Fees, with the exception of income taxes incurred by McCamish in
connection with this Agreement.
3.3 Expenses. Farmers shall pay, or reimburse McCamish, for those
out-of-pocket expenses, including, but not limited to, travel and travel-related
expenses, lodging, meals, car rental, telephone, shipping and insurance, that
are actually incurred by McCamish at the request of, and with the approval of,
Farmers in connection with the performance of this Agreement. When on site
travel outside of Georgia is requested by Farmers and travel is conducted on a
normal workday, McCamish will bill Farmers for actual hours worked. When on site
travel outside of Georgia is requested by Farmers and travel is not conducted on
a normal workday (weekends, holidays) Farmers is to be billed for one hundred
fifty percent (150%) of actual travel hours for travel on holidays and one
hundred (100%) of actual travel hours for travel on weekends. Reasonable and
customary travel expenses incurred by McCamish will be billed to Farmers. Travel
expenses incurred by McCamish personnel on behalf of Farmers shall be consistent
with Farmers travel policy. Such travel policy is available upon request.
4. TIME OF PAYMENT:
The Service Fees will be billed to Farmers on a monthly basis in
accordance with the terms of the Work Order. Properly-invoiced Service Fees will
be due and payable within thirty (30) days after receipt of the invoice.
-3-
<PAGE> 4
5. CHANGE SERVICES PROCEDURE:
In the event that Farmers wishes to change the scope of the Services
provided pursuant to a Work Order, Farmers shall specify such changes to
McCamish. McCamish will determine if any changes in resources are required and
the effect on schedules and prices, and shall complete a form in the format set
forth in the attached Change Request. No action will be taken by McCamish, and
McCamish shall have no responsibility for performing any work contemplated by
such Change Request, until execution of the Change Request by an authorized
representative of Farmers, and the return of such Change Request to McCamish.
Upon such execution, the completed Change Request shall be deemed an amendment
to the applicable Work Order and the services covered under the Change Request
will be performed according to the terms of this Agreement and the Work Order,
to the extent such terms are not changed in the text of the Change Request.
6. DEFAULT AND TERMINATION:
6.1 Term. This Agreement is effective when signed by both parties and
thereafter shall remain in effect until completion of the Services and delivery
of the Work Product or upon termination of this Agreement.
6.2 Termination for Default. In the event a party fails to perform
and/or observe any term, covenant or condition of this Agreement and fails to
cure such default within a period of thirty (30) days following notice of such
default from the non-defaulting party, the non-defaulting party, at its option,
shall have the right to terminate this Agreement at the end of such thirty (30)
day period upon an additional written notice to the defaulting party.
6.3 Termination for Convenience. Farmers may terminate this Agreement
at any time upon forty-five (45) days prior written notice to McCamish. In the
event that such termination occurs during a period in which Services under a
Work Order are continuing, Farmers shall be obligated to pay McCamish for
Services rendered through the date of termination, and any other amounts due
upon termination as may be specified in such Work Order.
7. NONSOLICITATION:
Each party hereto hereby agrees that so long as this Agreement is in
full force and effect and for a period of two (2) years thereafter, it will not
solicit for employment or endeavor to entice away from the other, any person who
is then in the employ of such other party hereto. Each party acknowledges that
in the event that it breaches this section of this Agreement, the other party
will suffer irreparable harm for which no adequate remedy at law exists and that
the other party may apply for a permanent injunction against the breaching party
restraining and enjoining such conduct.
-4-
<PAGE> 5
8. REPRESENTATIONS AND WARRANTIES:
8.1 Power of Authority. Farmers and McCamish each represents and
warrants to the other that it has the right, power and authority to enter into
and be bound by this Agreement and that the individual who has executed this
Agreement on its behalf is duly authorized to do so.
8.2 Proprietary Rights. McCamish represents and warrants to Farmers
that McCamish has the right to develop and provide the Work Product and Services
to Farmers pursuant to this Agreement and that the Work Product will not
infringe any United States patent which has issued as of the Effective Date, or
any copyright or trade secret of another third party.
8.3 Indemnification. Notwithstanding any indemnification liability
McCamish may have other than under this Agreement (e.g., any indemnification
arising under statute or regulation applicable to the activities conducted
hereunder), McCamish shall indemnify and hold harmless Farmers and its
affiliates, and any partner, officer, director, employee, or agent of any of the
foregoing, against any and all losses, claims, damages, expenses or liabilities,
joint or several (including any investigative, legal and other expenses
reasonably incurred in connection with, and any amounts paid in settlement of or
defending, any action, suit or proceeding or any claim asserted or any alleged
loss, liability, damage or expense and reasonable legal counsel fees incurred in
connection therewith), to which Farmers and its affiliates, and any partner,
officer, director, employee, or agent of the foregoing may become subject under
any statute or regulation, at common law or otherwise, insofar as such losses,
claims, damages, expenses or liabilities result: (1) because of a claim that the
Work Product, or Farmers' use thereof pursuant to this Agreement, infringes upon
any United States patent, or any copyright or trade secret of another party; (2)
because of the non-performance or breach by McCamish or any of its officers,
directors, employees, agents, or subcontractors, of any provision of this
Agreement including, but not limited to, any covenant, representation or
warranty herein; (3) from any acts or omissions of McCamish or any of its
officers, directors, employees, agents, or subcontractors, that are not in
accordance with this Agreement, including, but not limited to, any violation of
applicable law; (4) from McCamish's failure to perform the Services and/or
develop the Work Product set forth in the Work Orders in accordance with the
specifications and schedules contained therein; or (5) from the failure of any
Work Product to be completed at a level commensurate with industry standards,
provided that (a) Farmers promptly provides to McCamish written notice of any
such claim, and (b) if the claim falls under (1) above, Farmers reasonably
cooperates with McCamish in the defense or settlement of any such claim or
action. In the event Farmers' use of the Work Product is enjoined by any court
of competent jurisdiction, then McCamish's sole liability and Farmers' exclusive
remedy pursuant to this Section 8.3 shall be, at McCamish's option, to: (i)
obtain the right to continue the use of the items so enjoined, or (ii) provide
Farmers with substitute items that do not infringe any third party intellectual
property rights and are functionally the equivalent of the enjoined items.
8.4 Services and Work Product. McCamish represents and warrants that
all Services and the Work Product shall be provided in a workmanlike manner and
in accordance with the Specifications as set forth in the Work Order. McCamish
shall, at no additional cost to Farmers:
-5-
<PAGE> 6
(i) identify the cause of any failure of the Work Product to conform in all
respects to the Specifications (an "Error"); and (ii) make programming changes
to correct the Error.
8.5 Year 2000. McCamish represents and warrants that the Work Product
delivered under this Agreement is designed to be used prior to, during and after
the calendar year 2000 A.D., and that any software, systems or programs that are
part of the Work Product, including any software, systems or programs created or
modified by third-party vendors of McCamish, will operate during each such time
period without material error relating to date data including, but not limited
to, any error relating to, or the product of, date data which represents or
references different centuries or more than one century. Without limiting the
foregoing, McCamish further represents and warrants that: (i) such software,
systems or programs that are part of the Work Product, including any software,
systems or programs created or modified by third-party vendors of McCamish, will
not abnormally end or provide invalid or incorrect results as a result of date
data, including, but not limited to, date data which represents or references
different centuries or more than one century; (ii) the software, systems, or
programs that are part of the Work Product, including any software, systems or
programs created or modified by third-party vendors of McCamish, have been
designed to ensure year 2000 compatibility, including, but not limited to, date
data century recognition, calculations which accommodate same century and
multi-century formulas and date values, and date data interface values that
reflect the century; and (iii) the software, systems or programs that are part
of the Work Product, including any software, systems or programs created or
modified by third-party vendors of McCamish, include "Year 2000 Capabilities."
For the purposes of this paragraph, "Year 2000 Capabilities" means that such
software, systems or programs:
(i) will manage and manipulate data involving dates, including
single century formulas and multi-century formulas, and will not cause any
abnormally ending scenario within the application or generate incorrect values
or invalid results involving such dates; and
(ii) provide that all date-related user interface
functionalities and data fields include the indication of century; and
(iii) provide that all date-related data interface functionalities
include the indication of century.
McCamish also represents and warrants that its internal processes and
computer systems including, but not limited to, its software design, shipping,
invoicing, accounts receivable, and internal support systems, are year 2000
compliant to the extent that such processes and/or systems could impact the
performance of McCamish's obligations to Farmers under this Agreement.
8.6 Additional Representations and Warranties.
(i) Organization and Good Standing. Each party hereto represents
and warrants that it is a corporation duly organized, validly existing and in
good standing under the
-6-
<PAGE> 7
laws of the jurisdiction in which it was formed, has all requisite power to
carry on its businesses as it is now being conducted and is qualified to be do
business in each jurisdiction in which it is required to be so qualified, and is
in good standing in each jurisdiction in which such qualification is necessary
under applicable law.
(ii) Authorization. Each party represents and warrants that
when executed and delivered this Agreement will be the valid and binding
obligation of such party enforceable in accordance with its terms.
(iii) No Conflicts. Each party hereto represents and warrants
that the consummation of the transactions contemplated herein, and the
fulfillment of the terms of this Agreement, do not conflict with, result in any
breach of any of the terms and provisions of, or constitute (with or without
notice of lapse of time) a default under, the articles of incorporation or
by-laws of such party, or any indenture, agreement, mortgage, deed of trust, or
other instrument to which such party is a party or by which it is bound, or
violate any law, order, rule or regulation applicable to such party.
(iv) Systems and Personnel. McCamish represents and warrants
that it has allotted adequate facilities, systems, controls, processes,
computers, programs, software, hardware, plans, policies, procedures, personnel
and other resources to perform the Services and develop the Work Product under
this Agreement in accordance with those standards prevailing in the variable
insurance products industry and in compliance with applicable law.
(v) Litigation. Each party represents and warrants that it is
not subject to any current or pending litigation which would impair its ability
to carry out its responsibilities and obligations under this Agreement.
8.7 DISCLAIMER OF WARRANTY. EXCEPT FOR THE LIMITED WARRANTIES
EXPRESSLY PROVIDED UNDER THIS SECTION, MCCAMISH EXPRESSLY DISCLAIMS, AND FARMERS
HEREBY EXPRESSLY WAIVES, ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING,
WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE.
9. LIMITATION OF LIABILITY:
NEITHER MCCAMISH NOR FARMERS SHALL HAVE ANY LIABILITY OF ANY KIND
ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR THE SUBJECT MATTER
HEREOF FOR INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL, EXEMPLARY OR PUNITIVE
DAMAGES OF ANY KIND, EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES. IN NO EVENT SHALL EITHER PARTY'S LIABILITY FOR ANY REASON AND UPON ANY
CAUSE OF ACTION WHATSOEVER EXCEED THREE TIMES THE AMOUNT FARMERS HAS PAID TO
MCCAMISH WITH RESPECT TO THE SPECIFIC WORK PRODUCT FOR WHICH
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<PAGE> 8
SUCH CLAIM IS MADE.
10. PROPRIETARY, CONFIDENTIAL AND TRADE SECRET INFORMATION:
10.1 Ownership of Work Product.
All Work Product, including, but not limited to all software, programs,
models, documentation, source code, and object code, and all rights, title and
interest in and to the Work Product, including, but not limited to, all patent
rights, copyrights, trade secrets, trademarks, service marks and other
proprietary rights inherent therein or appurtenant thereto, created in the
course of performance of services hereunder, shall be the exclusive property of
McCamish. However, if Farmers purchases from McCamish a license to use the
VPAS(R) Life Insurance System in the future, McCamish hereby grants Farmers and
all of its affiliates and exchanges a fully paid, royalty-free, non-exclusive,
and worldwide perpetual license to use the Work Product. If Farmers purchases a
license to use the VPAS(R) Life Insurance System, it agrees that it shall not
sell or disclose the Work Product to any third parties other than its affiliates
and exchanges. McCamish shall acquire no rights to Farmers' Confidential
Information, all of which is, and shall remain, proprietary to Farmers.
10.2 McCamish Proprietary Materials. Farmers acknowledges that McCamish
may use pre-existing McCamish Proprietary Materials (as defined herein) in the
performance of the Services and in developing the Work Product. McCamish shall
exclusively retain all title to McCamish Proprietary Materials, including all
copies thereof and all patent rights, copyrights, trade secrets, trademarks,
service marks and other proprietary rights inherent therein and appurtenant
thereto, and related goodwill and confidential and proprietary information.
Farmers shall not, by virtue of this Agreement, acquire any proprietary rights
whatsoever in McCamish Property Materials, which shall be the sole and exclusive
property of McCamish. The "McCamish Proprietary Materials" shall mean all
proprietary information, data and knowledge furnished or made available by
McCamish to Farmers and copies thereof, whether in oral, written, graphic
electronic or machine-readable form, including without limitation, source code,
file layouts, report layouts, designs, plans, specifications, flow charts,
techniques, methods, processes, procedures, formulas, discoveries, inventions,
improvements, charts, diagrams, graphs, models, sketches, writings or other
technical data, research or information, and all trade secrets and other
proprietary ideas, concepts, know-how and methodologies.
10.3 McCamish Confidential and Trade Secret Information. Farmers
acknowledges that the VPAS(R) Life Insurance System (specifically including, but
not limited to, the design, programming techniques, source code and
documentation thereof) are commercially valuable proprietary products of
McCamish, the design and development of which involved the expenditure by
McCamish of substantial amounts of money and the use of skilled development
experts over a long period of time. Farmers further acknowledges that the Work
Product (specifically including, but not limited to, the design, programming
techniques, source code and documentation thereof) constitute CONFIDENTIAL
INFORMATION AND TRADE SECRETS which are disclosed to Farmers on a confidential
basis pursuant to this Agreement and are to be
-8-
<PAGE> 9
used only for purposes of fulfilling its obligations under this Agreement,
unless Farmers purchases a license to use the VPAS(R) Life Insurance System in
the future as discussed in Section 10.1 above. Farmers shall use all reasonable
precautions to prevent the VPAS(R) Life Insurance System or Work Product from
being acquired by, or disclosed to, unauthorized persons to the same extent that
it protects its own confidential information and trade secrets. Except as
necessary to fulfill the purposes of this Agreement, Farmers shall not make the
Work Product available in any form, to any other party, including, without
limitation, third-party consultants, without the prior written consent to
McCamish; notwithstanding the foregoing, however, if Farmers purchases a license
to use the VPAS(R) Life Insurance System in the future as discussed in Section
10.1 above, Farmers, its affiliates and its exchanges may use the Work Product.
10.4 Farmers' Confidential and Trade Secret Information. All
information relating to prospects, leads or current variable insurance product
contract owners or policy owners of Farmers acquired by McCamish shall be the
exclusive property of Farmers. McCamish acknowledges that it and its employees
may, in the course of performing their responsibilities under this Agreement be
exposed to or acquire information which is proprietary to or confidential to
Farmers or its affiliates or their clients or to third parties to whom Farmers
owes a duty of confidentiality. ANY AND ALL INFORMATION OF ANY FORM OBTAINED BY
MCCAMISH OR ITS EMPLOYEES IN THE PERFORMANCE OF THIS AGREEMENT SHALL BE DEEMED
TO BE FARMERS CONFIDENTIAL AND PROPRIETARY INFORMATION including, but not
limited to, (i) Farmers' business methods, policies, products, personnel,
operations, systems, financial records, procedures, processes, practices, and
strategies; (ii) all compilation of data, information, or other documents
provided to McCamish by Farmers; (iii) all information regarding Farmers'
customers and the nature of Farmers' relationship with its customers (iv)
confidential, proprietary or trade secret information submitted by Farmers'
suppliers, consultants or co-venturers or other agents to Farmers for study,
evaluation or use; and (v) any other information concerning Farmers not
generally known to the public. McCamish agrees to hold such information in
strict confidence and not to copy, reproduce, sell, assign, license, market,
transfer or otherwise dispose of, give or disclose such information to third
parties or to use such information for any purposes whatsoever other than the
provision of services to Farmers as contemplated by this Agreement and to advise
each of its employees who may be exposed to such proprietary and confidential
information of their obligations to keep such information confidential. McCamish
shall not utilize, or permit to be utilized, its knowledge of Farmers or its
knowledge of Farmers' clients, which is derived as a result of any relationship
created through this Agreement, except to the extent necessary to fulfill the
purposes of this Agreement or except as expressly permitted by the prior written
consent of Farmers.
Confidential information shall not be deemed to include information
which is (1) in or becomes part of the public domain other than by disclosure by
McCamish in violation of this Agreement, (2) demonstrably known to McCamish
previously, (3) independently developed by McCamish outside of this Agreement or
(4) rightfully obtained by McCamish from third parties. It is understood and
agreed that in the event of a breach of this Section Farmers shall be entitled
to injunctive relief to restrain any such breach, threatened or actual.
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<PAGE> 10
10.5 Assistance and Injunctive Relief. In the event Farmers or McCamish
is made aware of any actual or potential violation of this Section 10, it shall
notify the other immediately and will provide any assistance reasonably
requested by the other in investigating or remedying any actual or potential
violations of this Section 10. The parties acknowledge that in the event of a
breach of this Section 10, the aggrieved party will suffer irreparable harm for
which no adequate remedy at law exists and shall be entitled to injunctive
relief to restrain any such breach, threatened or actual.
11. ASSIGNMENT AND DELEGATION:
Neither party shall assign this Agreement or its rights hereunder other
than to companies controlling, controlled by or under common control with such
party. Nor shall Farmers or McCamish delegate any of its duties under this
Agreement, without in each instance first obtaining the written consent of the
other party. Any attempt to so assign or delegate without such consent shall be
void and of no force and effect and shall constitute a material breach of this
Agreement. This Agreement shall be binding upon the parties and their permitted
respective assigns or successors in interests.
12. FORCE MAJEURE:
Neither party shall be in default of this Agreement to the extent that
the performance of its obligations under this Agreement is delayed or prevented
by reason of any act of God, fire, natural disaster, accident, act of
government, strike, riot, act of war, restricting legislation, embargo,
blockade, work stoppage, or any other like cause beyond the control of such
party, provided that such causes shall not relieve Farmers of its payment
obligations as set forth in Sections 3 and 4 (except that Farmers shall not be
required to make payments for services not rendered by reason of such a force
majeure condition).
13. ENTIRE AGREEMENT:
This Agreement, together with the Work Orders and Change Requests
attached hereto, constitutes the entire agreement of the parties hereto with
respect to the subject matter herein and supersedes all previous proposals,
communications, writings, advertisements, agreements and understandings, written
or oral, between the parties.
14. MODIFICATIONS:
This Agreement, together with the Work Orders and Change Requests
attached hereto, may not be modified or amended, in whole or in part, except by
written amendment signed by both parties.
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<PAGE> 11
15. SEVERABILITY:
In the event that any one or more of the provisions contained in this
Agreement or in any document, instrument or agreement relating hereto, should be
declared invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein or
therein shall not in any way be affected or impaired thereby.
16. COUNTERPARTS:
The Agreement may be executed in several counterparts, each of which
shall be deemed to be an original, and all of which, taken together, shall
constitute one and the same instrument.
17. WAIVER:
The waiver or failure of either party to insist upon strict compliance
with any of the provisions of this Agreement or to exercise any right, in any
respect, provided for herein shall not be deemed a waiver of any provision or
right hereunder. Waiver by a party of any obligation owed to it by the other
party shall not constitute a waiver of any other obligations owed to such party.
18. CHOICE OF LAW AND JURISDICTION:
This Agreement shall be governed by and construed in all respects in
accordance with the laws of the State of Georgia. Farmers hereby consents to the
sole and exclusive jurisdiction of the appropriate federal or state court in
Atlanta, Fulton County, Georgia.
19. NOTICES:
All notices and other communication provided for under this Agreement
shall be in writing and mailed by United States Certified Mail, Return Receipt
Requested or by a nationally recognized overnight delivery service, delivery
charges paid, to the parties hereto at the addresses set forth above or at such
other address as shall be designated by a party in a written notice to the other
party. Except as expressly stated in this Agreement, all such notices and
communications shall be effective when deposited in the U.S. mail or delivered
to the nationally recognized delivery service, addressed as aforesaid, except
that notices of change of address shall not be effective until received.
20. REMEDIES:
Unless otherwise specified herein, the rights and remedies of both
parties set forth in this Agreement are not exclusive and are in addition to any
other rights and remedies available to the parties at law or in equity.
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<PAGE> 12
21. HEADINGS:
The headings of the Sections of this Agreement are inserted for
convenience only and shall not constitute a part hereof or affect in any way the
meaning or interpretation of this Agreement.
22. NO THIRD-PARTY BENEFICIARIES:
The parties agree that this Agreement is for the benefit of the parties
hereto and is not intended to confer any rights or benefits on any third party,
and that there are no third-party beneficiaries as to this Agreement or any part
or specific provision of this Agreement.
23. SURVIVAL:
The obligation of the parties under Sections 2.5, 2.6, 2.7, 3, 4, 8.2,
8.3, 8.4, 8.5, 9, 10.1, 10.2, 10.3, 10.4, 10.5, 11, 13, 17, 18, 20, 22, and 23
of this Agreement shall survive termination of this Agreement.
<TABLE>
<S> <C>
Farmers New World Life Insurance Company McCamish Systems, L.L.C.
- -----------------------------------
- ---------------------------------
(Authorized Signature) (Authorized Signature)
- -----------------------------------
- ---------------------------------
(Printed Name and Title) J. Gordon Beckham, Jr., Vice
Chairman
- -----------------------------------
- ---------------------------------
(Date) (Date)
</TABLE>
<PAGE> 1
EXHIBIT 8(h)
Master Administration Agreement
for
Variable Universal Life Insurance and Variable Annuities
between
McCamish Systems, L.L.C.
and
Farmers New World Life Insurance Company
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1 DEFINITIONS............................................................................................................1
1.01 Books and Records..................................................................................................1
1.02 Initial Term.......................................................................................................2
1.03 Policy Administration Services.....................................................................................2
1.04 Annuity Contract Administration Services...........................................................................2
1.05 Policies...........................................................................................................2
1.06 Contracts..........................................................................................................2
1.07 Products...........................................................................................................2
SECTION 2 TERM...................................................................................................................2
SECTION 3 POLICY OR ANNUITY CONTRACT ADMINISTRATION..............................................................................2
3.01 Administrative Services............................................................................................2
3.02 Performance Criteria...............................................................................................3
3.03 Authorized Personnel...............................................................................................3
3.04 Records............................................................................................................3
SECTION 4 FEES AND EXPENSES......................................................................................................3
4.01 Administration Fees................................................................................................3
4.02 Expenses...........................................................................................................4
4.03 System Enhancements................................................................................................4
4.04 Payment............................................................................................................4
SECTION 5 REPRESENTATIONS AND WARRANTIES OF MCCAMISH.............................................................................5
SECTION 6 REPRESENTATIONS AND WARRANTIES OF COMPANY..............................................................................5
SECTION 7 ADDITIONAL COVENANTS...................................................................................................6
7.01 Independent Contractor.............................................................................................6
7.02 Confidentiality and Disclosure.....................................................................................6
7.03 Indemnification....................................................................................................8
7.04 Arbitration........................................................................................................8
7.05 Compliance.........................................................................................................8
7.06 Actions............................................................................................................8
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C> <C>
7.07 Records............................................................................................................8
7.08 Audit..............................................................................................................8
7.09 Security of Operations.............................................................................................8
7.10 Insurance Coverage.................................................................................................8
SECTION 8 TERMINATION OF AGREEMENT...............................................................................................8
8.01 By Mutual Agreement................................................................................................8
8.02 By Non-Renewal.....................................................................................................8
8.03 For Cause..........................................................................................................8
SECTION 9 ASSIGNMENT.............................................................................................................8
9.01 Assignment by Company..............................................................................................8
9.02 Assignment by McCamish.............................................................................................8
SECTION 10 MISCELLANEOUS.........................................................................................................8
10.01 Governing Law......................................................................................................8
10.02 Notices............................................................................................................8
10.03 Entire Agreement...................................................................................................8
10.04 Binding Effect.....................................................................................................8
10.05 Severability.......................................................................................................8
10.06 No Third Party Beneficiaries.......................................................................................8
10.07 Headings...........................................................................................................8
10.08 Counterparts.......................................................................................................8
10.09 Waiver.............................................................................................................8
10.10 Construction.......................................................................................................8
10.11 Taxes..............................................................................................................8
10.12 Software Escrow Agreement..........................................................................................8
10.13 Software License in Escrow.........................................................................................8
10.14 Force Majeure......................................................................................................8
SECTION 11 YEAR 2000 COMPLIANCE..................................................................................................8
</TABLE>
ii
<PAGE> 4
TABLE OF EXHIBITS
A Policy Administration Services
B Annuity Contract Administration Services
C Performance Criteria
D Fee Schedule
E Products
F Schedule of Authorized Personnel
G Insurance Coverage
H Sample Software Escrow Agreement
I Sample Software License Agreement
iii
<PAGE> 5
MASTER ADMINISTRATION AGREEMENT
This MASTER ADMINISTRATION AGREEMENT (this "Agreement") is made and
entered into as of the ___ day of ______, 1999, by and between McCamish Systems,
L.L.C., a Georgia limited liability company, having its principal address and
place of business at 6425 Powers Ferry Road, Third Floor, Atlanta, Georgia,
30339 (hereinafter referred to as "McCamish"); and Farmers New World Life
Insurance Company, a stock/mutual company registered under the laws of the State
of _____, having its principal place of business at 3003 - 77th Avenue S.E.,
Mercer Island, Washington, 98040 (hereinafter referred to as "FNWL").
W I T N E S S E T H:
WHEREAS, the parties hereto desire to enter into this Agreement to
provide for the provision by McCamish, as an independent subcontractor, of
insurance policy and annuity contract administration to FNWL on the terms and
conditions hereinafter set forth,
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, and other good and valuable considerations, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound,
the parties hereto hereby agree as follows:
SECTION 1 DEFINITIONS.
As used in this Agreement, the following terms shall have the
meaning set forth:
1.01 Books and Records. "Books and Records" means all books and
records in the possession or control of McCamish that contain information
related to the Policies (defined in Section 1.08 below) and Annuity Contracts
(defined in Section 1.06 below), including without limitation, to the extent any
of the following exist, (i) hard copy and microfiche records; (ii) all paper
files; (iii) all electronic images: (iv) all computer data files; (v) all
correspondence between McCamish and owners of Policies or Annuity Contracts;
(vi) administrative records; (vii) claim records; (viii) sales records; (ix)
reinsurance records, (x) underwriting records and (xi) accounting records;
provided, however, that Books and Records shall not include any of McCamish's
internal documentation of its own programs, systems and procedures or any of
McCamish's books and records which are not directly related to the Policies.
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<PAGE> 6
1.02 Initial Term. "Initial Term" means the five (5) year period
commencing on the Effective Date of this Agreement and ending at 11:59 p.m. on
the day prior to the fifth anniversary of the Effective Date.
1.03 Policy Administration Services. "Policy Administration
Services" means the services set forth in Exhibit A attached hereto and
designated as "Policy Administration Services".
1.04 Annuity Contract Administration Services. "Annuity Contract
Administration Services" means the services set forth in Exhibit B attached
hereto and designated as "Annuity Contract Administration Services".
1.05 Policies. "Policies" means, collectively, the insurance
policies included within one of the Products and "Policy" means any one of the
Policies.
1.06 Contracts. "Contracts" mean, collectively, the annuity
contracts included within one of the Products and "Contract" means any one of
the Annuity Contracts.
1.07 Products. "Products" means the insurance or annuity products
described in Exhibit E attached hereto and made a part hereof. A "Product" is
limited to a single insurance policy form or a single annuity contract form of
FNWL. Exhibit E may be amended during the Term by mutual written agreement of
the parties hereto.
SECTION 2 TERM.
This Agreement shall commence on the Effective Date and shall
continue in effect for the Initial Term; thereafter this Agreement shall
continue in full force and effect from year to year until terminated as herein
provided, each such additional year being an "Additional Term" of this
Agreement. The Initial Term and any Additional Terms hereunder are herein
collectively referred to as the "Term".
SECTION 3 POLICY OR ANNUITY CONTRACT ADMINISTRATION.
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<PAGE> 7
3.01 Administrative Services. During the Term, McCamish shall
perform Policy and Annuity Contract Administration Services as set forth in
Exhibits A and B.
3.02 Performance Criteria. The manner and method of performing
Administration Services is set forth in Exhibit C.
3.03 Authorized Personnel. At any time McCamish may apply to a
person indicated on the "Schedule of Authorized Personnel", attached hereto as
Exhibit F, as a person authorized to give instructions under this section with
respect to any matter arising in connection with this Agreement. McCamish shall
not be liable for, and shall be indemnified and held harmless by FNWL against
any loss, cost, damage or expense arising from, any action taken or omitted by
McCamish to the extent McCamish can demonstrate that the action or omission was
taken or omitted in good faith in reliance upon such instruction.
FNWL may at any time provide McCamish with written notice of any
change of authority of persons authorized and enumerated in Exhibit F to provide
McCamish with instructions or directions relating to services to be performed by
McCamish under this Agreement.
3.04 Records. During the Term, McCamish shall keep true and correct
Books and Records relating to the performance of all Administration Services
hereunder. McCamish shall deliver the Books and Records and copies thereof to
FNWL, if so requested by FNWL, within thirty (30) days upon termination of this
Agreement. Anything herein to the contrary notwithstanding, McCamish shall be
allowed to make and retain copies of the Books and Records, at its own expense,
upon termination of this Agreement. It is acknowledged and agreed that any such
Books and Records may be maintained on magnetic media, electronic media,
microfiche, CD and other non-paper media.
SECTION 4 FEES AND EXPENSES.
4.01 Administration Fees.
(a) During the Initial Term of this Agreement, FNWL shall pay to
McCamish, as compensation for all Administration Services rendered pursuant to
this Agreement, the amounts set forth in Exhibit D. In
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<PAGE> 8
no event, except as provided below, will the fees payable by FNWL to McCamish
hereunder be less than the fees determined by the application of the Minimum
Charges set forth in Exhibit D.
(b) For each Additional Term of this Agreement, FNWL shall pay to
McCamish, as compensation for all Administration Services rendered pursuant to
this Agreement, such fees and charges as shall be agreed to by the parties and
attached hereto as an amended Exhibit D prior to commencement of such Additional
Term.
4.02 Expenses. FNWL will promptly reimburse McCamish for all
reasonable out-of-pocket expenses incurred by McCamish in the performance of
this Agreement. Out-of-pocket expenses include, but are not limited to the
following:
(a) Travel related costs for travel requested by FNWL.
(b) Postage, forms, mailings, stationery and freight costs requested
by FNWL.
(c) Charges for telephone line(s) and long distance telephone calls
dedicated to service of FNWL customers, agents and brokers and charges for long
distance telephone calls made to service FNWL's business.
Charges for dedicated voice/data lease line(s) providing wide area network
access from FNWL site(s) to McCamish site(s).
Charges for supplies and maintenance of dedicated FNWL hardware and
equipment including but not limited to printers, faxes and modems.
Charges for FNWL dedicated U.S. Post Office boxes.
4.03 System Enhancements. Requests by FNWL for enhancements to
systems or procedures for support of new products or new functional capabilities
will be performed and billed by McCamish to FNWL pursuant to that certain
Consulting Services Agreement of even date herewith.
4
<PAGE> 9
4.04 Payment. During the Term of this Agreement, FNWL shall pay
McCamish within thirty (30) days of the date of McCamish's invoice. Late
payments shall be subject to McCamish's standard late payment charges. A finance
charge of one and one-half (1 1/2%) percent per month (annual rate of eighteen
(18%) percent), or the highest interest rate allowed by law, whichever is lower,
will be added to all invoices not paid thirty (30) days after the date of
receipt of the invoice. In addition, failure of FNWL to fully pay any invoiced
amount within sixty (60) days after the date of receipt of the invoice shall be
deemed a material breach of the Agreement.
SECTION 5 REPRESENTATIONS AND WARRANTIES OF MCCAMISH.
McCamish hereby represents and warrants to FNWL as follows:
(a) It is a limited liability company duly organized and existing
and in good standing under the laws of the State of Georgia.
(b) It is empowered under applicable laws and by its articles of
organization and operating agreement to enter into and perform the services
contemplated in this Agreement.
(c) All requisite proceedings have been taken to authorize it to
enter into and perform the services contemplated in, and execute and deliver,
the Agreement.
(d) It has duly executed and delivered this Agreement and neither
such execution and delivery nor the performance by it of any of its obligations
under this Agreement will (i) violate any provision of its certificate of
incorporation or by-laws, (ii) result in a violation or breach of, or constitute
a default or an event of default under, any indenture, mortgage, bond or other
contract, license, agreement, permit, instrument or other commitment or
obligation to which it is a party or (iii) violate any law, rule or regulation
of any governmental body, writ, judgment, injunction or court decree
(collectively, "Laws") applicable to it or its business.
(e) It has all licenses, permits, registrations and other
governmental approvals necessary or
5
<PAGE> 10
advisable for the performance of its obligations under this Agreement.
(f) Its business operations have been conducted, are now, and will
continue to be in compliance in all material respects with all Laws.
(g) In its reasonable business judgment, it has the facilities,
equipment and personnel necessary to carry out its duties and obligations under
this Agreement.
SECTION 6 REPRESENTATIONS AND WARRANTIES OF FNWL.
FNWL hereby represents and warrants to McCamish as follows:
(a) It is a registered stock/mutual company organized and existing
and in good standing under the laws of the State of _____.
(b) It is empowered under the applicable laws and regulations and by
its governing documents to enter into and perform this Agreement.
(c) All requisite proceedings have been taken to authorize it to
enter into and perform this Agreement.
(d) It has duly executed and delivered this Agreement and neither
such execution and delivery nor the performance by it of any of its obligations
under this Agreement will (i) violate any provision of its governing documents,
(ii) result in a violation or breach of, or constitute a default or an event of
default under, any indenture, mortgage, bond or other contract, license,
agreement, permit, instrument or other commitment or obligation to which it is a
party or (iii) violate any Law applicable to it or its business.
SECTION 7 ADDITIONAL COVENANTS.
7.01 Independent Contractor. It is understood and agreed that all
Administration Services performed hereunder by McCamish shall be performed
solely for FNWL by McCamish in the capacity of an
6
<PAGE> 11
independent sub-contractor of FNWL. Nothing contained herein shall be construed
to create between McCamish and FNWL a partnership, joint venture, association or
other legal entity or relationship other than that of independent
sub-contractor.
7.02 Confidentiality and Disclosure.
(a) Each Party to this Agreement ("Disclosing Party") may disclose
to the other party ("Recipient") certain proprietary and confidential
information including, without limitation, policyholder/contract holder
information, procedures, FNWL customer lists, prospect lists, contracted broker
and agent lists, and material related to policy/contract design, pricing,
filings, marketing and sales administration and systems information
("Information").
(b) Recipient agrees to maintain, during the Term and thereafter,
the Information of the Disclosing Party in confidence using at least the same
degree of care as it uses in maintaining as secret its own trade secret,
confidential and proprietary information, but always at least a reasonable
degree of care.
(c) Disclosing Party agrees that Recipient shall have no obligation
under the provisions of this Section 7.02 with respect to any Information which:
1. is now or hereafter becomes publicly known other than
through a breach hereof,
2. is disclosed to Recipient by a third party that
Recipient reasonably believes is legally entitled to
disclose such information,
3. is known by Recipient prior to its receipt of the
Information, without any obligation of confidentiality
with respect thereto,
4. subject to paragraph (g) below, is disclosed with the
Disclosing Party's written consent,
5. is disclosed by the Disclosing Party to a third party
without the same or similar
7
<PAGE> 12
restrictions as set forth herein,
6. is required to be disclosed by Recipient by a court of
competent jurisdiction, administrative agency or
governmental body, or by law, rule or regulation, or by
applicable regulatory or professional standards, or
7. is disclosed by Recipient in connection with any
judicial or other legal proceeding involving the
Agreement, or
8. subject to paragraph (g) below is not identified or
marked as "Confidential and Proprietary" as provided in
paragraph (a).
(d) Recipient shall use reasonable efforts to limit access to
Information received from the Disclosing Party to only those personnel of
Recipient who have need of such access for the performance of any obligation of
Recipient under this Agreement.
(e) Recipient shall use information only for purposes of fulfilling
its obligations under the Agreement.
(f) Except as expressly provided in the Agreement, Disclosing Party
grants no license, right or interest to Recipient under any copyrights, patents,
trademarks, trade secrets or other property rights of Disclosing Party by reason
of the disclosure of the Information.
(g) Each party acknowledges that some Information may, under
applicable law, be deemed to be confidential information of third parties (such
as natural persons whose lives are insured under a Policy or Annuity Contract)
and agrees to preserve the confidentiality of all Information, which under
applicable Law must be treated as confidential.
The terms and conditions of this Section 7.02 shall survive the
termination of this Agreement.
7.03 Indemnification. Each party to this Agreement shall indemnify
and hold harmless the other
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<PAGE> 13
party and its officers, directors, partners, principals, independent
contractors, employees, member firms, subcontractors and affiliates and their
respective personnel from and against any and all liabilities, losses, damages,
costs, expenses (including, without limitation, reasonable attorneys' fees and
court costs), interest, penalties or other loss directly or indirectly arising
out of, in connection with or with respect to any breach of this Agreement or
any fraudulent, criminal, negligent and/or bad faith acts or omissions by such
party or its officers, directors, partners, principals, independent contractors,
employees, member firms, subcontractors and affiliates and their respective
personnel under this Agreement.
If a party is named in any lawsuit or other proceeding for which
such party believes it may be entitled to indemnification hereunder (other than
any action or proceeding described in Section 7.06), such party shall promptly
give notice thereof to the other party, such notice to include a description in
reasonable detail of such lawsuit or proceeding and the basis for such party's
belief that it may be entitled to indemnification hereunder. The parties shall
cooperate in all reasonable respects with each other in defending such lawsuit
or proceeding. McCamish agrees not to settle any such lawsuit or proceeding
without the written consent of FNWL.
Anything in this Agreement to the contrary notwithstanding, McCamish
shall have no liability whatsoever for any trading or investment losses incurred
with respect to any Policy/Contract by reason of McCamish's failure or inability
to accurately or timely transmit information or otherwise perform the
Administrative Services contemplated hereunder ("Breakage"). The parties hereto
acknowledge that this limitation of liability is reasonable inasmuch as McCamish
shall also not be entitled to any gains or profits which may occur as a result
of any such Breakage. Except for the limitation of liability set forth herein
with respect to Breakage, nothing contained in this provision shall limit the
remedies available to AGLC in the event of McCamish's failure to properly
perform its duties hereunder.
The terms and conditions of this Section 7.03 shall survive the
termination of this Agreement.
7.04 Arbitration. In the event of any dispute between FNWL and
McCamish with respect to the subject matter of this Agreement or the enforcement
of rights hereunder, either party may, by written notice to the other, require
such dispute or difference to be submitted to arbitration. This provision,
however, shall not be applicable to any dispute that involves a claim by or
against a Third Party. The arbitrator or arbitrators
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<PAGE> 14
shall be selected by agreement of the parties or, if they cannot agree on an
arbitrator or arbitrators within twenty (20) days after the notice of such
party's desire to have the question settled by arbitration, then the arbitrator
or arbitrators shall be selected by the American Arbitration Association (the
"AAA") in Atlanta, Georgia. The determination reached, or award granted, in such
arbitration shall be final and binding, to the extent not in violation of law or
public policy, on all parties hereto. Enforcement of the arbitration award or
determination may be sought in any court of competent jurisdiction. The
arbitrators shall not be bound by judicial formalities and may abstain from
following the strict rules of evidence. The parties hereby mutually instruct the
arbitrators to limit the time and scope of discovery to the greatest extent
practicable and request the arbitrators to provide a decision as rapidly as
practicable, in each case consistent with the interests of justice, it being the
intention of the parties that any arbitration under this Section 7.04 be
commenced, conducted and completed, and a decision rendered, as rapidly as
practicable. Pending such decision, each party will continue to perform its
obligations under this Agreement. Unless otherwise agreed by the parties, any
such arbitration shall be conducted in accordance with the rules of the AAA.
In the event of any litigation or arbitration as provided under this
Agreement, or the enforcement of rights hereunder, each party shall bear its own
costs and expenses relating to such litigation or arbitration, including
reasonable attorney's fees and expenses, unless otherwise provided by the
arbitration award or determination. In no event shall the arbitrators have the
right or authority to award consequential, incidental, indirect, special or
punitive damages relating to this Agreement.
The terms and conditions of this Section 7.04 shall survive the
termination of this Agreement.
7.05 Compliance. McCamish shall provide staff with the skills
necessary to perform the Administrative Services, as determined by McCamish
using its reasonable business judgment. McCamish shall obtain and maintain for
itself, all licenses necessary for performance under this Agreement.
7.06 Actions.
(a) Each party to this Agreement (the "Notifying Party") shall
promptly notify the other party of any threatened or pending lawsuit or
governmental or regulatory agency inquiry or complaint relating to Policies of
which the Notifying Party has actual knowledge and shall promptly transmit to
such other party
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<PAGE> 15
a copy of any applicable service of process or other instrument related to a
court proceeding or any correspondence or other document transmitted to or from
any governmental or regulatory agency relating to the Policies which shall be
actually received by the Notifying Party.
(b) McCamish shall make no response to any governmental or
regulatory agency's inquiry or complaint relating to Policies without first
obtaining FNWL's approval and consent to the response to such inquiry or
complaint; provided, however, that if FNWL fails to give its approval or consent
or delays its approval or consent and such failure or delay would subject
McCamish to any fine, penalty, liability or sanction, then McCamish may make a
response.
(c) FNWL reserves the right to control the defense of any
litigation, threatened or pending, by or against it, or to respond on its own
behalf to any governmental or regulatory agency's inquiry or complaint;
provided, however, that if FNWL shall exercise this right in such a manner as
shall subject McCamish to any fine, penalty, liability or sanction for failure
to follow procedure, or otherwise in a manner which, in the reasonable opinion
of McCamish or its legal counsel may have a material adverse effect on McCamish,
then McCamish shall have the right to defend itself with counsel of its choice
at its own expense.
(d) McCamish reserves the right to control the defense of any
litigation, threatened or pending, by or against it, or, subject to subsection
(b) above, to respond on its own behalf to any governmental or regulatory
agency's inquiry or complaint; provided, however, that if McCamish shall
exercise this right in such a manner as shall subject FNWL to any fine, penalty,
liability or sanction for failure to follow procedure, or otherwise in a manner
which, in the reasonable opinion of FNWL or its legal counsel may have a
material adverse effect on FNWL, then FNWL shall have the right to defend itself
with counsel of its choice at its own expense.
(e) The parties shall cooperate with each other in responding to or
defending any such lawsuit, threat, demand, inquiry, complaint, administrative
or regulatory investigation or proceeding.
7.07 Records. Each party to this Agreement shall maintain, following
the termination of this Agreement for any reason, its Books and Records with
respect to business produced under this Agreement for such period of time as may
be required by law. It is acknowledged and agreed that any such books and
11
<PAGE> 16
records may be maintained on magnetic media, electronic media, microfiche or
other non-paper media.
7.08 Audit. Upon forty-eight (48) hours advanced notice to McCamish,
FNWL will have the right under this Agreement to perform on-site inspection and
analyses of the Books and Records in accordance with reasonable procedures and
at reasonable frequencies. At the request of FNWL, McCamish will make available
to FNWL representatives of the appropriate regulatory agencies all reasonable
requested Books and Records and access to operating procedures.
7.09 Security of Operations. McCamish shall maintain such off-site
backup of its systems, procedures, and Books and Records as FNWL may reasonably
request. McCamish shall maintain at all times during the Term a disaster
recovery capability materially consistent with that currently maintained by
McCamish.
7.10 Insurance Coverage. McCamish shall use its reasonable efforts
to continue in effect the insurance coverages described in Exhibit G attached
hereto provided that such coverage is available from a domestic insurance
carrier at a reasonable cost to McCamish. McCamish shall not voluntarily cause
any termination, reduction, or alteration of these coverages without thirty (30)
days prior written notice to FNWL.
SECTION 8 TERMINATION OF AGREEMENT.
8.01 By Mutual Agreement. This Agreement may be terminated or
amended by mutual written agreement of the parties at any time.
8.02 By Non-Renewal. At least one hundred and eighty (180) days
prior to the end of the Initial Term and any Additional Term hereof, either
party may give the other notice if the party delivering such notice desires to
change any term of the Agreement. If McCamish and FNWL do not agree in writing
with respect to the matters described in such notice before the end of the Term
during which McCamish gives such notice, this Agreement shall terminate at the
end of such Term.
8.03 For Cause. If either of the parties hereto shall materially
breach this Agreement or be materially in default hereunder (the Defaulting
Party), the other party hereto may give written notice thereof
12
<PAGE> 17
to the Defaulting Party and if such default or breach shall not have been
remedied within thirty (30) days after such written notice is given, then the
party giving such written notice may terminate this Agreement by giving thirty
(30) days written notice of such termination to the Defaulting Party.
Termination of this Agreement by default or breach by a party shall not
constitute a waiver of any rights of the other party in reference to services
performed prior to such termination, rights to be reimbursed for out-of-pocket
expenditures or any other rights such other party might have under this
Agreement at law, in equity or otherwise.
SECTION 9 ASSIGNMENT.
9.01 Assignment by FNWL. FNWL shall not, directly or indirectly, in
whole or in part, assign any of its rights or obligations hereunder without the
prior written consent of McCamish, which consent shall not be unreasonably
withheld.
9.02 Assignment by McCamish. McCamish shall not directly or
indirectly, in whole or in part, delegate its duties or assign its rights under
this Agreement without the prior written consent of FNWL, which consent shall
not be unreasonably withheld.
SECTION 10 MISCELLANEOUS.
10.01 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Georgia, without giving
effect to the principles of conflicts of laws thereof.
10.02 Notices. Any notice, consent, approval or other communication
required or permitted hereunder shall be in writing and shall be delivered
personally, or sent by facsimile transmission, overnight courier service or by
registered or certified mail, postage prepaid, return receipt requested, and
addressed as follows:
(a) If to McCamish:
McCamish Systems, L.L.C.
6425 Powers Ferry Road
13
<PAGE> 18
Third Floor
Atlanta, GA 30339
Attention: Vice Chairman
Facsimile Number: (770) 690-1800
(b) If to FNWL:
Farmers New World Life Insurance Company
3003 - 77th Avenue S.E.
Mercer Island, WA 98040
Attention: President
Facsimile Number: (xxx) xxx-xxxx
Any such notice shall be deemed given when so delivered (in the case
of personal delivery or overnight courier service) or sent by facsimile
transmission or, if mailed, upon receipt as evidenced by the return receipt. If
the address of any party hereunto is changed, written notice of such change
shall be given to the other party, in accordance with this Section, and said new
address shall be used for purposes of this Agreement.
10.03 Entire Agreement. This Agreement, the Exhibits which are
attached hereto and made a part hereof, and the documents executed pursuant
hereto, contain the entire understanding of the parties with respect to the
subject matter hereof and thereof and no representation, warranty, covenant or
agreement not embodied herein or therein, oral or otherwise, shall be of any
force or effect whatsoever with respect to the subject matter hereof or thereof.
Further, no change, amendment or modification of this Agreement shall be
effective unless in writing and signed by both parties hereto.
10.04 Binding Effect. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
permitted assigns.
10.05 Severability. In the event any one or more of the provisions
contained in this Agreement shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality
14
<PAGE> 19
or unenforceability shall not affect any other provision of this Agreement.
10.06 No Third Party Beneficiaries. Nothing in this Agreement is
intended or shall be construed to give any person, other than the parties
hereto, any legal or equitable right, remedy or claim under or in respect of
this Agreement or any provision contained herein.
10.07 Headings. The Section headings of this Agreement are for
convenience only and shall not affect the construction or interpretation of this
Agreement.
10.08 Counterparts. This Agreement may be executed in two (2) or
more counterparts, each of which shall be deemed an original but all of which
will constitute one and the same document.
10.09 Waiver.
(a) A waiver of any default or breach hereunder granted by any party
hereto shall not constitute a waiver by such party of any other default or
breach or a waiver by such party of the same default or breach at a later time.
Further, to be effective, any such waiver must be in writing and be signed by
the party granting such waiver.
(b) Subject to the last sentence of Section 10.09(a), the
forbearance or neglect by FNWL or McCamish to insist upon strict compliance with
any of the provision of this Agreement, or to declare a forfeiture or
termination, shall not be construed as a waiver of any right or privilege
hereunder. No waiver of any right or privilege arising from any default or
failure of performance hereunder shall affect the rights or privileges of either
party in the event of a further default or failure of performance hereunder.
10.10 Construction. All parties hereto have participated, directly
or indirectly, in the negotiations and preparation of this Agreement. In no
event shall this Agreement be construed more or less stringently against any
party hereto by reason of either party being construed as the principal drafting
party hereto.
10.11 Taxes. All sales, use, excise or other similar taxes or duties
which may be or become payable on account of goods or services provided
hereunder shall be payable by FNWL to McCamish Systems upon
15
<PAGE> 20
the receipt by FNWL of McCamish Systems' invoice therefor. In lieu of paying
such taxes, FNWL may provide McCamish Systems with a tax exemption certificate
acceptable in form and substance to the appropriate taxing authorities.
10.12 Software Escrow Agreement. As soon as is practicable after the
execution of this Agreement, (i) the parties hereto shall execute and deliver an
Escrow Agreement substantially in the form of Exhibit H attached hereto and made
a part hereof (the "Escrow Agreement") for the purpose of protecting FNWL in the
event of a breach of this Agreement by McCamish or the termination of this
Agreement by FNWL for Cause, pursuant to Section 8 hereof, prior to the end of
the Term; and (ii) upon execution of the Escrow Agreement by all parties
thereto, McCamish shall deposit with the Escrow Agent a copy of the Software to
be held in accordance with the terms and conditions of the Escrow Agreement.
10.13 Software License in Escrow As soon as is practicable after
execution of the Escrow Agreement, the parties hereto shall execute and deliver
to the Escrow Agent, to be held in accordance with the terms and conditions of
the Escrow Agreement, a License Agreement substantially in the form of Exhibit I
attached hereto and made a part hereof (the "License Agreement"), which shall
provide that in the event the Software shall be released by the Escrow Agent to
FNWL, upon the occurrence of a Release Event (as defined in the Escrow
Agreement), but only in such event, McCamish grants to FNWL, effective upon
receipt of the Software from the Escrow Agent, a license to use the Software
(and such modifications, enhancements, improvements, updates, corrections or
changes as FNWL shall elect to make to the Software) (the "Software License")
for a period of twenty-four months following the termination of this Agreement,
solely on the terms and conditions of the License Agreement. At the expiration
of the license term, the FNWL shall have no further rights with respect to the
Software.
10.14 Force Majeure Neither party shall be in default of this
Agreement to the extent that the performance of its obligations under this
Agreement is delayed or prevented by reason of any act of God, fire, natural
disaster, accident, act of government, strike, riot, act of war, restricting
legislation, embargo, blockade, work stoppage, or any other like cause beyond
the control of such party, provided that such causes shall not relieve FNWL of
its payment obligations as set forth in Sections 3 and 4 (except that FNWL shall
not be required to make payment for services not rendered by reason of such a
force majeure condition).
16
<PAGE> 21
SECTION 11 YEAR 2000 COMPLIANCE.
McCamish hereby represents and warrants that the VPAS(R) Life Administration
System software is Year 2000 Compliant. For these purposes, Year 2000 Compliant
is defined to mean that this software:
uses date data century recognition, and as appropriate,
same century and multi-century formulas and date values in each instance for all
calculations for which a date is used;
will not abnormally end or provide invalid or incorrect
results as a result of date data, specifically including date data which
represents or references different centuries or more than one century; and
otherwise conforms with the current industry standards in order that it will
fully perform without any errors or other problems due to the year being greater
than 1999;
will correctly manage and manipulate data involving
dates, including, but not limited to: single-century formulas and multi-century
formulas, century recognition and calculations that accommodate same century and
multi-century formulas, comparing and sequencing, and leap year calculations;
and will operate without any time or Year 2000 related defects or abnormalities;
and
to the extent that the software will accept data from
other systems and sources that are not Year 2000 Compliant, the software will
properly recognize, calculate, sort, store output, and otherwise process such
data in a manner that eliminates any century ambiguity so that the software
remains Year 2000 Compliant.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered by their duly authorized partners and officers, all as
of the date first above written.
McCamish Systems, L.L.C. Farmers New World Life Insurance Company
By: By:
---------------------------- --------------------------------------
J. Gordon Beckham, Jr. Name:
Vice Chairman ------------------------------------
Title:
-----------------------------------
17
<PAGE> 22
EXHIBIT C
PERFORMANCE CRITERIA
1. McCamish shall discharge its duties hereunder in a manner that is
consistent with insurance industry practices.
2. Performance with respect to Policy/Annuity Contract Administration
Services shall include the following:
(a) McCamish will electronically, or by hard copy or both as
periodically agreed upon by FNWL and McCamish, provide
FNWL with copies of all policy/contract owner and
agent/broker reports, letters and other correspondence
on an agreed upon basis;
(b) Calculation of policy/contract values, dividends,
earnings, distributions, and commissions will be made in
accordance with procedures agreed to by FNWL and
McCamish and will not be changed without prior approval
by FNWL;
(c) Specimens of each policy/contract owner and agent/broker
report referenced in Exhibit A- Policy Administration
Services and Exhibit B - Annuity Contract Administration
Services will be provided to FNWL and changes to
existing report formats or development of new reports
will be provided to FNWL for approval prior to use;
(d) Calculation of settlements including but not limited to
loans, death proceeds, withdrawals and surrenders will
be done in accordance with procedures agreed to by FNWL,
and will be sent to FNWL within three working days
following receipt by McCamish of all required
documentation.
3. Performance with respect to financial reporting shall include the
following:
(a) McCamish will deliver financial reports within five
working days following the accounting
C-1
<PAGE> 23
EXHIBIT C
PERFORMANCE CRITERIA
close, as agreed to by FNWL and McCamish;
(b) McCamish will maintain financial records in accordance
with procedures agreed to by FNWL and McCamish and will
not change procedures without prior approval by FNWL.
5. FNWL and McCamish may mutually agree, from time to time, to
modifications of the administrative services and/or performance
criteria or to additional administrative services and/or performance
criteria.
C-2
<PAGE> 24
EXHIBIT D
ANNUAL FEE SCHEDULE FOR VARIABLE UNIVERSAL LIFE POLICY AND
VARIABLE ANNUITY CONTRACT ADMINISTRATION
McCamish is due the greater of the Annual Processing Fees or the Minimum Annual
Fee.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Annual Processing Fees Third Party
Administration
- --------------------------------------------------------------------------------
<S> <C>
Policy/Contract Issue Fee Per Policy/Contract $30.00
- --------------------------------------------------------------------------------
Variable Universal Life
Policy Administration Fee per Policy
- --------------------------------------------------------------------------------
From 0 -10,000 Policies $54.00
- --------------------------------------------------------------------------------
From 10,001 - 20,000 Policies $48.00
- --------------------------------------------------------------------------------
From 20,001 - 50,000 Policies $45.00
- --------------------------------------------------------------------------------
From 50,001 - 100,000 Policies $42.00
- --------------------------------------------------------------------------------
Above 100,000 Policies $40.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Variable Annuity
Policy Administration Fee per Contract
- --------------------------------------------------------------------------------
From 0 - 10,000 Policies $48.00
- --------------------------------------------------------------------------------
From 10,001 - 20,000 Policies $45.00
- --------------------------------------------------------------------------------
From 20,001 - 50,000 Policies $42.00
- --------------------------------------------------------------------------------
From 50,001 - 100,000 Policies $40.00
- --------------------------------------------------------------------------------
Above 100,000 Policies $38.00
- --------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 25
EXHIBIT D
ANNUAL FEE SCHEDULE FOR VARIABLE UNIVERSAL LIFE POLICY AND
VARIABLE ANNUITY CONTRACT ADMINISTRATION
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
MINIMUM ANNUAL FEE THIRD PARTY
ADMINISTRATION
- ----------------------------------------------------------------
<S> <C>
Contract Year 1 $300,000
- ----------------------------------------------------------------
Contract Year 2 $340,000
- ----------------------------------------------------------------
Contract Year 3 $380,000
- ----------------------------------------------------------------
Contract Year 4 $420,000
- ----------------------------------------------------------------
Contract Year 5 & beyond $480,000 *
- ----------------------------------------------------------------
</TABLE>
* Inflation Adjusted
4
<PAGE> 26
EXHIBIT D
MONTHLY FEE SCHEDULE FOR VARIABLE UNIVERSAL LIFE POLICY AND
VARIABLE ANNUITY CONTRACT ADMINISTRATION
BASE ADMINISTRATION FEES
The TPA fees are broken into several categories.
Base Administration Fees are banded based on the number of policies in force.
The Fees are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
REGISTERED VARIABLE UNIVERSAL LIFE
- --------------------------------------------------------------------------------
<S> <C>
Monthly Processing Fees per Policy
- --------------------------------------------------------------------------------
From 0 -10,000 Policies $4.50
- --------------------------------------------------------------------------------
From 10,001 - 20,000 Policies $4.00
- --------------------------------------------------------------------------------
From 20,001 - 50,000 Policies $3.75
- --------------------------------------------------------------------------------
From 50,001 - 100,000 Policies $3.50
- --------------------------------------------------------------------------------
Above 100,000 Policies $3.35
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
REGISTERED VARIABLE ANNUITY
<S> <C>
- --------------------------------------------------------------------------------
Monthly Processing Fee per Contract
- --------------------------------------------------------------------------------
From 0 - 10,000 Policies $4.00
- --------------------------------------------------------------------------------
From 10,001 - 20,000 Policies $3.75
- --------------------------------------------------------------------------------
From 20,001 - 50,000 Policies $3.50
- --------------------------------------------------------------------------------
From 50,001 - 100,000 Policies $3.35
- --------------------------------------------------------------------------------
Above 100,000 Policies $3.20
- --------------------------------------------------------------------------------
</TABLE>
The total fee charged each month will be the maximum of the Minimum Monthly Fee
or the sum of the Base Administration Fee and the included Function Specific
Fees.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
MINIMUM FEES PER CONTRACT YEAR Monthly Fee
- --------------------------------------------------------------------------------
<S> <C>
Contract Year 1 $25,000
- --------------------------------------------------------------------------------
Contract Year 2 $28,300
- --------------------------------------------------------------------------------
Contract Year 3 $31,700
- --------------------------------------------------------------------------------
Contract Year 4 $35,000
- --------------------------------------------------------------------------------
Contract Year 5 & beyond $40,000 *
- --------------------------------------------------------------------------------
</TABLE>
* Inflation Adjusted
5
<PAGE> 27
EXHIBIT D
FEE SCHEDULE FOR VARIABLE UNIVERSAL LIFE POLICY AND
VARIABLE ANNUITY CONTRACT ADMINISTRATION
FUNCTION SPECIFIC FEES
In addition to the Base Administration Fees, the Function Specific Fees are
listed below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
POLICY/CONTRACT REPORTING FEES FEE
- -------------------------------------------------------------------------------------------------
<S> <C>
Additional Copies Fee - The Base Administration Fee provides $5.00
copies of each policy owner report to the owner and servicing agent.
This is the charge per policy for each copy in excess of the Base.
- -------------------------------------------------------------------------------------------------
Benefit Statement Frequency Fee - The Base Administration Fee $5.00
provides Benefit Statements on a quarterly basis. This is the charge
per policy for each mailing in excess of four per year.
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
POLICY/CONTRACT ISSUE RELATED FEES (PER POLICY ISSUED) FEE
- -------------------------------------------------------------------------------------------------
<S> <C>
Application Data Entry Fee - The Base Administration Fee $15.00
includes processing electronic census data. This fee covers
the expense of manually capturing and entering the application data.
- -------------------------------------------------------------------------------------------------
Policy Page Reporting Fee - This is the fee per policy issued $15.00
for printing, assembling and distributing the policy page kits
in excess of one per policy.
- -------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE> 28
EXHIBIT D
FEE SCHEDULE FOR VARIABLE UNIVERSAL LIFE POLICY AND
VARIABLE ANNUITY CONTRACT ADMINISTRATION
FUNCTION SPECIFIC FEES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
FUND RELATED FEES FEE
- --------------------------------------------------------------------------------------------------------
<S> <C>
If Customer sends
For each fund MSLLC is required to value, MSLLC will, on fund AUV on paper,
valuation days and upon receipt of the Net Asset Value (NAV) or $1.50 per fund, per
Asset Unit Value (AUV): (i) Compute mortality & expense charge; day additional
(ii) Compute Unit Value; (iii) Update the Price Table; (iv) Create charge. If
accounting journal entries. Customer sends
AUV
electronically, no
additional charge.
If Customer sends
NAV on paper,
$1.50 per fund, per
day additional
charge. If
Customer sends
NAV
electronically, no
additional charge.
If MSLLC
calculates AUV,
$1.00 per fund, per
day additional
charge.
- --------------------------------------------------------------------------------------------------------
Fund Trading Advice - The Base Administration Fee includes $2.50
producing an electronic feed of fund
trading activity to the entity to the fund
administration provider. This is the fee
per Fund Manager for each day a fund is
traded for providing manual advice of
trading activity.
- --------------------------------------------------------------------------------------------------------
Price Correction Fee - The Base Administration Fee provides Time & Materials
for price correction related Undo/Redo
processing once per month for each fund. If a fund has more than one price
correction per month that requires Undo/Redo processing, this work will be
performed on a Time & Materials basis in excess of the Minimum Monthly
Charge.
- --------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 29
EXHIBIT D
FEE SCHEDULE FOR VARIABLE UNIVERSAL LIFE POLICY AND
VARIABLE ANNUITY CONTRACT ADMINISTRATION
FUNCTION SPECIFIC FEES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
POLICY/CONTRACT ASSET RELATED SERVICES FEE
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Perform the following policy asset related services: (i) Process Limit 1 per policy,
rebalance of assets; (ii) Process transfer of assets; (iii) Process per month. If over
reallocation of assets; (iv) Process dollar cost averaging of assets; (v) - $5 per policy, per
Process change in investment allocations; (vi) Create accounting transaction.
journal entries.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
FINANCIAL REPORTING FEES FEE
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Base administration fee provides electronic data feed for periodic $5.00 per report
insurance carrier financial reporting. This is the charge for printed
copies.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
STANDARD DATA INTERFACES COVERED BY BASE FEE FEE
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Provide Customer with a standard data interface for which the $25 per occurrence
operational support is covered by the base fee for the following: (i) for processing
Accounting; (ii) Commissions; (iii) Valuation; (iv) Trades; and (v) additional
Reinsurance for Variable Universal Life Policies and Tax Reporting interfaces.
for Variable Annuity Contracts.
- ------------------------------------------------------------------------------------------------------------------
Accept standard data interface from the Customer for Pricing (Unit $25 per occurrence
Value or Share Price for Unit Value Calculation). for processing
additional
interfaces.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE> 30
EXHIBIT D
FEE SCHEDULE FOR VARIABLE UNIVERSAL LIFE POLICY AND
VARIABLE ANNUITY CONTRACT ADMINISTRATION
FUNCTION SPECIFIC FEES
ADDITIONAL FEE SCHEDULE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
SEPARATE ACCOUNT RECONCILIATION FEE FEE
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Separate Account Reconciliation Fee - This is the fee per month $250.00
for each fund for which McCamish Systems performs reconciliation to
the Separate Account records.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
VPAS(R) AGENT COMPENSATION SYSTEM FEE
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
For periodic Broker/Dealer payment cycle processing, MSLLC will Flat Charge:
(i) compute commission payments; (ii) produce summary reports or $1,000 per pay
electronic data feed to Broker/Dealer; (iii) Create journal entries. cycle.
- ------------------------------------------------------------------------------------------------------------------
For periodic commission payment processing, MSLLC will (i) Flat charge: $1,000
Compute commission payments; (ii) Produce agent level commission per cycle, plus
statements and reports; (iii) Produce disbursement requests; (iv) $2.00 per agent,
Create journal entries; per pay cycle.
- ------------------------------------------------------------------------------------------------------------------
Create checks or wire transfers. $2.50 per check or
wire transfer.
- ------------------------------------------------------------------------------------------------------------------
1099 Preparation-Electronic transmission to IRS. $2.50 per 1099 for
paper copy.
Electronic
transmission, no
additional charge.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 31
EXHIBIT D
FEE SCHEDULE FOR VARIABLE UNIVERSAL LIFE POLICY AND VARIABLE
ANNUITY CONTRACT ADMINISTRATION
FUNCTION SPECIFIC FEES
ADDITIONAL FEE SCHEDULE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
REMOTE ACCESS SUBJECT TO SECURITY AUTHORIZATION FEE
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Wide Area Network access from designated Customer Customer is responsible
office(s), providing inquiry and report request capability. for cost of acquisition,
installation and
maintenance of any
hardware, software and
telecommunication lines
required for remote
system connectivity.
- ------------------------------------------------------------------------------------------------------------------
Dial In access by Customer employees, providing inquiry Customer is responsible
access, and by designated agents/brokers, providing policy for cost of acquisition,
inquiry and report request capability. installation and
maintenance of any
hardware, software and
telecommunication lines
required for remote
system connectivity.
- ------------------------------------------------------------------------------------------------------------------
Internet access by Customer employees, designated Monthly access charge
agents/brokers and policy owners, providing policy inquiry of $150 plus a per
and report request capability. kilobyte charge for
Customer's actual band
width usage. Charges per
kilobyte are subject to
change consistent with
any increase or decrease
in rates charged by
Internet Service
Provider.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 32
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Internet access by Customer employees providing file transfer Monthly access charge
capability. of $150 plus a per
kilobyte charge for
Customer's actual band
width usage. Charges per
kilobyte are subject to
change consistent with
any increase or decrease
in rates charged by
Internet Service
Provider. Monthly
access charge will be
waived if Customer is
using Internet access for
policy inquiry or report
requests.
- ------------------------------------------------------------------------------------------------------------------
Interactive Voice Response access by agents/brokers and Included in base fee.
policy owners, providing policy inquiry and report request
capability.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
FEE SCHEDULE FOR VARIABLE UNIVERSAL LIFE POLICY AND VARIABLE
ANNUITY CONTRACT ADMINISTRATION
FUNCTION SPECIFIC FEES
ADDITIONAL FEE SCHEDULE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
AFTER HOURS FUNCTIONS FEE
- ------------------------------------------------------------------------------------------------------------------
<S> <C>
Processing of one standard cycle per day. Any additional
cycle processing
billed at T&M
rates.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 33
EXHIBIT E
PRODUCTS
To be determined.
12
<PAGE> 34
EXHIBIT F
SCHEDULE OF AUTHORIZED PERSONNEL
The following individuals are authorized to give instructions or direction
to McCamish with respect to matters arising in connection with the servicing to
be performed under this Agreement:
Authorized Individual Name
Authorized Individual Name
13
<PAGE> 35
EXHIBIT G
INSURANCE COVERAGE
McCamish will maintain the following coverages during the term of this
Agreement:
Worker's Compensation at statutory limits;
Employers Liability, with $500,000 limit of liability;
Commercial General Liability including Products - Completed
Operations coverage with Broad Form Contractual coverage
with the following limits of liability:
with a combined single limit of $1,000,000 for Bodily
Injury and Property Damage;
(ii) $1,000,000 limit of liability for
Aggregate Products-Completed Operations and
Property Damages; and
$1,000,000 General Aggregate;
Automobile Liability, with a combined single limit of liability of
$1,000,000/accident;
Crime Insurance policy with limits of $5,000,000;
Errors and Omissions policy with limits of $5,000,000
(g) Umbrella/Excess Liability insurance with a $4,000,000 limit of
liability.
14
<PAGE> 36
EXHIBIT H
SOFTWARE ESCROW AGREEMENT
THIS SOFTWARE ESCROW AGREEMENT is entered into as of the 1st day of
Month, Year, by and among McCamish Systems, L.L.C., a Georgia limited liability
corporation (hereinafter referred to as "McCamish"), Company Complete Name, a
Stock/Mutual company registered under the laws of the State of _______
(hereinafter referred to as "Company") and Fort Knox Escrow Services, Inc., a
Georgia corporation (hereinafter referred to as "Escrow Agent").
WHEREAS, McCamish and Company are parties to that certain Remote
Processing Agreement, dated as of __________, (the "Remote Processing
Agreement"), pursuant to which McCamish agreed to provide certain corporate life
remote processing services specified therein with respect to the Policies (as
defined in the Master Remote Processing Agreement); and
WHEREAS, McCamish or its agents may utilize the Software
(defined below) in the discharge of their obligations owing to Company under the
Master Remote Processing Agreement; and
WHEREAS, for the Term of the Master Remote Processing Agreement, the
uninterrupted availability, maintenance and support of the Software is critical
to Company in the conduct of its business; and
WHEREAS, the parties hereto desire that the Escrow Agent hold,
administer and dispose of certain forms of computer software, certain computer
systems documentation, and certain computer data in accordance with the terms
and conditions of this Agreement,
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises contained herein, the parties hereto agree as follows:
SECTION 1 DEFINITIONS.
As used in this Agreement, the following terms shall have the
meaning set forth:
1.01 Software. "Software" means VPAS(R) Life, a group of computer
programs and associated database dictionaries utilized by McCamish in the
discharge of McCamish's obligations under the Master Remote Processing
Agreement; provided, however, that Software shall not include any computer
software
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EXHIBIT H
SOFTWARE ESCROW AGREEMENT
programs which are licensed by McCamish from third-parties.
1.04 Software License Agreement. "Software License Agreement" means
the nonexclusive license executed and delivered by the parties hereto, granting
by McCamish to Company, upon the occurrence of a Release Event (as hereinafter
defined), a limited right to use the Software for the sole and exclusive purpose
of performing the Remote Processing Services with respect to the Policies.
1.05 Deposit Copies. "Deposit Copies" means the specific items to be
deposited in escrow by McCamish. "Deposit Copy" shall mean any one of the
Deposit Copies. Deposit Copy shall include (i) the source code form of the
Software, (ii) all documentation and procedure manuals used by McCamish to
operate the Software, (iii) documentation which would enable Company to execute
the Software on a computer, which will include instructions for restoring the
Software, documentation manuals, and procedure manuals from the escrow media,
and (iv) a list of all third-party software and hardware used by McCamish to
operate the Software.
SECTION 2 ACCEPTANCE OF ESCROW.
The Escrow Agent is hereby appointed escrow agent to hold,
administer and dispose of the copies described in SECTION 4 hereof and the
Escrow Agent hereby accepts such appointment.
SECTION 3 ESCROW ACCOUNT.
The Escrow Agent shall hold and administer the Deposit Copies in
escrow (the "Escrow Account") in accordance with the terms and conditions
hereof. The Escrow Agent shall accept the deposit of the Deposit Copies and
shall acknowledge the deposit by giving written notice of deposit to Company.
Upon its receipt and acceptance of the Deposit Copies, the Escrow Agent shall
place the same in its media vault located at 2100 Norcross Parkway, Suite 150
Norcross Ga. (the "Media Vault") and shall not disclose, use, copy, convey or
otherwise transfer the Deposit Copies, except in accordance with the provisions
of this Agreement.
SECTION 4 DEPOSITS.
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EXHIBIT H
SOFTWARE ESCROW AGREEMENT
4.1 Initial Deposit. Within thirty (30) days after the execution of
this Agreement, McCamish shall deposit with the Escrow Agent for the account of
Company one (1) copy of the Deposit Copy.
4.2 Subsequent Deposits. Monthly, during the Term, McCamish shall
deposit with the Escrow Agent, to be held in accordance with the terms and
conditions of this Agreement, one up-to-date copy of the Deposit Copy and shall
give written notice to Company that such deposit has been made. Upon its receipt
and acceptance of such deposit, the Escrow Agent shall place the same in the
Media Vault and shall not disclose, use, copy, convey or otherwise transfer the
updated Deposit Copy, except in accordance with the provisions of this
Agreement. Upon the Escrow Agent's acceptance of such deposit, the updated
Deposit Copies shall be subject to all provisions of this Agreement.
4.3. No Transfer of Title to Deposit Copies. Simultaneous with the
deposit of any Deposit Copy, the Escrow Agent shall be vested with the right to
process, utilize and transfer such Deposit Copy, subject to the terms and
conditions set forth herein. The Escrow Agent shall not be vested with any
ownership rights or title to the Deposit Copies.
SECTION 5 ADMINISTRATION OF ESCROW ACCOUNT.
5.1 Standard of Care. The Escrow Agent shall exercise a
professional standard of care in carrying out the terms of this Agreement. The
Escrow Agent shall take no action in connection with or relating to this
Agreement and the Deposit Copies hereunder, except upon written notice of
instruction from Company. The Escrow Agent shall not be responsible for failure
to fulfill its obligations under this Agreement due to causes beyond its
control, nor shall the Escrow Agent assume any obligation or liability for any
transaction between McCamish and Company other than its obligations, as escrow
agent, with respect to the Deposit Copies hereunder.
5.2 Limitations of Duty of the Escrow Agent. The Escrow Agent is
acting as a bailee hereunder and shall not be under any duty to give the Deposit
Copies held hereunder any greater degree of care than it gives its own similar
property. Fort Knox shall have no obligation to verify the accuracy or
completeness of any deposit materials. In addition, the Escrow Agent shall use
its reasonable efforts to protect against environmental deterioration of the
Deposit Copies as a result of its being stored in accordance with the terms
hereof; provided, however, that the Escrow Agent shall not be required to
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EXHIBIT H
SOFTWARE ESCROW AGREEMENT
handle the Deposit Copies in a manner that differs materially from the manner in
which it handles similar media for customers receiving services substantially
similar to those being provided under this Agreement. The Escrow Agent may act
in reliance upon any instruction, instrument or signature believed by it to be
genuine and may assume that any person purporting to give any writing, notice,
request, advice or instruction in connection with or relating to this Agreement
has been duly authorized to do so. The Escrow Agent and its officers, directors,
associates and employees shall not be liable for any mistake of fact or error of
judgment or for any acts or omissions of any kind unless caused by their willful
misconduct or gross negligence. Any liability of Fort Knox, regardless of the
reason shall be limited to the fees exchanged under this agreement. The Escrow
Agent shall not be liable for special, indirect, incidental or consequential
damages hereunder. This Agreement shall constitute notice to any person or
entity who shall acquire a right of access to the Deposit Copies that the Escrow
Agent's duty is limited as set forth herein.
5.3 Indemnification of Escrow Agent. McCamish and Company, jointly
and severally, shall defend, indemnify and hold harmless the Escrow Agent from
and against all claims, actions and suits, whether in contract or in tort, and
from and against any and all liabilities, losses, damages, costs, charges,
penalties, counsel fees and other expenses of any nature (including, without
limitation, reasonable attorneys fees and expenses and settlement costs)
incurred by the Escrow Agent as a result of performance of this Agreement except
to the extent they result from the Escrow Agent's gross negligence or willful
misconduct.
5.4 Escrow Agent Non-disclosure Obligations. Except as provided in
this Agreement, the Escrow Agent shall not divulge, disclose, otherwise make
available to third parties, or make any use whatsoever of the Deposit Copies, or
of any information provided to it by McCamish or Company in connection with this
Agreement, without the express prior written consent of McCamish and Company.
This obligation will continue indefinitely notwithstanding termination of this
Agreement.
5.5 Copying of Deposit Copies. The Escrow Agent shall make copies of
the Deposit Copies only as necessary to preserve and safely store the Deposit
Copies and to provide copies thereof, as authorized herein, to Company. The
Escrow Agent shall reproduce on all copies of the Deposit Copies made by the
Escrow Agent any proprietary or confidentiality notices contained in the Deposit
Copies originally deposited with it by McCamish.
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EXHIBIT H
SOFTWARE ESCROW AGREEMENT
5.6 Inspection of Escrow Account. The Escrow Agent shall keep
records of its activities undertaken and materials prepared pursuant to this
Agreement. During the term of this Agreement, McCamish and Company shall be
entitled at reasonable times, during normal business hours and upon reasonable
notice to the Escrow Agent, (i) to inspect the records of the Escrow Agent with
respect to this Agreement and the Escrow Agent's performance hereunder; and (ii)
to inspect at the facilities designated by the Escrow Agent, accompanied by a
designated employee of the Escrow Agent, the physical status and condition of
the Deposit Copies.
5.7 Verification of Deposit Copies.
(a) Requested Verification. If requested by Company, the
Escrow Agent or its designee shall, at Company's sole cost and expense, verify
the Deposit Copies for accuracy, completeness and sufficiency and issue the
results of such verification in writing to Company. The Escrow Agent shall issue
a copy of the verification results to McCamish. The Escrow Agent shall be
prohibited from appointing a designee to perform the verification procedures set
forth in this SECTION 5.7(a) unless such designee agrees in writing to be bound
by the terms and conditions of this Agreement. For purposes of this SECTION
5.7(a), Revision Labs is expressly approved as designee of the Escrow Agent. In
the event the Escrow Agent shall desire to utilize the services of any other
designee, it shall obtain the prior written approval of Company as to the
identity of such designee, which approval shall not be unreasonably withheld or
delayed.
(b) Verification Support. The Escrow Agent or its designee
shall have the right, upon not less than thirty (30) days' notice, to use the
facilities of McCamish, for a charge of $2,000 per day to Company, including
without limitation McCamish's computer systems, to verify the Deposit Copies,
but only in the presence of, and with the assistance of, McCamish's Director of
Data Processing or such other person as designated by McCamish. McCamish shall
make available any technical and support personnel reasonably necessary for the
Company to perform verification of the Deposit Copies. Company shall reimburse
McCamish for any out-of-pocket expenses incurred. Company agrees that such use
of McCamish's facilities shall be limited to once every twelve (12) months and
shall not interfere with McCamish's performance of the Remote Processing
Services.
(c) Release of Other Information. Upon request by Company and
upon notice to
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EXHIBIT H
SOFTWARE ESCROW AGREEMENT
McCamish, the Escrow Agent shall release to Company information pertaining to
directory lists and/or table of contents of computer media, manuals, schematics
and manufacturing documents in respect of the Deposit Copies.
(d) Observation. If requested by Company, McCamish shall
permit one employee of Company to be present to observe the compilation or other
verification of the Deposit Copies by the Escrow Agent.
5.8 Compliance with Laws. Each party hereto shall comply with all
Federal, state, county and local laws, ordinances, regulations and codes
applicable to the performance of this Agreement.
5.9 Return of Superseded Deposit Copies. Whenever an updated copy of
the Deposit Copy is deposited with the Escrow Agent, the Escrow Agent shall
return to McCamish all superseded copies of the Deposit Copy except for (i) the
most recently deposited updated copy; (ii) the copy immediately preceding such
updated copy; and (iii) the most recent copy for which verification pursuant to
SECTION 5.7 has been performed, each such returned copy to be free and clear of
this Agreement.
SECTION 6 RELEASE OF DEPOSIT COPIES FROM ESCROW AGENT.
6.1 Release Event. A Release Event is defined as a breach of the
Master Remote Processing Agreement by McCamish pursuant to SECTION 8.04 thereof
and failure to cure such breach within the applicable cure period specified in
the Master Remote Processing Agreement.
6.2 Release of Deposit Copies and Software License. Company shall
deliver to the Escrow Agent and McCamish a written statement signed by a partner
or director of Company stating that a Release Event has occurred and that copies
of the statement were deposited postage prepaid in the United States Mail,
registered or certified, return receipt requested, addressed to McCamish at its
last known address (a "Release Notice"). Such Release Notice shall, as between
Company and the Escrow Agent, be conclusive and dispositive evidence of the
occurrence of a Release Event. The Escrow Agent shall promptly, within two (2)
business days after receipt of such Release Notice from Company, deliver the
Deposit Copies and the Software License Agreement (as defined below) to Company.
During any period of time in which the Deposit Copies are in the possession of
Company, the Deposit Copies shall be
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EXHIBIT H
SOFTWARE ESCROW AGREEMENT
subject to, and maintained by Company in accordance with, (i) the terms of this
Agreement, and (ii) the terms and conditions of the Software System License
Agreement.
If the Escrow Agent shall transfer to Company the nonexclusive
rights to the Software which have been vested in the Escrow Agent hereunder, the
Escrow Agent's obligations hereunder with respect to the Deposit Copies shall
terminate. The Escrow Agent shall not release the Deposit Copies to McCamish,
except upon expiration of the Term or upon termination of the Master Remote
Processing Agreement.
6.3 Release Event Dispute. McCamish and Company agree that Company
will be irreparably damaged if the Escrow Agent fails to release the Deposit
Copies to Company upon receipt of a Release Notice from Company. Therefore, even
if McCamish disputes the occurrence of the event(s) described in a Release
Notice, the Escrow Agent shall nevertheless promptly deliver the Deposit Copies
to Company. In the event Company shall cause the Deposit Copies to be improperly
released from escrow, McCamish shall have the right to seek damages and
injunctive relief requiring Company to return any and all Deposit Copies to
McCamish and to cease and desist any and all use of the Deposit Copies. Subject
to the foregoing, all parties hereto reserve all other rights they may have to
prosecute or contest the claim for damages and injunctive relief and hereby
reserve all other legal and equitable rights and remedies they may have.
SECTION 7 SOFTWARE LICENSE AGREEMENT.
7.1 Software License Agreement. Contemporaneously with the execution
of this Agreement, the parties hereto shall execute and deliver the Software
License Agreement to the Escrow Agent to be held in accordance with the terms
hereof.
7.2 License. If the Deposit Copies are released from the Escrow
Account to Company by the Escrow Agent in accordance with the terms and
conditions hereof, McCamish shall grant Company a license for the use by Company
of the Deposit Copies and any modifications, updates, corrections or
enhancements thereof made by or for Company, only upon and subject to the terms
and condition of the Software License Agreement.
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EXHIBIT H
SOFTWARE ESCROW AGREEMENT
SECTION 8 REPRESENTATIONS AND WARRANTIES.
8.1 Representations and Warranties of McCamish. McCamish represents
and warrants to Company and the Escrow Agent as follows:
(a) Software. (i) The initial and subsequent deposit of copies
of the Software constitute accurate copies of the Software; (ii) the Deposit
Copies deposited in the Escrow Account at any given time in the future shall
correspond to the most recent release, modification or revision to the Software
as of the date of deposit; and (iii) the Deposit Copies will be physically
useable.
(b) Non-infringement and Authority. McCamish further
represents and warrants as follows: (i) to the best of its knowledge, the
Software does not infringe on any patent, copyright or trade secret, process or
design owned or claimed by any third party; (ii) it has all requisite power and
authority to deposit the Deposit Copies with the Escrow Agent pursuant to the
terms of this Agreement and to grant the License pursuant to the Software
License Agreement; (iii) the License will be the legal, valid and binding
obligation of McCamish, enforceable against McCamish according to its terms,
except as enforceability may be limited by applicable bankruptcy,
reorganization, insolvency, moratorium or any other similar laws affecting
generally the enforcement of creditors' rights as from time to time are in
effect and to general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law; (iv) it has
all requisite power and authority to enter into this Agreement and the execution
and delivery of this Agreement and the performance by it of its obligations
hereunder has been duly authorized; and (v) the execution of this Agreement by
McCamish will not violate any contract, judgment, decree or other agreement
under which it is currently obligated, which violation would have a material
adverse effect on the ability of McCamish to deliver the Deposit Copies to the
Escrow Agent pursuant to the terms hereof.
8.2 Representations and Warranties of the Escrow Agent. The Escrow
Agent hereby represents and warrants to Company and McCamish as follows: The
Escrow Agent has all requisite power and authority to enter into this Agreement
and has all requisite power and authority to perform its obligations hereunder.
The execution and delivery by the Escrow Agent of this Agreement and the
performance by the Escrow Agent of its obligations hereunder have been duly
authorized. This Agreement has been duly executed and delivered by the Escrow
Agent. This Agreement constitutes the
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EXHIBIT H
SOFTWARE ESCROW AGREEMENT
legal, valid and binding obligation of the Escrow Agent, enforceable against the
Escrow Agent in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, reorganization, insolvency, moratorium or any
other similar laws affecting generally the enforcement of creditors' rights as
from time to time are in effect and to general principles of equity, regardless
of whether such enforceability is considered in a proceeding in equity or at
law.
8.3 Representations and Warranties of Company. Company hereby
represents and warrants to the Escrow Agent and McCamish as follows: Company has
all requisite power and authority to enter into this Agreement and has all
requisite power and authority to perform its obligations hereunder. The
execution and delivery by Company of this Agreement and the performance of
Company hereunder has been duly authorized, and no other acts or proceedings on
the part of Company are necessary to authorize the execution, delivery and
performance of this Agreement. This Agreement has been duly executed and
delivered by Company. This Agreement constitutes the legal, valid and binding
obligation of Company, enforceable against Company in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy,
reorganization, insolvency, moratorium or any other similar laws affecting
generally the enforcement of creditors' rights as from time to time are in
effect and to general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
SECTION 9 MISCELLANEOUS.
9.1 Escrow Fees. Simultaneously herewith, Company will paid the
Escrow Agent the first year's escrow fees specified in Schedule A, and Company
shall pay all applicable annual, renewal, deposit, release, service and other
fees specified in Schedule A in accordance with the payment terms thereof.
9.2 Term. This Agreement shall become effective upon the date hereof
(the "Effective Date"), and shall end on the first to occur of (i) the end of
the term of the Master Remote Processing Agreement; (ii) termination of the
Master Remote Processing Agreement by Mutual Agreement pursuant to SECTION 8.01
thereof; (iii) termination of the Master Remote Processing Agreement by Either
Party pursuant to SECTION 8.02 thereof; (iv) termination of the Master Remote
Processing Agreement by Non-renewal pursuant to SECTION 8.03 thereof; or (v)
termination of this Agreement by Company upon written notice to the Escrow Agent
and McCamish.
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EXHIBIT H
SOFTWARE ESCROW AGREEMENT
9.3 Effect of Termination. Upon non-renewal or other termination of
this Agreement, all duties and obligations of the Escrow Agent to McCamish and
Company shall terminate. Upon termination of this Agreement, the Deposit Copies
delivered to the Escrow Agent pursuant to the terms hereof shall be returned to
McCamish by the Escrow Agent; provided, however, that if the Deposit Copies have
been released by the Escrow Agent to Company prior to the Termination Date
pursuant to the terms hereof, the Software License Agreement shall survive
termination of this Agreement in accordance with its terms.
9.4 Disputes. Any dispute in connection with this Agreement and the
transactions contemplated hereunder shall be submitted to any court in, of, or
for the State of Georgia. Company is authorized to institute action in any court
in, of, or for the State of Georgia, to resolve the dispute, including seeking
preliminary and permanent relief which may be warranted at any stage of such
proceeding. Legal fees incurred by the parties hereto in connection with any
dispute under this Agreement shall be subject to SECTION 7.3 of the Master
Remote Processing Agreement.
9.5 Assignment. Neither this Agreement nor any rights hereunder, in
whole or in part, shall be assignable or otherwise transferable by McCamish or
Company and any assignment or transfer in violation of this provision shall be
deemed null and void, unless such assignment shall be permitted under the terms
of the Master Remote Processing Agreement; provided, however, that as a
condition of any such permitted assignment by any party, its permitted assignee
shall agree in writing to be bound by the provisions of this Agreement.
Performance of obligations hereunder by a permitted assignee of any party hereto
shall be deemed to be performance by such party.
9.6 Resignation of the Escrow Agent. The Escrow Agent may resign at
any time by giving a minimum of sixty (60) days prior written notice of
resignation to the parties hereto, such resignation to be effective on the date
specified in such notice. The Deposit Copies held by the Escrow Agent under the
terms hereof shall be delivered to a successor escrow agent designated in
writing jointly by McCamish and Company, to be held on the terms and conditions
of this Agreement. If no successor escrow agent has been appointed as of the
effective date of the resignation, all obligations of the Escrow Agent hereunder
shall nevertheless cease and terminate, except that the Escrow Agent's sole
responsibility thereafter shall be to keep safely all Deposit Copies then held
by it and to deliver the same to a person jointly designated by McCamish and
Company or in accordance with the directions of a final order or
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EXHIBIT H
SOFTWARE ESCROW AGREEMENT
judgment of a court of competent jurisdiction.
9.7 Governing Law. This Agreement will be governed by and construed
in accordance with the laws of the State of Georgia, without giving effect to
the principles of conflicts of laws thereof.
9.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.9 Titles and Subtitles. Any titles, subtitles or table of contents
used in this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement.
9.10 Notices. Any notice required or permitted under this Agreement
shall be delivered personally, telegraphed, telexed, sent by facsimile
transmission or sent by certified, registered or express mail, postage prepaid
and return receipt requested. Any such notice shall be deemed given when so
delivered personally, telegraphed, telexed or sent by facsimile transmission or,
if mailed upon receipt as follows:
(a) If to Company:
Company
Street
City, State, Zip
Attention: Name/Title
Facsimile Number: (Xxx) Xxxxxxx
(b) If to McCamish:
McCamish Systems, L.L.C.
6425 Powers Ferry Road
Third Floor
Atlanta, GA 30339
Attention: J. Gordon Beckham, Jr., Vice Chairman
Facsimile Number: (770) 690-1800
(c) If to the Escrow Agent:
Fort Knox Escrow Services
2100 Norcross Parkway, Suite 150
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EXHIBIT H
SOFTWARE ESCROW AGREEMENT
Norcross, GA 30071
Attention: Richard Sheffield
Facsimile Number: (770) 239-9201
9.11 Amendments and Waivers. Any provisions of this Agreement may be
amended and the observance of any provision of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the party against whom such
amendment or waiver is to be enforced.
9.12 Severability. In the event that any one or more of the
provisions contained in this Agreement, or in any other document, agreement or
instrument referred to herein, shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement or any
other such document, agreement or instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
McCamish Systems, L.L.C. Company Complete Name
By: By:
---------------------------------- -------------------------------
J. Gordon Beckham, Jr., Vice Chairman NAME/TITLE
FORT KNOX ESCROW SERVICES
By:
----------------------------------
President
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EXHIBIT H
SOFTWARE ESCROW AGREEMENT
SCHEDULE A
FEES
<TABLE>
<S> <C>
FEES TO BE PAID BY LICENSEE SHALL BE AS FOLLOWS:
Initialization fee (one time only) $ 850
($765 for current clients)
Annual Maintenance Fee $ 900/product
Includes two Deposit Material updates
Includes one cubic foot of storage space
International (outside of U.S.) - $1000/product
Additional Updates (above two per year) $ 150
Additional Storage Space $ 150/cubic ft/year
PAYABLE BY LICENSEE OR PRODUCER:
Due upon Licensee's or Producer's
Request for Release of Deposit Materials $ 100 for initial two
hours
$50/hour for additional hours
</TABLE>
A ten percent discount is credited towards the initialization fee for current
Fort Knox clients. Fees due upon receipt of signed contract or Deposit Material,
whichever comes first and shall be paid in U.S. Dollars. The renewal date for
this Agreement will occur on the anniversary of the first invoice. Thereafter,
fees shall be subject to their current pricing, provided that such prices shall
not increase by more than 10 percent per year.
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EXHIBIT I
SAMPLE SOFTWARE LICENSE AGREEMENT
THIS SOFTWARE LICENSE AGREEMENT is entered into as of the 3rd day of
September, 1999, by and between McCamish Systems, L.L.C., a Georgia limited
liability corporation (hereinafter referred to as "McCamish") and Farmers New
World Life Insurance Company, a stock/mutual company registered under the laws
of the State of _____, (hereinafter referred to as "FNWL").
WHEREAS, McCamish and FNWL are parties to that certain Master
Administration Agreement, dated as of September 3, 1999 (the "Master
Administration Agreement"), pursuant to which McCamish has agreed to perform
certain Administration services specified therein with respect to the
Policies/Annuity Contracts/Annuity Contracts (defined below); and
WHEREAS, the parties hereto have entered into a Software Escrow
Agreement of even date herewith (the "Software Escrow Agreement") pursuant to
which McCamish will deliver to Fort Knox Escrow Services, Inc., as the Escrow
Agent, the Software (defined below) which is utilized in the administration of
the Policies/Annuity Contracts (as defined in the Master Administration
Agreement); and
WHEREAS, the parties have agreed that, in the event the Software is
delivered by the Escrow Agent to FNWL upon the occurrence of a Release Event,
FNWL is to have a license to use the Software solely on the terms and conditions
of this Agreement,
NOW, THEREFORE, for and in consideration of the mutual covenants and
conditions hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
SECTION 1 DEFINITIONS.
As used in this Agreement, the following terms shall have the
meaning set forth:
1.01 Escrow Agent. "Escrow Agent" means Fort Knox Escrow Services,
Inc., a Georgia corporation.
1.02 License Term. "License Term" means the period
commencing on release of the
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EXHIBIT I
SAMPLE SOFTWARE LICENSE AGREEMENT
Deposit Copies pursuant to SECTION 6.2 of the Software Escrow Agreement and
ending on the earlier of (i) that date on which no Policies/Annuity Contracts
shall remain in effect, (ii) any breach of this Agreement or (iii) that date on
which the Initial Term of the Master Administration Agreement was set to expire.
1.03 Policies. "Policies" means, collectively, the insurance
policies included within one of the Products and "Policy" means any one of the
Policies.
1.04 Contracts. "Contracts" mean, collectively, the annuity
contracts included within one of the Products and "Contract" means any one of
the Annuity Contracts.
1.05 Products. "Products" means the insurance and annuity products
described in Exhibit E of the Master Administration Agreement and made a part
hereof.
1.06 Software. "Software" means VPAS(R) Life Administration System,
a group of computer programs and associated database data dictionaries utilized
by McCamish in the discharge of McCamish's obligations under the Master
Administration Agreement; provided, however, that Software shall not include any
computer software programs which are licensed by McCamish from third-parties.
SECTION 2 LICENSE.
McCamish hereby grants to FNWL a nonexclusive and royalty-free
license, transferable only as specifically permitted pursuant to this Agreement,
to use, during the License Term, the copies of the Software and updates thereto
which are deposited with the Escrow Agent pursuant to the Software Escrow
Agreement (the "Deposit Copies"), for the sole and exclusive purpose of
performing the Administration Services with respect to the Policies/Annuity
Contracts, subject only to the restrictions set forth herein. Anything in this
Agreement to the contrary notwithstanding, this License shall become effective
and the rights granted to FNWL hereunder shall arise if, and only if, the
Deposit Copies shall be properly delivered by the Escrow Agent to FNWL in
accordance with the terms and conditions of the Software Escrow Agreement.
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EXHIBIT I
SAMPLE SOFTWARE LICENSE AGREEMENT
SECTION 3 NO PAYMENT.
McCamish acknowledges and agrees that it shall receive no
compensation, royalty, license fee or other payment from FNWL in connection with
the license granted pursuant to this Agreement.
SECTION 4 LIMITATIONS ON USE.
FNWL shall use the Software during the License Term solely for the
purpose of performing the Administration Services with respect to the
Policies/Annuity Contracts. In the event that FNWL, either itself or through its
agents or its affiliates or their agents, shall use the Software for any purpose
which is not specifically permitted by the terms of this Agreement, the License
granted hereunder shall be revoked and shall be of no further force or effect.
SECTION 5 ASSIGNMENT BY FNWL.
McCamish acknowledges that, during the License Term, FNWL may engage
third-parties to perform the administration of the Policies/Annuity Contracts.
FNWL shall have the right to sublicense the Software to any such third party,
during the License Term, but only if such third-party shall agree in writing, as
a condition precedent to the effectiveness of such assignment, to be bound by
all of the terms and conditions of this Agreement and the Master Insurance
Administration Agreement and such writing shall be delivered to McCamish.
SECTION 6 NO SUPPORT SERVICES.
FNWL acknowledges and agrees that McCamish shall not be required to
perform or provide any installation, maintenance or support services to FNWL
with respect to the license granted under this Agreement.
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SECTION 7 WARRANTY.
McCamish warrants to FNWL that the Software will function so as to
allow for the administration of the Policies/Annuity Contracts in substantially
the same manner in which such Policies/Annuity Contracts are administered as of
the date the Software was deposited with the Escrow Agent; provided, however,
that this warranty shall terminate immediately in the event FNWL makes any
modification, enhancement or other change to the Software. EXCEPT AS EXPRESSLY
SET FORTH IN THIS SECTION 7, MCCAMISH MAKES NO EXPRESS OR IMPLIED WARRANTY
WHATSOEVER, WHETHER OF MERCHANTABILITY, OF FITNESS FOR A PARTICULAR PURPOSE OR
OTHERWISE.
SECTION 8 TERMINATION.
In the event FNWL shall breach or otherwise violate any term or
condition of this Agreement during the License Term, which breach or violation
shall not be cured within ten (10) business days after receipt of written notice
of such breach or violation from McCamish, McCamish shall have the right to
terminate this Agreement upon written notice to FNWL.
SECTION 9 DUTIES UPON TERMINATION.
Upon termination of this Agreement, whether upon the expiration of
the License Term or otherwise, FNWL shall, within ten (10) business days after
the date of such termination, deliver to McCamish at FNWL's sole cost and
expense, all copies of the Software and other items contained in the Deposit
Copy and shall cease all further use of the Software.
SECTION 10 CONFIDENTIALITY.
(a) Without McCamish's prior written consent, FNWL shall not in any
manner or form disclose, provide or otherwise make available, in whole or in
part, the Software, or anything contained in the Deposit Copy, other than (i) to
its employees in the scope of their employment; (ii) to any permitted assignee
under SECTION 5 hereof; and (iii) to FNWL's independent auditors, legal counsel
and other agents, but in all such cases FNWL shall use its reasonable efforts to
have each such person, receiving such disclosure, agree in writing to protect
the confidentiality of the Software and other items contained in the Deposit
Copy. FNWL
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EXHIBIT I
SAMPLE SOFTWARE LICENSE AGREEMENT
shall take all appropriate action to satisfy its obligations under this
Agreement with respect to the use and confidentiality of the Software. FNWL
shall not, without McCamish's prior written consent, disclose, transfer or
transmit, in whole or in part in any manner, the Software or any information
which can permit the duplication, recreation or other utilization of any
proprietary or confidential information of McCamish embodied in the Software or
associated documentation and procedures contained in the Deposit Copy.
(b) FNWL acknowledges and agrees that a breach or contemplated
breach by FNWL of this SECTION 10 will result in irreparable injury to McCamish.
Therefore, in the event of any breach or contemplated breach of this SECTION 10,
in addition to all other remedies provided at law or in equity, McCamish shall
be entitled to both preliminary and permanent injunctive relief to prevent a
breach or a contemplated breach of this SECTION 10.
SECTION 11 MISCELLANEOUS.
11.1 Binding Effect; Assignment. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns. No party to this Agreement may assign its
rights or delegate its duties hereunder without the prior written consent of the
other party hereto.
11.2 Governing Law. This Agreement will be governed by and construed
in accordance with the laws of the State of Georgia.
11.3 Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid and return receipt requested. Any
such notice shall be deemed given when so delivered personally, telegraphed,
telexed or sent by facsimile transmission or, if mailed, three (3) days after
the date of deposit in the United States mail, as follows:
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EXHIBIT I
SAMPLE SOFTWARE LICENSE AGREEMENT
(a) If to FNWL:
Farmers New World Life Insurance Company
3003 - 77th Avenue S.E.
Mercer Island, WA 98040
Attention: ______________
_________________________
Facsimile Number: (___) ________
(b) If to McCamish:
McCamish Systems, L.L.C.
6425 Powers Ferry Road
Third Floor
Atlanta, GA 30339
Attention: J. Gordon Beckham, Jr.
Vice Chairman
Facsimile Number: (770) 690-1800
11.4 Severability. In the event that any one or more of the
provisions contained in this Agreement, or in any other document, agreement or
instrument referred to herein, shall, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement or any
other such document, agreement or instrument.
11.5 No Third-Party Beneficiaries. Nothing in this Agreement is
intended or shall be construed to give any person, other than the parties
hereto, any legal or equitable right, remedy or claim under or in respect of
this Agreement or any provision contained herein.
11.6 Effect of Article and Section Headings. The Article and Section
headings herein are for convenience only and shall not affect the construction
of this Agreement.
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EXHIBIT I
SAMPLE SOFTWARE LICENSE AGREEMENT
11.7 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which will
constitute one and the same document.
11.8 Entire Agreement. This Agreement, and the agreements
contemplated hereby, contain the entire understanding of the parties with
respect to the subject matter hereof and thereof, and no representation,
warranty, covenant or agreement not embodied herein or therein, or oral or
otherwise, shall be of any force or effect whatsoever. Further, no change,
amendment or modification of this Agreement shall be effective unless in writing
and signed by all of the parties hereto.
11.9 Waiver. A waiver of any default or breach hereunder granted by
any party hereto shall not constitute a waiver by such party of any other
default or breach or a waiver by such party of the same default or breach at a
later time. Further, to be effective, any such waiver must be in writing and be
signed by the party granting such waiver.
IN WITNESS WHEREOF, the parties hereto have caused this License
Agreement to be executed and delivered by their duly authorized officers or
partners (as the case may be), all as of the date first above written.
McCamish Systems, L.L.C.
By:
--------------------------------
J. Gordon Beckham, Jr.
Vice Chairman
Farmers New World Life Insurance Company
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EXHIBIT I
SAMPLE SOFTWARE LICENSE AGREEMENT
By:
-----------------------------
Name
Title
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<PAGE> 1
EXHIBIT 9
FARMERS NEW WORLD LIFE
INSURANCE COMPANY
4680 Wilshire Blvd.
Los Angeles, California 90010
Direct Dial Number: 323-932-7165
Facsimile: 323-964-8093
November 15, 1999
Board of Directors
Farmers New World Life Insurance Company
Farmers Annuity Separate Account A
3003 - 77th Avenue, S.E.
Mercer Island, Washington 98040
Gentlemen:
1. In my capacity as Vice President and General Counsel of Farmers New
World Life Insurance Company ("Farmers"), I have participated in the
preparation and review of this Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-4 (File No. 333-85183) filed with the
Securities and Exchange Commission under the Securities Act of 1933 for the
registration of individual flexible premium variable annuity contracts (the
"Contracts") to be issued with respect to Farmers Annuity Separate Account A
(the "Account"). The Account was established on April 6, 1999, by the Board of
Directors of Farmers as a separate account for assets applicable to the
Contracts, pursuant to the provisions of Section 48.18A.020 of the Washington
Insurance Laws.
2. The Separate Account is a separate account of Farmers validly existing
pursuant to Washington law and the regulations issued thereunder.
3. The Contracts, when issued as contemplated by the Registration
Statement, will be legal and binding obligations of Farmers in accordance with
their terms.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as I judged to be necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the above
referenced Registration Statement and to the use of my name under the caption
"Legal Matters" in the Statement of Additional Information constituting a part
of the Registration Statement.
Sincerely,
/s/ M. Douglas Close
- -----------------------
M. Douglas Close
Vice President and
General Counsel
<PAGE> 1
EXHIBIT 10(a)
[Sutherland Asbill & Brennan LLP Letterhead]
STEPHEN E. ROTH
DIRECT LINE: (202) 383-0158
Internet: [email protected]
November 15, 1999
VIA EDGARLINK
Board of Directors
Farmers New World Life Insurance Company
3003 77th Avenue, S.E.
Mercer Island, WA 98040
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption
"Legal Matters" in the Farmers Variable Annuity Statement of Additional
Information filed as part of Pre-Effective Amendment No. 1 to the registration
statement on Form N-4 for Farmers Annuity Separate Account A (File No.
333-85183). In giving this consent, we do not admit that we are in the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933.
Very truly yours,
Sutherland Asbill & Brennan LLP
By: /s/ Stephen E. Roth
---------------------------
Stephen E. Roth
<PAGE> 1
EXHIBIT 10(b)
[letterhead of Deloitte & Touche LLP]
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Farmers Annuity Separate
Account A Registration Statement No. 33-85183 of Farmers New World Life
Insurance Company on Form N-4 of our report dated February 3, 1999 appearing in
the Prospectus, which is a part of such Registration Statement, and to the
reference to us under the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
November 15,1999
Seattle, Washington
