1933 Act Registration No. 333-93883
1940 Act Registration No. 811-09765
As filed with the Securities and Exchange Commission on April 19, 2000
FORM N-1A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ ]
Pre-Effective Amendment No. 3 [X]
Post-Effective Amendment No. __ [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [ ]
Amendment No. 3 [X]
FIRST AMERICAN INSURANCE PORTFOLIOS, INC.
(Exact Name of Registrant as Specified in Charter)
601 Second Avenue South
Minneapolis, Minnesota 55402
(Address of Principal Executive Offices) (Zip Code)
(612) 973-0384
(Registrant's Telephone Number, including Area Code)
Christopher J. Smith
U.S. Bank Place, MPFP 2016
601 Second Avenue South
Minneapolis, Minnesota 55402
(Name and Address of Agent for Service)
COPIES TO:
Christopher O. Petersen
U.S. Bank National Association
601 2nd Avenue South, MPFP 2016
Minneapolis, Minnesota 55402
Approximate effective date of proposed offering: May 1, 2000.
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on April 27, 2000 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
<PAGE>
MAY 1, 2000
ASSET CLASSES
(*) EQUITY FUNDS
* FUNDS OF FUNDS
* BOND FUNDS
* TAX FREE BOND FUNDS
* MONEY MARKET FUNDS
PROSPECTUS
FIRST AMERICAN INSURANCE PORTFOLIOS, INC.
FIRST AMERICAN
INSURANCE
PORTFOLIOS
LARGE CAP GROWTH PORTFOLIO
TECHNOLOGY PORTFOLIO
INTERNATIONAL PORTFOLIO
AS WITH ALL MUTUAL FUNDS, THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
APPROVED OR DISAPPROVED THE SHARES OF THESE FUNDS, OR DETERMINED IF THE
INFORMATION IN THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY STATEMENT TO THE
CONTRARY IS A CRIMINAL OFFENSE.
[LOGO] FIRST AMERICAN FUNDS(R)
THE POWER OF DISCIPLINED INVESTING(R)
<PAGE>
Table of
CONTENTS
PORTFOLIO SUMMARIES
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Large Cap Growth Portfolio 2
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Comparative Fund Performance 3
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Technology Portfolio 4
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Comparative Fund Performance 5
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International Portfolio 6
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Comparative Fund Performance 7
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POLICIES & SERVICES
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Buying and Selling Shares 8
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Managing Your Investment 8
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ADDITIONAL INFORMATION
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Management 9
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More About The Portfolios 10
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Financial Highlights 12
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FOR MORE INFORMATION Back Cover
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<PAGE>
Portfolio Summaries
INTRODUCTION
This section of the Prospectus describes the objectives of the portfolios,
summarizes the main investment strategies used by each portfolio in trying to
achieve its objectives, and highlights the risks involved with these strategies.
(Note that individual investors cannot purchase shares of the portfolios
directly. Shares of the portfolios may be purchased only by the separate
accounts of participating insurance companies for the purpose of funding
variable annuity contracts or variable life insurance policies.)
AN INVESTMENT IN THE PORTFOLIOS IS NOT A DEPOSIT OF U.S. BANK NATIONAL
ASSOCIATION AND IS NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
1 PROSPECTUS - First American Insurance Portfolios
<PAGE>
Portfolio Summaries
LARGE CAP GROWTH PORTFOLIO
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OBJECTIVE
Large Cap Growth Portfolio's objective is long-term growth of capital.
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MAIN INVESTMENT STRATEGIES
Under normal market conditions, Large Cap Growth Portfolio invests primarily (at
least 75% of its total assets) in common stocks of companies that have market
capitalizations of at least $5 billion at the time of purchase. The advisor will
select companies that it believes exhibit the potential for superior growth
based on factors such as:
* above average growth in revenue and earnings;
* strong competitive position;
* strong management; and
* sound financial condition.
Up to 25% of the portfolio's total assets may be invested in securities of
foreign issuers which are either listed on a United States stock exchange or
represented by American Depositary Receipts.
To generate additional income, the portfolio may lend securities representing up
to one-third of the value of its total assets to broker-dealers, banks and other
institutions.
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MAIN RISKS
The value of your investment in this portfolio will change daily, which means
you could lose money. The main risks of investing in this portfolio include:
RISKS OF COMMON STOCKS
Stocks may decline significantly in price over short or extended periods of
time. Price changes may occur in the market as a whole, or they may occur in
only a particular company, industry or sector of the market. In addition, growth
stocks and/or large capitalization stocks may underperform the market as a
whole.
FOREIGN SECURITY RISK
Securities of foreign issuers, even when dollar-denominated and publicly traded
in the United States, may involve risks not associated with the securities of
domestic issuers, including the risks of adverse currency fluctuations and of
political or social instability or diplomatic developments that could adversely
affect the securities.
RISKS OF SECURITIES LENDING
The portfolio is subject to the risk that the other party to a securities
lending agreement will default on its obligations.
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PORTFOLIO PERFORMANCE
Because Large Cap Growth Portfolio had not commenced operations prior to the
date of this Prospectus, no actual performance is presented.
2 PROSPECTUS - First American Insurance Portfolios
<PAGE>
Portfolio Summaries
COMPARATIVE FUND PERFORMANCE
Large Cap Growth Portfolio is a newly organized series of First American
Insurance Portfolios, Inc. and does not yet have its own performance record.
However, this portfolio is substantially similar, i.e., it has identical
investment objectives, strategies, risks and policies, to the Large Cap Growth
Fund offered through First American Investment Funds, Inc., another registered
open-end investment company managed by the investment advisor. Performance
information for Large Cap Growth Fund, below, is presented to provide you with
the track record (performance and volatility) of the advisor in managing a
mutual fund that has been managed in a substantially similar fashion to the way
the advisor will manage Large Cap Growth Portfolio. The illustrations below are
based on Large Cap Growth Fund's Class Y institutional shares. Of course, past
performance does not guarantee future results, and investors should not consider
this data as a substitute for past performance of Large Cap Growth Portfolio or
as an indication of future performance of Large Cap Growth Portfolio.
The bar chart shows you how the performance of Large Cap Growth Fund has varied
from year to year. The table compares Large Cap Growth Fund's performance over
different time periods to that of the Fund's benchmark index, which is a broad
measure of market performance, is unmanaged, and has no expenses. The bar chart
and the table assume that all distributions have been reinvested and reflect the
fund's fees and expenses (after waivers).
Fees and expenses for Large Cap Growth Portfolio, offered in this Prospectus as
an investment for variable annuity contracts, may differ from the fees and
expenses reflected in the performance returns for Large Cap Growth Fund, below.
Total fees and expenses for Large Cap Growth Portfolio, including any fee
waivers, are disclosed in the participating insurance company prospectus.
Additionally, the performance information presented does not reflect the
deduction of any separate fees that would have been imposed by participating
insurance companies in connection with their sale of variable annuity contracts
to investors; if the performance had been adjusted to reflect any such fees,
returns would be lower. Investors should refer to the participating insurance
company's prospectus describing all related contract fees; any such fees will
reduce the performance of the Large Cap Growth Portfolio.
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COMPARATIVE PERFORMANCE INFORMATION
LARGE CAP GROWTH FUND
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1)
[BAR CHART]
32.78% 23.23% 21.61% 24.05% 38.04%
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1995 1996 1997 1998 1999
Best Quarter:
Quarter ending: December 31, 1999 22.71%
Worst Quarter:
Quarter ending: September 30, 1998 (14.09)%
LARGE CAP GROWTH FUND
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99(1) Date One Year Five Years Inception
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Large Cap Growth Fund 8/2/94 38.04% 27.79% 26.38%
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Standard & Poor's 500 Composite Index(2) 21.04% 28.55% 25.95%
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</TABLE>
(1) Performance returns for the funds are presented net of fees and expenses
which, for the fiscal year ended September 30, 1999, were 0.80% for Large
Cap Growth Fund.
(2) An unmanaged index of large capitalization stocks. The since inception
performance of the index is calculated from 8/31/94. The S & P 500 Composite
Index will be the comparative benchmark for Large Cap Growth Portfolio.
3 PROSPECTUS - First American Insurance Portfolios
<PAGE>
Portfolio Summaries
TECHNOLOGY PORTFOLIO
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OBJECTIVE
Technology Portfolio has an objective of long-term growth of capital.
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MAIN INVESTMENT STRATEGIES
Under normal market conditions, Technology Portfolio invests primarily (at least
65% of its total assets) in common stocks of companies which the portfolio's
advisor believes either have, or will develop, products, processes or services
that will provide or will benefit significantly from technological innovations,
advances and improvements. These may include:
* inexpensive computing power, such as personal computers;
* improved methods of communications, such as satellite transmission; and
* technology-related services such as internet-related marketing services.
The prime emphasis of the portfolio is to identify companies which the advisor
believes are positioned to benefit from technological advances in areas such as
semiconductors, computers, software, communications, and online services.
Companies in which the portfolio invests may include development stage companies
(companies that do not have significant revenues) and small capitalization
companies. The advisor will generally select companies that it believes exhibit
strong management teams, a strong competitive position, above average growth in
revenues and a sound balance sheet.
Under certain market conditions, the portfolio may frequently invest in
companies at the time of their initial public offering (IPO). By virtue of its
size and institutional nature, the advisor may have greater access than
individual investors have to IPOs, including access to so-called "hot issues"
which are generally traded in the aftermarket at prices in excess of the IPO
price. IPOs will frequently be sold within 12 months of purchase which may
result in increased short-term capital gains.
Up to 25% of the portfolio's total assets may be invested in securities of
foreign issuers which are either listed on a United States stock exchange or
represented by American Depositary Receipts.
To generate additional income, the portfolio may lend securities representing up
to one-third of the value of its total assets to broker-dealers, banks and other
institutions.
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MAIN RISKS
The value of your investment in this portfolio will change daily, which means
you could lose money. The main risks of investing in this portfolio include:
RISKS OF COMMON STOCKS
Stocks may decline significantly in price over short or extended periods of
time. Price changes may affect the market as a whole, or they may affect only a
particular company, industry or sector of the market.
RISKS OF NON-DIVERSIFICATION
The portfolio is non-diversified. This means that it may invest a larger portion
of its assets in a limited number of companies than a diversified portfolio.
Because a relatively high percentage of the portfolio's assets may be invested
in the securities of a limited number of issuers, and because those issuers will
be in the same or related economic sectors, the portfolio's securities may be
more susceptible to any single economic, technological or regulatory occurrence
than the securities of a diversified mutual fund.
RISKS OF THE TECHNOLOGY SECTOR
Because the portfolio invests primarily in technology related stocks, it is
particularly susceptible to risks associated with the technology industry.
Competitive pressures may have a significant effect on the financial condition
of companies in that industry.
RISKS OF DEVELOPMENT STAGE AND SMALL CAP STOCKS
Stocks of development stage and small capitalization companies involve
substantial risk. These stocks historically have experienced greater price
volatility than stocks of more established and larger capitalization companies,
and they may be expected to do so in the future.
RISKS OF IPOs
Companies involved in IPOs generally have limited operating histories and
prospects for future profitability are uncertain. Prices of IPOs may also be
unstable due to the absence of a prior public market, the small number of shares
available for trading and limited investor information. IPOs will frequently be
sold within 12 months of purchase. This may result in increased short-term
capital gains, which will be taxable to shareholders as ordinary income.
FOREIGN SECURITY RISK
Securities of foreign issuers, even when dollar-denominated and publicly traded
in the United States, may involve risks not associated with the securities of
domestic issuers, including the risks of adverse currency fluctuations and of
political or social instability or diplomatic developments that could adversely
affect the securities.
RISKS OF SECURITIES LENDING
The portfolio is subject to the risk that the other party to a securities
lending agreement will default on its obligations.
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PORTFOLIO PERFORMANCE
Because Technology Portfolio had not commenced operations prior to the date of
this Prospectus, no actual performance is presented.
4 PROSPECTUS - First American Insurance Portfolios
<PAGE>
Portfolio Summaries
COMPARATIVE FUND PERFORMANCE
Technology Portfolio is a newly organized series of First American Insurance
Portfolios, Inc. and does not yet have its own performance record. However, this
portfolio is substantially similar, i.e., it has identical investment
objectives, strategies, risks and policies, to the Technology Fund offered
through First American Investment Funds, Inc., another registered open-end
investment company managed by the investment advisor. Performance information
for Technology Fund, below, is presented to provide you with the track record
(performance and volatility) of the advisor in managing a mutual fund that has
been managed in a substantially similar fashion to the way the advisor will
manage Technology Portfolio. The illustrations below are based on Technology
Fund's Class Y institutional shares. Of course, past performance does not
guarantee future results, and investors should not consider this data as a
substitute for past performance of Technology Portfolio or as an indication of
future performance of Technology Portfolio.
The bar chart shows you how the performance of Technology Fund has varied from
year to year.
The table compares Technology Fund's performance over different time periods to
that of the fund's benchmark index, which is a broad measure of market
performance, is unmanaged, and has no expenses. The bar chart and the table
assume that all distributions have been reinvested and reflect the fund's fees
and expenses (after waivers).
Fees and expenses for Technology Portfolio, offered in this Prospectus as an
investment for variable annuity contracts, may differ from the fees and expenses
reflected in the performance returns for Technology Fund, below. Total fees and
expenses for Technology Portfolio, including any fee waivers, are disclosed in
the participating insurance company prospectus. Additionally, the performance
information presented does not reflect the deduction of any separate fees that
would have been imposed by participating insurance companies in connection with
their sale of variable annuity to investors; if the performance had been
adjusted to reflect any such fees, returns would be lower. Investors should
refer to the participating insurance company's prospectus describing all related
contract fees; any such fees will reduce the performance of the Technology
Portfolio.
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COMPARATIVE PERFORMANCE INFORMATION
TECHNOLOGY FUND(1)
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(2)
[BAR CHART]
41.02% 22.43% 7.31% 32.70% 191.79%
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1995 1996 1997 1998 1999
Best Quarter:
Quarter ending: December 31, 1999 80.67%
Worst Quarter:
Quarter ending: September 30, 1998 (18.20)%
TECHNOLOGY FUND(1)
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99(2) Date One Year Five Years Inception
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Technology Fund 4/4/94 192.59% 48.38% 46.69%
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S & P Technology Composite Index(3) 75.21% 50.76% 47.34%
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</TABLE>
(1) Performance returns for the funds are presented net of fees and expenses
which, for the fiscal year ended September 30, 1999, were 0.90% Technology
Fund.
(2) Technology Fund's 1999 returns were primarily achieved buying IPOs and
technology related stocks in a period favorable for these investments. Of
course, such favorable returns involve accepting the risk of volatility, and
there is no assurance that Technology Portfolio's future investment in IPOs
and technology stocks will have the same or a similar effect on performance
as it did in 1999 for the Technology Fund.
(3) An unmanaged index comprised of technology stocks in the S & P 500. The
since inception performance of the index is calculated from 4/30/94. The S &
P 500 Technology Composite Index will be the comparative benchmark for
Technology Portfolio.
5 PROSPECTUS - First American Insurance Portfolios
<PAGE>
Portfolio Summaries
INTERNATIONAL PORTFOLIO
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OBJECTIVE
International Portfolio has an objective of long-term growth of capital.
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MAIN INVESTMENT STRATEGIES
Under normal market conditions, International Portfolio invests primarily (at
least 65% of its total assets) in equity securities that trade in markets other
than the United States. These securities generally are issued by companies:
* that are domiciled in countries other than the United States, or
* that derive at least 50% of either their revenues or their pre-tax income from
activities outside of the United States.
Normally, the portfolio will invest in securities traded in at least three
foreign countries.
In choosing investments for the portfolio, the portfolio's sub-advisor generally
places primary emphasis on country selection. This is followed by the selection
of industries or sectors within or across countries and the selection of
individual stocks within those industries or sectors. Investments are expected
to be made primarily in developed markets and larger capitalization companies.
However, the portfolio also has the ability to invest in emerging markets and
smaller capitalization companies.
Equity securities in which the portfolio invests include common and preferred
stock. In addition, the portfolio may invest in securities representing
underlying international securities, such as American Depositary Receipts and
European Depositary Receipts, and in securities of other investment companies.
In order to hedge against adverse movements in currency exchange rates, the
portfolio may enter into forward foreign currency exchange contracts.
To generate additional income, the portfolio may lend securities representing up
to one-third of the value of its total assets to broker-dealers, banks and other
institutions.
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MAIN RISKS
The value of your investment in this portfolio will change daily, which means
you could lose money. The main risks of investing in this portfolio include:
RISKS OF EQUITY SECURITIES
Equity securities may decline significantly in price over short or extended
periods of time. Price changes may occur in the world market as a whole, or they
may occur in only a particular country, company, industry or sector of the world
market.
RISKS OF INTERNATIONAL INVESTING
International investing involves risks not typically associated with domestic
investing. Because of these risks, and because of the sub-advisor's ability to
invest substantial portions of the portfolio's assets in a small number of
countries, the portfolio may be subject to greater volatility than mutual funds
that invest principally in domestic securities. Risks of international investing
include adverse currency fluctuations, potential political and economic
instability, limited liquidity and volatile prices of non-U.S. securities,
limited availability of information regarding non-U.S. companies, investment and
repatriation restrictions, and foreign taxation.
RISKS OF EMERGING MARKETS
The risks of international investing are particularly significant in emerging
markets. Investing in emerging markets generally involves exposure to economic
structures that are less diverse and mature, and to political systems that are
less stable, than those of developed countries. In addition, issuers in emerging
markets typically are subject to a greater degree of change in earnings and
business prospects than are companies in developed markets.
RISKS OF SMALLER CAPITALIZATION COMPANIES
Stocks of smaller capitalization companies involve substantial risk and their
prices may be subject to more abrupt or erratic movements than those of larger,
more established companies or of market averages in general.
RISKS OF FOREIGN CURRENCY HEDGING TRANSACTIONS
If the sub-advisor's forecast of exchange rate movements is incorrect, the
portfolio may realize losses on its foreign currency transactions. In addition,
the portfolio's hedging transactions may prevent the portfolio from realizing
the benefits of a favorable change in the value of foreign currencies.
RISKS OF SECURITIES LENDING
The portfolio is subject to the risk that the other party to a securities
lending agreement will default on its obligations.
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PORTFOLIO PERFORMANCE
Because International Portfolio had not commenced operations prior to the date
of this Prospectus, no actual performance is presented.
6 PROSPECTUS - First American Insurance Portfolios
<PAGE>
Portfolio Summaries
COMPARATIVE FUND PERFORMANCE
International Portfolio is a newly organized series of First American Insurance
Portfolios, Inc. and does not yet have its own performance record. However, this
portfolio is substantially similar, i.e., it has identical investment
objectives, strategies, risks and policies, to the International Fund offered
through First American Investment Funds, Inc., another registered open-end
investment company managed by the investment advisor and sub-advised by Marvin &
Palmer Associates, Inc. Performance information for International Fund, below,
is presented to provide you with the track record (performance and volatility)
of the sub-advisor in managing a mutual fund that has been managed in a
substantially similar fashion to the way the sub-advisor will manage
International Portfolio. The performance illustrations below are based on
International Fund's Class Y institutional shares. Of course, past performance
does not guarantee future results, and investors should not consider this data
as a substitute for past performance of International Portfolio or as an
indication of future performance of International Portfolio.
The bar chart shows you how the performance of International Fund has varied
from year to year. The table compares International Fund's performance over
different time periods to that of the funds' benchmark index, which is a broad
measure of market performance, is unmanaged, and has no expenses. The bar chart
and the table assume that all distributions have been reinvested and reflect the
fund's fees and expenses (after waivers).
Fees and expenses for International Portfolio, offered in this Prospectus as an
investment for variable annuity contracts, may differ from the fees and expenses
reflected in the performance returns for International Fund, below. Total fees
and expenses for International Portfolio, including any fee waivers, are
disclosed in the participating insurance company prospectus. Additionally, the
performance information presented does not reflect the deduction of any separate
fees that would have been imposed by participating insurance companies in
connection with their sale of variable annuity contracts to investors; if the
performance had been adjusted to reflect any such fees, returns would be lower.
Investors should refer to the participating insurance company's prospectus
describing all related contract fees; any such fees will reduce the performance
of International Portfolio.
- --------------------------------------------------------------------------------
COMPARATIVE PERFORMANCE INFORMATION
INTERNATIONAL FUND
ANNUAL TOTAL RETURNS AS OF 12/31 EACH YEAR(1)
[BAR CHART]
9.36% 8.13% 16.79% 26.11% 83.40%
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1995 1996 1997 1998 1999
Best Quarter:
Quarter ending: December 31, 1999 61.60%
Worst Quarter:
Quarter ending: September 30, 1998 (14.16)%
INTERNATIONAL FUND
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS Inception Since
AS OF 12/31/99(1) Date One Year Five Years Inception
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
International Fund 4/04/94 83.40% 26.14% 20.84%
- ------------------------------------------------------------------------------------------------
Morgan Stanley Capital International Europe,
Australasia, Far East Index(2) 26.96% 12.83% 11.23%
- ------------------------------------------------------------------------------------------------
</TABLE>
(1) Performance returns for the funds are presented net of fees and expenses
which, for the fiscal year ended September 30, 1999, were 1.35%, for
International Fund.
(2) An unmanaged index including approximately 1,077 companies representing the
stock markets of 14 European countries, Australia, New Zealand, Japan, Hong
Kong and Singapore. The since inception performance of the index is
calculated from 4/30/94. The EAFE Index will be the comparative benchmark
for the International Portfolio.
7 PROSPECTUS - First American Insurance Portfolios
<PAGE>
Policies & Services
BUYING AND SELLING SHARES
Shares of the portfolios are only made available through separate investment
accounts of participating insurance companies as an underlying investment for
your variable annuity contract or variable life insurance policy. Individual
investors cannot obtain shares of the portfolios directly. Please refer to the
accompanying prospectus of the participating insurance company for more
information on how to select the portfolios as an investment option.
Your participating insurance company is the portfolios' designee for receipt of
purchase orders for your variable annuity contract or variable life insurance
policy. The portfolios do not impose any separate charge on the contract owners
or policy holders (contract owners) for the purchase or redemption of shares.
Participating insurance companies purchase or redeem shares for separate
accounts at net asset value (NAV) without any sales or redemption charge. Any
separate charges imposed by the participating insurance company are described in
the accompanying prospectus of the participating insurance company. A
participating insurance company may also impose certain restrictions or
limitations on the allocation of purchase payment or contract value to the
portfolios in a separate account. Prospective investors should consult the
applicable participating insurance company prospectus for information regarding
fees and expenses of the contract and separate account and any applicable
restrictions or limitations.
The share price that applies to a purchase or redemption order of portfolio
shares is based on the next calculation of the NAV per share that is made after
the participating insurance company receives such order from the contract owner
on a regular business day. See "Calculating Your Share Price" for more
information. Only the participating insurance companies that hold portfolio
shares in their separate accounts for the benefit of contract owners can place
orders to purchase or redeem shares. Contract owners should not directly contact
the portfolio to request a purchase or redemption of portfolio shares. Contract
owners should refer to the instructions in the participating insurance company
prospectus for more information.
CALCULATING YOUR SHARE PRICE
Your share price is based on the portfolio's NAV per share, which is generally
calculated as of the close of regular trading on the New York Stock Exchange
(usually 3 p.m. Central time) every day the exchange is open.
A portfolio's NAV is equal to the market value of its investments and other
assets, less any liabilities, divided by the number of portfolio shares. If
market prices are not readily available for an investment or if the advisor
believes they are unreliable, fair value prices may be determined in good faith
using methods approved by the portfolios' board of directors.
Portfolios may hold securities that trade on weekends or other days when the
portfolio does not price its shares. Therefore, the net asset value of a
portfolio's shares may change on days when shareholders will not be able to
purchase or redeem their shares.
- --------------------------------------------------------------------------------
MANAGING YOUR INVESTMENT
TAXES
For a discussion of the tax status of a variable annuity contract or a variable
life insurance policy, please consult your tax professional or refer to the
accompanying prospectus of the participating insurance company. Because shares
of the portfolios may be purchased only through insurance company separate
accounts for variable annuity contracts and variable life insurance policies,
dividends paid by the portfolio from net investment income and distributions (if
any) of net realized short term and long term capital gains will be taxable, if
at all, to the participating insurance company.
Because everyone's tax situation is unique, always consult your tax professional
about federal, state and local tax consequences.
DIVIDENDS AND DISTRIBUTIONS
Dividends from the portfolios' net investment income and distributions from the
portfolios' realized capital gains, if any, are declared and paid once each
calendar year. The portfolios have no fixed dividend rate and cannot guarantee
that dividends will be paid. Dividend and capital gain distributions will be in
cash or reinvested in full or fractional shares of the portfolio paying the
distribution at NAV.
POTENTIAL CONFLICTS OF INTEREST
Shares of the portfolios may serve as the underlying investments for both
variable annuity and variable life insurance contracts of various insurance
companies. Due to differences in tax treatment or other considerations, the
interests of various contract owners might at some time be in conflict. The
portfolios currently do not foresee any such conflict. However, the Board of
Directors of the portfolios intends to monitor events to identify any material
conflicts that may arise and determine what action, if any, should be taken in
response to such conflicts. If such a conflict were to occur, one or more
participating insurance companies' separate accounts might be required to
withdraw its investments in the portfolios. This might force the portfolios to
sell securities at disadvantageous prices.
8 PROSPECTUS - First American Insurance Portfolios
<PAGE>
Additional Information
MANAGEMENT
U.S. Bank National Association (U.S. Bank), acting through its First American
Asset Management division, is the portfolios' investment advisor. First American
Asset Management provides investment management services to individuals and
institutions, including corporations, foundations, pensions and retirement
plans. As of December 31, 1999, it had more than $78 billion in assets under
management, including investment company assets of more than $33 billion. As
investment advisor, First American Asset Management manages the portfolios'
business and investment activities, subject to the authority of the board of
directors. Each portfolio pays the investment advisor a monthly fee for
providing investment advisory services, at the annual rate set forth in the
table:
ADVISORY FEE
AS A % OF
AVERAGE DAILY
NET ASSETS
- --------------------------------------------------------------------------------
LARGE CAP GROWTH PORTFOLIO(1) 0.70%
TECHNOLOGY PORTFOLIO(1) 0.70%
INTERNATIONAL PORTFOLIO(1) 1.25%
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(1) The portfolios commenced operations as of the date of this Prospectus. The
contractual advisory fee rate is shown in the table.
INVESTMENT ADVISOR
First American Asset Management
601 Second Avenue South
Minneapolis, Minnesota 55402
SUB-ADVISOR
Marvin & Palmer Associates, Inc.
1201 North Market Street, Suite 2300
Wilmington, Delaware 19801
Marvin & Palmer Associates (Marvin & Palmer) is the sub-advisor to International
Portfolio, and is responsible for the investment and reinvestment of the
portfolio's assets and the placement of brokerage transactions. Marvin & Palmer
has been retained by the portfolio's investment advisor and is paid a portion of
the advisory fee.
A privately held company founded in 1986, Marvin & Palmer is engaged in the
management of global, non-United States, domestic, and emerging markets equity
portfolios, principally for institutional accounts. As of December 31, 1999, the
sub-advisor managed a total of approximately $14 billion in investments.
PORTFOLIO MANAGEMENT
Each portfolio's investments are managed by a team of persons associated with
First American Asset Management, or, in the case of International Portfolio, by
a team of persons associated with Marvin & Palmer.
9 PROSPECTUS - First American Insurance Portfolios
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Additional Information
MORE ABOUT THE PORTFOLIOS
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OBJECTIVES
The portfolios' objectives, which are described in the "Portfolio Summaries"
section, may be changed without shareholder approval. If a portfolio's
objectives change, you will be notified at least 30 days in advance. Please
remember: There is no guarantee that any portfolio will achieve its objectives.
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INVESTMENT STRATEGIES
The portfolios' main investment strategies are discussed in the "Portfolio
Summaries" section. These are the strategies that the portfolios' investment
advisor believes are most likely to be important in trying to achieve the
portfolios' objectives. You should be aware that each portfolio may also use
strategies and invest in securities that are not described in this Prospectus,
but that are described in the Statement of Additional Information (SAI). For a
copy of the SAI, call Investor Services at 1-800-637-2548.
TEMPORARY INVESTMENTS
In an attempt to respond to adverse market, economic, political or other
conditions, each portfolio may temporarily invest without limit in cash and in
U.S. dollar-denominated high-quality money market instruments and other
short-term securities, including money market funds advised by the portfolios'
advisor. Being invested in these securities may keep a mutual fund from
participating in a market upswing and prevent the portfolio from achieving its
investment objectives.
PORTFOLIO TURNOVER
Investment managers for the portfolios may trade securities frequently,
resulting, from time to time, in an annual portfolio turnover rate of over 100%.
Under normal market conditions, annual portfolio turnover for Technology
Portfolio is expected to be high, often exceeding 100%. Trading of securities
may produce capital gains, which are taxable to shareholders when distributed.
Active trading may also increase the amount of commissions or mark-ups to
broker-dealers that the portfolio pays when it buys and sells securities.
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RISKS
The main risks of investing in the portfolios are summarized in the "Portfolio
Summaries" section. More information about portfolios' risks is presented below.
RISKS OF INVESTING IN COMMON STOCKS
MARKET RISK. All stocks are subject to price movements due to changes in general
economic conditions, the level of prevailing interest rates or investor
perceptions of the market. Prices also are affected by the outlook for overall
corporate profitability.
COMPANY RISK. Individual stocks can perform differently than the overall market.
This may be a result of specific factors such as changes in corporate
profitability due to the success or failure of specific products or management
strategies, or it may be due to changes in investor perceptions regarding a
company.
SECTOR RISK. The stocks of companies within specific industries or sectors of
the economy can periodically perform differently than the overall stock market.
This can be due to changes in such things as the regulatory or competitive
environment or to changes in investor perceptions of a particular industry or
sector.
RISKS OF THE TECHNOLOGY SECTOR
Technology Portfolio invests primarily in equity securities of companies which
the portfolio's advisor believes have, or will develop, products, processes or
services that will provide or benefit significantly from technological advances
and improvements. Competitive pressures may have a significant effect on the
financial condition of companies in the technology industry. For example, if
technology continues to advance at an accelerated rate and the number of
companies and product offerings continues to expand, these companies could
become increasingly sensitive to short product cycles and aggressive pricing.
RISKS OF DEVELOPMENT STAGE AND SMALL CAP STOCKS
Technology Portfolio may have significant investments in development stage and
small capitalization companies. Stocks of development stage and small
capitalization companies involve substantial risk. These companies may lack the
management expertise, financial resources, product diversification and
competitive strengths of larger companies. Their stock prices may be subject to
more abrupt or erratic movements than stock prices of larger, more established
companies or the market averages in general. In addition, the frequency and
volume of their trading may be less than is typical of larger companies, making
them subject to wider price fluctuations. In some cases, there could be
difficulties in selling the stocks of development stage and small capitalization
companies at the desired time and price.
RISKS OF IPOs
Technology Portfolio may frequently invest in companies at the time of their
initial public offering. Most IPOs involve a high degree of risk not normally
associated with offerings of more seasoned companies. Companies involved in IPOs
generally have limited operating histories, and their prospects for future
profitability are uncertain. These companies often are engaged in new and
evolving businesses and are particularly vulnerable to competition and to
changes in technology, markets and economic conditions. They may be dependent on
certain key managers and third parties, need more personnel and other resources
to manage growth and require significant additional capital. They may also be
dependent on limited product lines and uncertain property rights and need
regulatory approvals. Investors in IPOs can be affected by substantial dilution
in the value of their shares by sales of additional shares and by concentration
of control in existing management and principal shareholders. Stock prices of
IPOs can also be highly unstable,
10 PROSPECTUS - First American Insurance Portfolios
<PAGE>
Additional Information
MORE ABOUT THE PORTFOLIOS CONTINUED
due to the absence of a prior public market, the small number of shares
available for trading and limited investor information.
FOREIGN SECURITY RISK
Large Cap Growth Portfolio and Technology Portfolio may each invest up to 25% of
its total assets in securities of foreign issuers which are either listed on a
United States stock exchange or represented by American Depositary Receipts.
Securities of foreign issuers, even when dollar-denominated and publicly traded
in the United States, may involve risks not associated with the securities of
domestic issuers. For certain foreign countries, political or social instability
or diplomatic developments could adversely affect the securities. There is also
the risk of loss due to governmental actions such as a change in tax statutes or
the modification of individual property rights. In addition, individual foreign
economies may differ favorably or unfavorably from the U.S. economy.
RISKS OF INTERNATIONAL INVESTING
International Portfolio invests primarily in equity securities that trade in
markets other than the United States. International investing involves risks not
typically associated with U.S. investing. These risks include:
CURRENCY RISK. Because foreign securities often trade in currencies other than
the U.S. dollar, changes in currency exchange rates will affect International
Portfolio's net asset value, the value of dividends and interest earned, and
gains and losses realized on the sale of securities. A strong U.S. dollar
relative to these other currencies will adversely affect the value of the
portfolio.
POLITICAL AND ECONOMIC RISKS. International investing is subject to the risk of
political, social or economic instability in the country of the issuer of a
security, the difficulty of predicting international trade patterns, the
possibility of the imposition of exchange controls, expropriation, limits on
removal of currency or other assets and nationalization of assets.
FOREIGN TAX RISK. International Portfolio's income from foreign issuers may be
subject to non-U.S. withholding taxes. In some countries, the portfolios also
may be subject to taxes on trading profits and, on certain securities
transactions, transfer or stamp duties tax. To the extent foreign income taxes
are paid by the portfolio, U.S. shareholders may be entitled to a credit or
deduction for U.S. tax purposes. See the Statement of Additional Information
for details.
RISK OF INVESTMENT RESTRICTIONS. Some countries, particularly emerging markets,
restrict to varying degrees foreign investment in their securities markets. In
some circumstances, these restrictions may limit or preclude investment in
certain countries or may increase the cost of investing in securities of
particular companies.
FOREIGN SECURITIES MARKET RISK. Securities of many non-U.S. companies may be
less liquid and their prices more volatile than securities of comparable U.S.
companies. Securities of companies traded in many countries outside the U.S.,
particularly emerging markets countries, may be subject to further risks due to
the inexperience of local brokers and financial institutions, the possibility
of permanent or temporary termination of trading, and greater spreads between
bid and asked prices for securities. In addition, non-U.S. stock exchanges and
brokers are subject to less governmental regulation, and commissions may be
higher than in the United States. Also, there may be delays in the settlement
of non-U.S. stock exchange transactions.
INFORMATION RISK. Non-U.S. companies generally are not subject to uniform
accounting, auditing and financial reporting standards or to other regulatory
requirements that apply to U.S. companies. As a result, less information may be
available to investors concerning non-U.S. issuers. Accounting and financial
reporting standards in emerging markets may be especially lacking.
RISKS OF EURO CONVERSION. On January 1, 1999, the European Union introduced a
single currency, the Euro, which was adopted as the common legal currency for
participating member countries. Existing sovereign currencies of the
participating countries will remain legal tender in those countries, as
denominations of the Euro, until January 1, 2002. Participating countries are
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, the
Netherlands, Portugal and Spain.
Whether the Euro conversion will materially affect International Portfolio's
performance is uncertain. The portfolio may be affected by the Euro's impact on
the business or financial condition of European issuers held by the portfolio.
The ongoing process of establishing the Euro may result in market volatility. In
addition, the transition to the Euro and the elimination of currency risk among
participating countries may change the economic environment and behavior of
investors, particularly in European markets. To the extent International
Portfolio holds non-U.S. dollar (Euro or other) denominated securities, it will
still be exposed to currency risk due to fluctuations in those currencies versus
the U.S. dollar.
RISKS OF ACTIVE MANAGEMENT
Each portfolio is actively managed and performance therefore will reflect in
part the advisor's or sub-advisor's ability to make investment decisions which
are suited to achieving the portfolios' respective investment objectives. Due to
their active management, the portfolios could underperform other mutual funds
with similar investment objectives.
RISKS OF SECURITIES LENDING
When a portfolio loans its securities, it will receive collateral equal to at
least 100% of the value of the loaned securities. Nevertheless, the portfolio
risks a delay in the recovery of the loaned securities, or even the loss of
rights in the collateral deposited by the borrower if the borrower should fail
financially. To reduce these risks, the portfolios enter into loan arrangements
only with institutions which the portfolios' advisor has determined are
creditworthy under guidelines established by the portfolios' board of directors.
11 PROSPECTUS - First American Insurance Portfolios
<PAGE>
Additional Information
FINANCIAL HIGHLIGHTS
The portfolios had not commenced operations prior to the date of this
Prospectus.
12 PROSPECTUS - First American Insurance Portfolios
<PAGE>
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FOR MORE INFORMATION
More information about the portfolios is available in the portfolios' Statement
of Additional Information and annual and semiannual reports.
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STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI provides more details about the portfolios and their policies. A current
SAI is on file with the Securities and Exchange Commission (SEC) and is
incorporated into this prospectus by reference (which means that it is legally
considered part of this prospectus).
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ANNUAL AND SEMIANNUAL REPORTS
Additional information about the portfolios' investments will be available in
the portfolios' annual and semiannual reports to shareholders. In the
portfolios' annual report, you will find a discussion of the market conditions
and investment strategies that significantly affected the portfolios'
performance during their last fiscal year.
You can obtain a free copy of the portfolios' SAI and/or free copies of the
portfolios' most recent annual or semiannual reports by calling Investor
Services at 1-800-637-2548. The material you request will be sent by first-class
mail or other means designed to ensure equally prompt delivery, within three
business days of receipt of the request.
You can also obtain copies of this information, after paying a duplicating fee,
by electronic request at the following email address: [email protected], or by
writing the SEC's Public Reference Section, Washington, D.C. 20549-0102. For
more information, call 1-202-942-8090.
Information about the portfolios is also available on the Internet. Text-only
versions of portfolio documents can be viewed online or downloaded from the
EDGAR Database on the SEC's Internet site at http://www.sec.gov.
FIRST AMERICAN FUNDS P.O. Box 1330, Minneapolis, MN 55440-1330
First American Asset Management, a division of U.S. Bank National Association,
serves as the investment advisor to the First American Funds.
SEC file number: 811-09765
FAIP-2000
[LOGO] FIRST AMERICAN FUNDS(R)
THE POWER OF DISCIPLINED INVESTING(R)
<PAGE>
FIRST AMERICAN INSURANCE PORTFOLIOS, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED MAY 1, 2000
LARGE CAP GROWTH PORTFOLIO
TECHNOLOGY PORTFOLIO
INTERNATIONAL PORTFOLIO
This Statement of Additional Information relates to the portfolios named above
(the "Portfolios"), each of which is a series of First American Insurance
Portfolios, Inc. This Statement of Additional Information is not a prospectus,
but should be read in conjunction with the Portfolios current Prospectus dated
May 1, 2000. This Statement of Additional Information is incorporated into the
Portfolios' Prospectuses by reference. To obtain copies of the Prospectus,
contact your participating insurance company. Please retain this Statement of
Additional Information for future reference.
<PAGE>
TABLE OF CONTENTS
PAGE
GENERAL INFORMATION 1
ADDITIONAL INFORMATION CONCERNING PORTFOLIO INVESTMENTS 2
Short-Term Investments 2
U.S. Government Securities 3
Repurchase Agreements 4
When-Issued and Delayed Delivery Transactions 4
Lending of Portfolio Securities 5
Options Transactions 5
Futures and Options on Futures 6
Fixed Income Securities 7
Foreign Securities 8
Foreign Currency Transactions 9
Debt Obligations Rated Less Than Investment Grade 10
Preferred Stock 11
CFTC Information 11
INVESTMENT RESTRICTIONS 11
DIRECTORS AND EXECUTIVE OFFICERS 12
Directors 12
Executive Officers 13
Compensation 14
INVESTMENT ADVISORY AGREEMENT AND OTHER SERVICES 15
Investment Advisory Agreement 15
Sub-Advisory Agreement For International Portfolio 16
Administration Agreement 16
Custodian; Counsel; Auditors 16
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE 17
CAPITAL STOCK 18
NET ASSET VALUE AND PUBLIC OFFERING PRICE 19
PORTFOLIO PERFORMANCE 19
TAXATION 20
RATINGS 23
Ratings of Corporate Debt Obligations and Municipal Bonds 23
Ratings of Preferred Stock 25
Ratings of Commercial Paper 26
FINANCIAL STATEMENTS 26
i
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GENERAL INFORMATION
First American Insurance Portfolios, Inc. ("FAIP") was incorporated in
the State of Minnesota on August 27, 1999. FAIP is organized as a series
investment company and currently issues its shares in three series. Each series
of shares represents a separate investment portfolio with its own investment
objective and policies (in essence, a separate mutual fund). The series of FAIP
to which this Statement of Additional Information relates are named on the
cover. These series are referred to in this Statement of Additional Information
as the "Portfolios."
The Bylaws of FAIP provide that annual shareholders' meetings are not
required and that meetings of shareholders need only be held with such frequency
as required under Minnesota law and the Investment Company Act of 1940 (the
"1940 Act"). Minnesota law provides that if a regular meeting of shareholders
has not been held during the immediately preceding 15 months, a shareholder or
shareholders holding 3% or more of the voting power of all shares entitled to
vote may demand a regular meeting of shareholders. Minnesota law further
provides that a special meeting of shareholders may be called by a shareholder
or shareholders holding 10% or more of the voting power of all shares entitled
to vote, except that a special meeting for the purpose of considering any action
to facilitate or effect a business combination, including any action to change
or otherwise affect the composition of the board of directors for that purpose,
must be called by 25% or more of the voting power of all shares entitled to
vote. The 1940 Act requires a shareholder vote for all amendments to fundamental
investment policies and restrictions, for approval of all investment advisory
agreements, and for the adoption of, and material increases in amounts payable
under, Rule 12b-1 distribution plans.
Large Cap Growth Portfolio and International Portfolio are each
diversified open-end management investment companies. Technology Portfolio is a
non-diversified open-end management investment company.
This Statement of Additional Information may also refer to affiliated
investment companies, including: First American Funds, Inc. ("FAF"); First
American Strategy Funds, Inc. ("FASF"); First American Investment Funds, Inc.
("FAIF"); and eleven separate closed-end funds (American Strategic Income
Portfolio Inc., American Strategic Income Portfolio Inc.-II, American Strategic
Income Portfolio Inc.-III, American Municipal Income Portfolio Inc., Minnesota
Municipal Income Portfolio Inc., American Select Portfolio Inc., American
Municipal Term Trust Inc., American Municipal Term Trust Inc.-II, American
Municipal Term Trust Inc.-III, Minnesota Municipal Term Trust Inc., and
Minnesota Municipal Term Trust Inc.-II) collectively referred to as the First
American Closed-End Funds ("FACEF").
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ADDITIONAL INFORMATION CONCERNING PORTFOLIO INVESTMENTS
The main investment strategies of each Portfolio are set forth in the
Portfolios' Prospectus. Additional information concerning main investment
strategies of the Portfolios, and other investment strategies which may be used
by the Portfolios, is set forth below. The Portfolios have attempted to identify
any investment strategies that will be employed in pursuing each Portfolio's
investment objective. However, in the absence of an affirmative limitation, a
Fund may utilize any strategy or technique that is consistent with its
investment objective. The Portfolios do not anticipate that any such strategy or
technique would exceed 5% of a Portfolio's assets absent specific identification
of that practice. Additional information concerning the Portfolios' investment
restrictions is set forth below under "Investment Restrictions."
If a percentage limitation on investments by a Portfolio stated in this
Section or in "Investment Restrictions" below is adhered to at the time of an
investment, a later increase or decrease in percentage resulting from changes in
asset value will not be deemed to violate the limitation except in the case of
the limitations on borrowing. A Portfolio which is limited to investing in
securities with specified ratings is not required to sell a security if its
rating is reduced or discontinued after purchase, but the Portfolio may consider
doing so. However, in no event will more than 15% of any Portfolio's net assets
be invested in illiquid securities. Descriptions of the rating categories of
Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies,
Inc. ("Standard & Poor's") and Moody's Investors Service, Inc. ("Moody's") are
contained in "Ratings" below.
SHORT-TERM INVESTMENTS
The Portfolios can invest in a variety of short-term instruments such
as rated commercial paper and variable amount master demand notes; United States
dollar-denominated time and savings deposits (including certificates of
deposit); bankers' acceptances; obligations of the United States Government or
its agencies or instrumentalities; repurchase agreements collateralized by
eligible investments of a Portfolio; securities of other mutual funds that
invest primarily in debt obligations with remaining maturities of 13 months or
less (which investments also are subject to an advisory fee); and other similar
high-quality short-term United States dollar-denominated obligations. The other
mutual funds in which the Portfolios may so invest include money market funds
advised by U.S. Bank National Association, the Portfolios' investment advisor
("U.S. Bank" or the "Advisor"), subject to certain restrictions contained in an
exemptive order issued by the Securities and Exchange Commission ("SEC") with
respect thereto.
Short-term investments and repurchase agreements may be entered into on
a joint basis by the Portfolios and other funds advised by the Advisor to the
extent permitted by an exemptive order issued by the Securities and Exchange
Commission with respect to the Portfolios. A brief description of certain kinds
of short-term instruments follows:
COMMERCIAL PAPER. Commercial paper consists of unsecured promissory
notes issued by corporations. Issues of commercial paper normally have
maturities of less than nine months and fixed rates of return. The Portfolios
may purchase commercial paper consisting of issues rated at the time of purchase
within the two highest rating categories by Standard & Poor's or Moody's, or
which have been assigned an equivalent rating by another nationally recognized
statistical rating organization. The Portfolios also may invest in commercial
paper that is not rated but that is determined by the Advisor to be of
comparable quality to instruments that are so rated. For a description of the
rating categories of Standard & Poor's and Moody's, see "Ratings."
BANKERS' ACCEPTANCES. Bankers' acceptances are credit instruments
evidencing the obligation of a bank to pay a draft drawn on it by a customer.
These instruments reflect the obligation both of the bank and of the drawer to
pay the full amount of the instrument upon maturity.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand
notes are unsecured demand notes that permit the indebtedness thereunder to vary
and provide for periodic adjustments in the interest rate according to the terms
of the instrument. Because master demand notes are direct lending arrangements
between a Portfolio and the issuer, they are not normally traded. Although there
is no secondary market in the notes, a Portfolio may demand payment of principal
and accrued interest at any time. While the notes are not typically rated by
credit rating agencies, issuers of variable amount master demand notes (which
are normally manufacturing, retail, financial, and other business concerns) must
satisfy the same criteria as set forth above for commercial paper. The Advisor
or International
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<PAGE>
Portfolio's Sub-Advisor will consider the earning power, cash flow and other
liquidity ratios of the issuers of such notes and will continuously monitor
their financial status and ability to meet payment on demand.
VARIABLE RATE DEMAND OBLIGATIONS. Variable rate demand obligations
("VRDO") are securities in which the interest rate is adjusted at pre-designated
periodic intervals. VRDOs may include a demand feature which is a put that
entitles the holder to receive the principal amount of the underlying security
or securities and which may be exercised either at any time on no more than 30
days' notice or at specified intervals not exceeding 397 calendar days on no
more than 30 days' notice.
U.S. GOVERNMENT SECURITIES
The U.S. government securities in which the Portfolios may invest are
either issued or guaranteed by the U.S. government, its agencies or
instrumentalities. The U.S. government securities in which the Portfolios invest
principally are:
* direct obligations of the U.S. Treasury, such as U.S. Treasury
bills, notes, and bonds;
* notes, bonds, and discount notes issued and guaranteed by U.S.
government agencies and instrumentalities supported by the
full faith and credit of the United States;
* notes, bonds, and discount notes of U.S. government agencies
or instrumentalities which receive or have access to federal
funding; and
* notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the
instrumentalities.
U.S. TREASURY INFLATION-PROTECTION SECURITIES. The Portfolios'
investments in U.S. Government securities may include in U.S. Treasury
inflation-protection securities, which are issued by the United States
Department of Treasury ("Treasury") with a nominal return linked to the
inflation rate in prices. The index used to measure inflation is the
non-seasonally adjusted U.S. City Average All Items Consumer Price Index for All
Urban Consumers ("CPI-U").
The value of the principal is adjusted for inflation, and pays interest
every six months. The interest payment is equal to a fixed percentage of the
inflation-adjusted value of the principal. The final payment of principal of the
security will not be less than the original par amount of the security at
issuance.
The principal of the inflation-protection security is indexed to the
non-seasonally adjusted CPI-U. To calculate the inflation-adjusted principal
value for a particular valuation date, the value of the principal at issuance is
multiplied by the index ratio applicable to that valuation date. The index ratio
for any date is the ratio of the reference CPI applicable to such date to the
reference CPI applicable to the original issue date. Semiannual coupon interest
is determined by multiplying the inflation-adjusted principal amount by one-half
of the stated rate of interest on each interest payment date.
Inflation-adjusted principal or the original par amount, whichever is
larger, is paid on the maturity date as specified in the applicable offering
announcement. If at maturity the inflation-adjusted principal is less than the
original principal value of the security, an additional amount is paid at
maturity so that the additional amount plus the inflation-adjusted principal
equals the original principal amount. Some inflation-protection securities may
be stripped into principal and interest components. In the case of a stripped
security, the holder of the stripped principal component would receive this
additional amount. The final interest payment, however, will be based on the
final inflation-adjusted principal value, not the original par amount.
The reference CPI for the first day of any calendar month is the CPI-U
for the third preceding calendar month. (For example, the reference CPI for
December 1 is the CPI-U reported for September of the same year, which is
released in October.) The reference CPI for any other day of the month is
calculated by a linear interpolation between the reference CPI applicable to the
first day of the month and the reference CPI applicable to the first day of the
following month.
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<PAGE>
Any revisions the Bureau of Labor Statistics (or successor agency)
makes to any CPI-U number that has been previously released will not be used in
calculations of the value of outstanding inflation-protection securities. In the
case that the CPI-U for a particular month is not reported by the last day of
the following month, the Treasury will announce an index number based on the
last year-over-year CPI-U inflation rate available. Any calculations of the
Treasury's payment obligations on the inflation-protection security that need
that month's CPI-U number will be based on the index number that the Treasury
has announced. If the CPI-U is rebased to a different year, the Treasury will
continue to use the CPI-U series based on the base reference period in effect
when the security was first issued as long as that series continues to be
published. If the CPI-U is discontinued during the period the
inflation-protection security is outstanding, the Treasury will, in consultation
with the Bureau of Labor Statistics (or successor agency), determine an
appropriate substitute index and methodology for linking the discontinued series
with the new price index series. Determinations of the Secretary of the Treasury
in this regard are final.
Inflation-protection securities will be held and transferred in either
of two book-entry systems: the commercial book-entry system (TRADES) and
TREASURY DIRECT. The securities will be maintained and transferred at their
original par amount, i.e., not at their inflation-adjusted value. STRIPS
components will be maintained and transferred in TRADES at their value based on
the original par amount of the fully constituted security.
REPURCHASE AGREEMENTS
The Portfolios may invest in repurchase agreements. A repurchase
agreement involves the purchase by a Portfolio of securities with the agreement
that after a stated period of time, the original seller will buy back the same
securities ("collateral") at a predetermined price or yield. Repurchase
agreements involve certain risks not associated with direct investments in
securities. If the original seller defaults on its obligation to repurchase as a
result of its bankruptcy or otherwise, the purchasing Portfolio will seek to
sell the collateral, which could involve costs or delays. Although collateral
(which may consist of any fixed income security which is an eligible investment
for the Portfolio entering into the repurchase agreement) will at all times be
maintained in an amount equal to the repurchase price under the agreement
(including accrued interest), a Portfolio would suffer a loss if the proceeds
from the sale of the collateral were less than the agreed-upon repurchase price.
The Advisor or, in the case of International Portfolio, the Portfolio's
Sub-Advisor, will monitor the creditworthiness of the firms with which the
Portfolios enter into repurchase agreements.
The Portfolios' custodian will hold the securities underlying any
repurchase agreement, or the securities will be part of the Federal
Reserve/Treasury Book Entry System. The market value of the collateral
underlying the repurchase agreement will be determined on each business day. If
at any time the market value of the collateral falls below the repurchase price
under the repurchase agreement (including any accrued interest), the appropriate
Portfolio will promptly receive additional collateral (so the total collateral
is an amount at least equal to the repurchase price plus accrued interest).
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
Each of the Portfolios may purchase securities on a when-issued or
delayed delivery basis. When such a transaction is negotiated, the purchase
price is fixed at the time the purchase commitment is entered into but delivery
of and payment for the securities take place at a later date. A Portfolio will
not accrue income with respect to securities purchased on a when-issued or
delayed delivery basis prior to their stated delivery date. Pending delivery of
the securities, each Portfolio will maintain in a segregated account cash or
liquid high-grade securities in an amount sufficient to meet its purchase
commitments.
The purchase of securities on a when-issued or delayed delivery basis
exposes a Portfolio to risk because the securities may decrease in value prior
to delivery. In addition, a Portfolio's purchase of securities on a when-issued
or delayed delivery basis while remaining substantially fully invested could
increase the amount of the Portfolio's total assets that are subject to market
risk, resulting in increased sensitivity of net asset value to changes in market
prices. However, the Portfolios will engage in when-issued and delayed delivery
transactions only for the purpose of acquiring portfolio securities consistent
with their investment objectives, and not for the purpose of investment
leverage. A seller's failure to deliver securities to a Portfolio could prevent
the Portfolio from realizing a price or yield considered to be advantageous.
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When a Portfolio agrees to purchase securities on a when-issued or
delayed delivery basis, the Portfolio's custodian will maintain in a segregated
account cash or liquid securities in an amount sufficient to meet the
Portfolio's purchase commitments. It may be expected that a Portfolio's net
assets will fluctuate to a greater degree when it sets aside securities to cover
such purchase commitments than when it sets aside cash. In addition, because a
Portfolio will set aside cash or liquid securities to satisfy its purchase
commitments in the manner described above, its liquidity and the ability of the
Advisor or, in the case of International Portfolio, the Portfolio's Sub-Advisor,
to manage it might be affected in the event its commitments to purchase
when-issued or delayed delivery securities ever exceeded 25% of the value of its
total assets. Under normal market conditions, however, a Portfolio's commitments
to purchase when-issued or delayed delivery securities will not exceed 25% of
the value of its total assets.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, each of the Portfolios may lend
portfolio securities representing up to one-third of the value of its total
assets to broker-dealers, banks or other institutional borrowers of securities.
As with other extensions of credit, there may be risks of delay in recovery of
the securities or even loss of rights in the collateral should the borrower of
the securities fail financially. However, the Portfolios will only enter into
loan arrangements with broker-dealers, banks, or other institutions which the
Advisor or, in the case of International Portfolio, the Portfolio's Sub-Advisor
has determined are creditworthy under guidelines established by the Board of
Directors. The Portfolios will pay a portion of the income earned on the lending
transaction to the placing broker and may pay administrative and custodial fees
(including fees to the Advisor, acting as securities lending agent) in
connection with these loans which, in the case of U.S. Bank, are 40% of the
Portfolios' income from such securities lending transactions.
In these loan arrangements, the Portfolios will receive collateral in
the form of cash, United States Government securities or other high-grade debt
obligations equal to at least 100% of the value of the securities loaned. This
collateral must be valued daily by the Advisor or, in the case of International
Portfolio, the Portfolio's Sub-Advisor and, if the market value of the loaned
securities increases, the borrower must furnish additional collateral to the
lending Portfolio. During the time portfolio securities are on loan, the
borrower pays the lending Portfolio any dividends or interest paid on the
securities. Loans are subject to termination at any time by the lending
Portfolio or the borrower. While a Portfolio does not have the right to vote
securities on loan, it would terminate the loan and regain the right to vote if
that were considered important with respect to the investment.
U.S. Bank, the Portfolios' custodian and investment advisor, may act as
securities lending agent for the Portfolios and receive separate compensation
for such services, subject to compliance with conditions contained in an SEC
exemptive order permitting U.S. Bank to provide such services and receive such
compensation.
OPTIONS TRANSACTIONS
To the extent set forth below, the Portfolios may purchase put and call
options on equity securities, stock indices, interest rate indices and/or
foreign currencies. These transactions will be undertaken for the purpose of
reducing risk to the Portfolios; that is, for "hedging" purposes. Options on
futures contracts are discussed below under "-- Futures and Options on Futures."
OPTIONS ON SECURITIES. The Portfolios may purchase put and call options
on securities they own or have the right to acquire. A put option on a security
gives the purchaser of the option the right (but not the obligation) to sell,
and the writer of the option the obligation to buy, the underlying security at a
stated price (the "exercise price") at any time before the option expires. A
call option on a security gives the purchaser the right (but not the obligation)
to buy, and the writer the obligation to sell, the underlying security at the
exercise price at any time before the option expires. The purchase price for a
put or call option is the "premium" paid by the purchaser for the right to sell
or buy.
A Portfolio may purchase put options to hedge against a decline in the
value of its portfolio. By using put options in this way, a Portfolio would
reduce any profit it might otherwise have realized in the underlying security by
the amount of the premium paid for the put option and by transaction costs. In
similar fashion, a Portfolio may purchase call options to hedge against an
increase in the price of securities that the Portfolio anticipates purchasing in
the future. The premium paid for the call option plus any transaction costs will
reduce the benefit, if any, realized by the Portfolio upon exercise of the
option, and, unless the price of the underlying security rises sufficiently, the
option may expire unexercised.
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OPTIONS ON STOCK INDICES. The Portfolios may purchase put and call
options on stock indices. Options on stock indices are similar to options on
individual stocks except that, rather than the right to take or make delivery of
stock at a specified price, an option on a stock index gives the holder the
right to receive, upon exercise of the option, an amount of cash if the closing
value of the stock index upon which the option is based is greater than, in the
case of a call, or lesser than, in the case of a put, the exercise price of the
option. This amount of cash is equal to the difference between the closing price
of the index and the exercise price of the option expressed in dollars times a
specified multiple (the "multiplier"). The writer of the option is obligated, in
return for the premium received, to make delivery of this amount. Unlike stock
options, all settlements for stock index options are in cash, and gain or loss
depends on price movements in the stock market generally (or in a particular
industry or segment of the market) rather than price movements in individual
stocks. The multiplier for an index option performs a function similar to the
unit of trading for a stock option. It determines the total dollar value per
contract of each point in the difference between the underlying stock index. A
multiplier of 100 means that a one-point difference will yield $100. Options on
different stock indices may have different multipliers.
WRITING OF CALL OPTIONS. The Portfolios may write (sell) covered call
options. These transactions would be undertaken principally to produce
additional income. Depending on the Portfolio, these transactions may include
the writing of covered call options on equity securities or in the case of
International Portfolio, on foreign currencies. The Portfolios, other than
International Portfolio, may write (sell) covered call options covering up to
25% of the equity securities owned by such Portfolios, and, in the case of
International Portfolio, covering up to 50% of the equity securities owned by
such Portfolio.
When a Portfolio sells a covered call option, it is paid a premium by
the purchaser. If the market price of the security covered by the option does
not increase above the exercise price before the option expires, the option
generally will expire without being exercised, and the Portfolio will retain
both the premium paid for the option and the security. If the market price of
the security covered by the option does increase above the exercise price before
the option expires, however, the option is likely to be exercised by the
purchaser. In that case the Portfolio will be required to sell the security at
the exercise price, and it will not realize the benefit of increases in the
market price of the security above the exercise price of the option. These
Portfolios may also write call options on stock indices the movements of which
generally correlate with those of the respective Portfolios' holdings. These
transactions, which would be undertaken principally to produce additional
income, entail the risk of an imperfect correlation between movements of the
index covered by the option and movements in the price of the Portfolio's
securities.
The writer (seller) of a call option has no control over when the
underlying securities must be sold; the writer may be assigned an exercise
notice at any time prior to the termination of the option. If a call option is
exercised, the writer experiences a profit or loss from the sale of the
underlying security. The writer of a call option that wishes to terminate its
obligation may effect a "closing purchase transaction." This is accomplished by
buying an option on the same security as the option previously written. If a
Portfolio was unable to effect a closing purchase transaction in a secondary
market, it would not be able to sell the underlying security until the option
expires or it delivers the underlying security upon exercise.
LIMITATIONS. None of the Portfolios, other than International
Portfolio, will invest more than 5% of the value of its total assets in
purchased options, provided that options which are "in the money" at the time of
purchase may be excluded from this 5% limitation. A call option is "in the
money" if the exercise price is lower than the current market price of the
underlying security or index, and a put option is "in the money" if the exercise
price is higher than the current market price. A Portfolio's loss exposure in
purchasing an option is limited to the sum of the premium paid and the
commission or other transaction expenses associated with acquiring the option.
The use of purchased put and call options involves certain risks. These
include the risk of an imperfect correlation between market prices of securities
held by a Portfolio and the prices of options, and the risk of limited liquidity
in the event that a Portfolio seeks to close out an options position before
expiration by entering into an offsetting transaction.
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FUTURES AND OPTIONS ON FUTURES
International Portfolio may engage in stock index futures contracts and
options thereon. International Portfolio may enter into contracts for the future
delivery of securities and options thereon, and may enter into contracts for the
future delivery of foreign currencies and options thereon.
A futures contract on a security obligates one party to purchase, and
the other to sell, a specified security at a specified price on a date certain
in the future. A futures contract on an index obligates the seller to deliver,
and entitles the purchaser to receive, an amount of cash equal to a specific
dollar amount times the difference between the value of the index at the
expiration date of the contract and the index value specified in the contract.
The acquisition of put and call options on futures contracts will, respectively,
give the Portfolio the right (but not the obligation), for a specified exercise
price, to sell or to purchase the underlying futures contract at any time during
the option period.
At the same time a futures contract is purchased or sold, the Portfolio
generally must allocate cash or securities as a deposit payment ("initial
deposit"). It is expected that the initial deposit would be approximately 1-1/2%
to 5% of a contract's face value. Daily thereafter, the futures contract is
valued and the payment of "variation margin" may be required, since each day the
Portfolio would provide or receive cash that reflects any decline or increase in
the contract's value. Futures transactions also involve brokerage costs and
require the Portfolio to segregate liquid assets, such as cash, United States
Government securities or other liquid high grade debt obligations equal to at
least 100% of its performance under such contracts.
International Portfolio may use futures contracts and options on
futures in an effort to hedge against market risks and as part of its management
of foreign currency transactions.
Aggregate initial margin deposits for futures contracts, and premiums
paid for related options, may not exceed 5% of the Portfolio's total assets, and
the value of securities that are the subject of such futures and options (both
for receipt and delivery) may not exceed 1/3 of the market value of the
Portfolio's total assets. Futures transactions will be limited to the extent
necessary to maintain the Portfolio's qualification as a regulated investment
company under the Code.
Where the Portfolio is permitted to purchase options on futures, its
potential loss is limited to the amount of the premiums paid for the options. As
stated above, this amount may not exceed 5% of the Portfolio's total assets.
Where the Portfolio is permitted to enter into futures contracts obligating it
to purchase securities, currency or an index in the future at a specified price,
the Portfolio could lose 100% of its net assets in connection therewith if it
engaged extensively in such transactions and if the market value or index value
of the subject securities, currency or index at the delivery or settlement date
fell to zero for all contracts into which a Portfolio was permitted to enter.
Where the Portfolio is permitted to enter into futures contracts obligating it
to sell securities or currencies, its potential losses are unlimited if it does
not own the securities or currencies covered by the contracts and it is unable
to close out the contracts prior to the settlement date.
Futures transactions involve brokerage costs and require the Portfolio
to segregate assets to cover contracts that would require it to purchase
securities or currencies. The Portfolio may lose the expected benefit of futures
transactions if interest rates, exchange rates or securities prices move in an
unanticipated manner. Such unanticipated changes may also result in poorer
overall performance than if the Portfolio had not entered into any futures
transactions. In addition, the value of the Portfolio's futures positions may
not prove to be perfectly or even highly correlated with the value of its
portfolio securities or foreign currencies, limiting the Portfolio's ability to
hedge effectively against interest rate, exchange rate and/or market risk and
giving rise to additional risks. There is no assurance of liquidity in the
secondary market for purposes of closing out futures positions.
FIXED INCOME SECURITIES
The fixed income securities in which Large Cap Growth Portfolio and
Technology Portfolio may invest include securities issued or guaranteed by the
United States Government or its agencies or instrumentalities, nonconvertible
preferred stocks, nonconvertible corporate debt securities, and short-term
obligations of the kinds described above. Investments in nonconvertible
preferred stocks and nonconvertible corporate debt securities will be limited to
securities which are rated at the time of purchase not less than BBB by Standard
& Poor's or Baa by Moody's
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(or equivalent short-term ratings), or which have been assigned an equivalent
rating by another nationally recognized statistical rating organization, or
which are of comparable quality in the judgment of the Advisor. Obligations
rated BBB, Baa or their equivalent, although investment grade, have speculative
characteristics and carry a somewhat higher risk of default than obligations
rated in the higher investment grade categories.
In addition, each Portfolio, including International Portfolio, may
invest up to 5% of its net assets in less than investment grade convertible debt
obligations. For a description of such obligations and the risks associated
therewith, see "-- Debt Obligations Rated Less Than Investment Grade."
The fixed income securities specified above, are subject to (i)
interest rate risk (the risk that increases in market interest rates will cause
declines in the value of debt securities held by a Portfolio); (ii) credit risk
(the risk that the issuers of debt securities held by a Portfolio default in
making required payments); and (iii) call or prepayment risk (the risk that a
borrower may exercise the right to prepay a debt obligation before its stated
maturity, requiring a Portfolio to reinvest the prepayment at a lower interest
rate).
FOREIGN SECURITIES
GENERAL. Under normal market conditions International Portfolio invests
principally in foreign securities, and certain other Portfolios may invest
lesser proportions of their assets in securities of foreign issuers that are
either listed on a United States securities exchange or represented by American
Depositary Receipts. In addition, Large Cap Growth Portfolio and Technology
Portfolio each may invest up to 25% of its total assets in securities of foreign
issuers which are either listed on a United States securities exchange or
represented by American Depositary Receipts.
Investment in foreign securities is subject to special investment risks
that differ in some respects from those related to investments in securities of
United States domestic issuers. These risks include political, social or
economic instability in the country of the issuer, the difficulty of predicting
international trade patterns, the possibility of the imposition of exchange
controls, expropriation, limits on removal of currency or other assets,
nationalization of assets, foreign withholding and income taxation, and foreign
trading practices (including higher trading commissions, custodial charges and
delayed settlements). Foreign securities also may be subject to greater
fluctuations in price than securities issued by United States corporations. The
principal markets on which these securities trade may have less volume and
liquidity, and may be more volatile, than securities markets in the United
States.
In addition, there may be less publicly available information about a
foreign company than about a United States domiciled company. Foreign companies
generally are not subject to uniform accounting, auditing and financial
reporting standards comparable to those applicable to United States domestic
companies. There is also generally less government regulation of securities
exchanges, brokers and listed companies abroad than in the United States.
Confiscatory taxation or diplomatic developments could also affect investment in
those countries. In addition, foreign branches of United States banks, foreign
banks and foreign issuers may be subject to less stringent reserve requirements
and to different accounting, auditing, reporting, and recordkeeping standards
than those applicable to domestic branches of United States banks and United
States domestic issuers.
EMERGING MARKETS. International Portfolio may invest in securities
issued by the governmental and corporate issuers that are located in emerging
market countries. Investing in securities of issuers in emerging market
countries involves exposure to economic infrastructures that are generally less
diverse and mature than, and to political systems that can be expected to have
less stability than, those of developed countries. Other characteristics of
emerging market countries that may affect investment in their markets include
certain governmental policies that may restrict investment by foreigners and the
absence of developed legal structures governing private and foreign investments
and private property. The typical small size of the markets for securities
issued by issuers located in emerging markets and the possibility of low or
nonexistent volume of trading in those securities may also result in a lack of
liquidity and in price volatility of those securities. In addition, issuers in
emerging market countries are typically subject to a greater degree of change in
earnings and business prospects than are companies in developed markets.
AMERICAN DEPOSITARY RECEIPTS AND EUROPEAN DEPOSITARY RECEIPTS. For many
foreign securities, United States dollar-denominated American Depositary
Receipts, which are traded in the United States on exchanges or
over-the-counter, are issued by domestic banks. American Depositary Receipts
represent the right to receive securities of foreign
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issuers deposited in a domestic bank or a correspondent bank. American
Depositary Receipts do not eliminate all the risk inherent in investing in the
securities of foreign issuers. However, by investing in American Depositary
Receipts rather than directly in foreign issuers' stock, a Portfolio can avoid
currency risks during the settlement period for either purchases or sales. In
general, there is a large, liquid market in the United States for many American
Depositary Receipts. The information available for American Depositary Receipts
is subject to the accounting, auditing and financial reporting standards of the
domestic market or exchange on which they are traded, which standards are more
uniform and more exacting than those to which many foreign issuers may be
subject. International Portfolio also may invest in European Depositary
Receipts, which are receipts evidencing an arrangement with a European bank
similar to that for American Depositary Receipts and which are designed for use
in the European securities markets. European Depositary Receipts are not
necessarily denominated in the currency of the underlying security.
Certain American Depositary Receipts and European Depositary Receipts,
typically those denominated as unsponsored, require the holders thereof to bear
most of the costs of the facilities while issuers of sponsored facilities
normally pay more of the costs thereof. The depository of an unsponsored
facility frequently is under no obligation to distribute shareholder
communications received from the issuer of the deposited securities or to pass
through the voting rights to facility holders in respect to the deposited
securities, whereas the depository of a sponsored facility typically distributes
shareholder communications and passes through voting rights.
FOREIGN SECURITIES EXCHANGES. Fixed commissions on foreign securities
exchanges are generally higher than negotiated commissions on United States
exchanges. Foreign markets also have different clearance and settlement
procedures, and in some markets there have been times when settlements have been
unable to keep pace with the volume of securities transactions, making it
difficult to conduct such transactions. Delays in settlement could result in
temporary periods when a portion of the assets of International Portfolio is
uninvested. In addition, settlement problems could cause such Portfolios to miss
attractive investment opportunities or to incur losses due to an inability to
sell or deliver securities in a timely fashion. In the event of a default by an
issuer of foreign securities, it may be more difficult for the Portfolio to
obtain or to enforce a judgment against the issuer.
FOREIGN CURRENCY TRANSACTIONS
International Portfolio invests in securities which are purchased and
sold in foreign currencies. The value of its assets as measured in United States
dollars therefore may be affected favorably or unfavorably by changes in foreign
currency exchange rates and exchange control regulations. International
Portfolios also will incur costs in converting United States dollars to local
currencies, and vice versa.
International Portfolio will conduct its foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or through forward contracts to purchase
or sell foreign currencies. A forward foreign currency exchange contract
involves an obligation to purchase or sell an amount of a specific currency at a
specific price on a future date agreed upon by the parties. These forward
currency contracts are traded directly between currency traders (usually large
commercial banks) and their customers.
International Portfolio may enter into forward currency contracts in
order to hedge against adverse movements in exchange rates between currencies.
The Portfolio may engage in "transaction hedging" to protect against a change in
the foreign currency exchange rate between the date the Portfolio contracts to
purchase or sell a security and the settlement date, or to "lock in" the United
States dollar equivalent of a dividend or interest payment made in a foreign
currency. It also may engage in "portfolio hedging" to protect against a decline
in the value of its portfolio securities as measured in United States dollars
which could result from changes in exchange rates between the United States
dollar and the foreign currencies in which the portfolio securities are
purchased and sold. International Portfolio also may hedge foreign currency
exchange rate risk by engaging in currency futures and options transactions.
Although a foreign currency hedge may be effective in protecting the
Portfolio from losses resulting from unfavorable changes in exchanges rates
between the United States dollar and foreign currencies, it also would limit the
gains which might be realized by the Portfolio from favorable changes in
exchange rates. The Portfolio's investment Sub-Advisor's decision whether to
enter into currency hedging transactions will depend in part on its view
regarding the direction and amount in which exchange rates are likely to move.
The forecasting of movements in exchange rates is extremely difficult, so that
it is highly uncertain whether a hedging strategy, if undertaken, would be
successful. To the
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extent that the Sub-Advisor's view regarding future exchange rates proves to
have been incorrect, International Portfolio may realize losses on their foreign
currency transactions.
As stated above, International Portfolio may engage in a variety of
foreign currency transactions in connection with its investment activities.
These include forward foreign currency exchange contracts, foreign currency
futures, and foreign currency options.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
These contracts are traded directly between currency traders (usually large
commercial banks) and their customers. International Portfolio will not enter
into such forward contracts or maintain a net exposure in such contracts where
it would be obligated to deliver an amount of foreign currency in excess of the
value of the Portfolio's securities or other assets denominated in that
currency. The Portfolio will comply with applicable SEC announcements requiring
it to segregate assets to cover its commitments with respect to such contracts.
At the present time, these announcements generally require a fund with a long
position in a forward foreign currency contract to establish with its custodian
a segregated account containing cash or liquid high grade debt securities equal
to the purchase price of the contract, and require a fund with a short position
in a forward foreign currency contract to establish with its custodian a
segregated account containing cash or liquid high grade debt securities that,
when added to any margin deposit, equal the market value of the currency
underlying the forward contract. These requirements will not apply where a
forward contract is used in connection with the settlement of investment
purchases or sales or to the extent that the position has been "covered" by
entering into an offsetting position. International Portfolio generally will not
enter into a forward contract with a term longer than one year.
FOREIGN CURRENCY FUTURES TRANSACTIONS. Unlike forward foreign currency
exchange contracts, foreign currency futures contracts and options on foreign
currency futures contracts are standardized as to amount and delivery period and
may be traded on boards of trade and commodities exchanges or directly with a
dealer which makes a market in such contracts and options. It is anticipated
that such contracts may provide greater liquidity and lower cost than forward
foreign currency exchange contracts. As part of its financial futures
transactions, International Portfolio may use foreign currency futures contracts
and options on such futures contracts. Through the purchase or sale of such
contracts, the Portfolio may be able to achieve many of the same objectives as
through investing in forward foreign currency exchange contracts.
FOREIGN CURRENCY OPTIONS. A foreign currency option provides the option
buyer with the right to buy or sell a stated amount of foreign currency at the
exercise price at a specified date or during the option period. A call option
gives its owner the right, but not the obligation, to buy the currency, while a
put option gives its owner the right, but not the obligation, to sell the
currency. The option seller (writer) is obligated to fulfill the terms of the
option sold if it is exercised. However, either seller or buyer may close its
position during the option period in the secondary market for such options at
any time prior to expiration.
A foreign currency call option rises in value if the underlying
currency appreciates. Conversely, a foreign currency put option rises in value
if the underlying currency depreciates. While purchasing a foreign currency
option may protect International Portfolio against an adverse movement in the
value of a foreign currency, it would not limit the gain which might result from
a favorable movement in the value of the currency. For example, if the Portfolio
were holding securities denominated in an appreciating foreign currency and had
purchased a foreign currency put to hedge against a decline in the value of the
currency, it would not have to exercise its put. In such an event, however, the
amount of the Portfolio's gain would be offset in part by the premium paid for
the option. Similarly, if the Portfolio entered into a contract to purchase a
security denominated in a foreign currency and purchased a foreign currency call
to hedge against a rise in the value of the currency between the date of
purchase and the settlement date, the Portfolio would not need to exercise its
call if the currency instead depreciated in value. In such a case, the Portfolio
could acquire the amount of foreign currency needed for settlement in the spot
market at a lower price than the exercise price of the option.
DEBT OBLIGATIONS RATED LESS THAN INVESTMENT GRADE
The "equity securities" in which the Portfolios may invest include
corporate debt obligations which are convertible into common stock. These
convertible debt obligations may include obligations rated as low as CCC by
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Standard & Poor's or Caa by Moody's or which have been assigned an equivalent
rating by another nationally recognized statistical rating organization. Debt
obligations rated BB, B or CCC by Standard & Poor's or Ba, B or Caa by Moody's
are considered to be less than "investment grade" and are sometimes referred to
as "junk bonds." Each Portfolio may invest up to 5% of its net assets in less
than investment grade convertible debt obligations.
Participation in non-investment grade securities involves greater
returns in the form of higher average yields. Yields on less than investment
grade debt obligations will fluctuate over time. The prices of such obligations
have been found to be less sensitive to interest rate changes than higher rated
obligations, but more sensitive to adverse economic changes or individual
corporate developments. Also, during an economic downturn or period of rising
interest rates, highly leveraged issuers may experience financial stress which
could adversely affect their ability to service principal and interest payment
obligations, to meet projected business goals, and to obtain additional
financing. In addition, periods of economic uncertainty and changes can be
expected to result in increased volatility of market prices of less than
investment grade debt obligations.
In addition, the secondary trading market for less than investment
grade debt obligations may be less developed than the market for investment
grade obligations. Adverse publicity and investor perceptions, whether or not
based on fundamental analysis, may decrease the values and liquidity of less
than investment grade obligations, especially in a thin secondary trading
market.
Certain risks also are associated with the use of credit ratings as a
method for evaluating less than investment grade debt obligations. For example,
credit ratings evaluate the safety of principal and interest payments, not the
market value risk of such obligations. In addition, credit rating agencies may
not timely change credit ratings to reflect current events. Thus, the use of
less than investment grade convertible debt obligations may be more dependent on
the Advisor's or Sub-Advisor's own credit analysis than is the case with
investment grade obligations.
PREFERRED STOCK
The Portfolios may invest in preferred stock. Preferred stock, unlike
common stock, offers a stated dividend rate payable from the issuer's earnings.
Preferred stock dividends may be cumulative or non-cumulative, participating, or
auction rate. If interest rates rise, the fixed dividend on preferred stocks may
be less attractive, causing the price of preferred stocks to decline. Preferred
stock may have mandatory sinking fund provisions, as well as call/redemption
provisions prior to maturity, a negative feature when interest rates decline.
CFTC INFORMATION
The Commodity Futures Trading Commission (the "CFTC"), a federal
agency, regulates trading activity pursuant to the Commodity Exchange Act, as
amended. The CFTC requires the registration of "commodity pool operators," which
are defined as any person engaged in a business which is of the nature of an
investment trust, syndicate or a similar form of enterprise, and who, in
connection therewith, solicits, accepts or receives from others funds,
securities or property for the purpose of trading in a commodity for future
delivery on or subject to the rules of any contract market. The CFTC has adopted
Rule 4.5, which provides an exclusion from the definition of commodity pool
operator for any registered investment company which (i) will use commodity
futures or commodity options contracts solely for bona fide hedging purposes
(provided, however, that in the alternative, with respect to each long position
in a commodity future or commodity option contract, an investment company may
meet certain other tests set forth in Rule 4.5); (ii) will not enter into
commodity futures and commodity options contracts for which the aggregate
initial margin and premiums exceed 5% of its assets; (iii) will not be marketed
to the public as a commodity pool or as a vehicle for investing in commodity
interests; (iv) will disclose to its investors the purposes of and limitations
on its commodity interest trading; and (v) will submit to special calls of the
CFTC for information. Any investment company desiring to claim this exclusion
must file a notice of eligibility with both the CFTC and the National Futures
Association. FAIP has made such notice filings with respect to those Portfolios
which may invest in commodity futures or commodity options contracts.
INVESTMENT RESTRICTIONS
In addition to the investment objectives and policies set forth in the
Prospectus and under the caption "Additional Information Concerning Portfolio
Investments" above, each of the Portfolios is subject to the investment
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restrictions set forth below. The investment restrictions set forth in
paragraphs 1 through 6 below are fundamental and cannot be changed with respect
to a Portfolio without approval by the holders of a majority of the outstanding
shares of that Portfolio as defined in the Investment Company Act of 1940, as
amended (the "1940 Act"), i.e., by the lesser of the vote of (a) 67% of the
shares of the Portfolio present at a meeting where more than 50% of the
outstanding shares are present in person or by proxy, or (b) more than 50% of
the outstanding shares of the Portfolio.
None of the Portfolios will:
1. Borrow money or issue senior securities, except as permitted
under the 1940 Act, as interpreted or modified from time to
time by any regulatory authority having jurisdiction. (As a
non-fundamental policy, no Portfolio will make additional
investments while its borrowings exceed 5% of total assets.)
2. Concentrate its investments in a particular industry, except
that Technology Portfolio will concentrate its investments in
the technology industry. For purposes of this limitation, the
U.S. Government, and state or municipal governments and their
political subdivisions, are not considered members of any
industry. Whether a Portfolio is concentrating in an industry
shall be determined in accordance with the 1940 Act, as
interpreted or modified from time to time by any regulatory
authority having jurisdiction.
3. Act as an underwriter of securities of other issuers, except
to the extent that, in connection with the disposition of
portfolio securities, it may be deemed an underwriter under
applicable laws.
4. Purchase or sell real estate unless as a result of ownership
of securities or other instruments, but this shall not prevent
the Portfolios from investing in securities or other
instruments backed by real estate or interest therein or in
securities of companies that deal in real estate or mortgages.
5. Purchase physical commodities or contracts relating to
physical commodities.
6. Make loans except as permitted under the 1940 Act, as
interpreted or modified from time to time by any regulatory
authority having jurisdiction.
The following restriction is non-fundamental and may be changed by
FAIP's Board of Directors without a shareholder vote: None of the Portfolios
will invest more than 15% of its net assets in all forms of illiquid
investments.
The Board of Directors has adopted guidelines and procedures under
which the Portfolios' Advisor is to determine whether certain types of
securities which may be held by the Portfolios are "liquid" and to report to the
Board concerning its determinations, including: (i) securities eligible for
resale pursuant to Rule 144A under the Securities Act of 1933; and (ii)
commercial paper issued in reliance on the "private placement" exemption from
registration under Section 4(2) of the Securities Act of 1933, whether or not it
is eligible for resale pursuant to Rule 144A.
For purposes of determining industry concentration for domestic equity
securities, the Portfolios use the North American Industry Classification System
(NAICS Manual).
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of FAIP are listed below, together
with their business addresses and their principal occupations during the past
five years. Under Minnesota Law, FAIP's Board of Directors is generally
responsible for the overall operation and management of FAIP. Directors who are
"interested persons" (as that term is defined in the 1940 Act) of FAIP are
identified with an asterisk.
DIRECTORS
Robert J. Dayton, 5140 Norwest Center, Minneapolis, Minnesota 55402:
Director of FAF since December 1994 and of FAIF since September 1994, of FASF
since June 1996 and of FAIP since August 1999; Chairman (1989-1993) and Chief
Executive Officer (1993-present), Okabena Company (private family investment
office). Age: 56.
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Roger A. Gibson, 1020 15th Street, Ste. 41A, Denver, Colorado 80202:
Director of FAF, FAIF and FASF since October 1997, and of FAIP since August
1999; Vice President North America-Mountain Region for United Airlines since
June 1995; prior to his current position, served most recently as Vice President
Customer Service for United Airlines in the West Region in San Francisco and the
Mountain Region in Denver, Colorado; employee at United Airlines since 1967.
Age: 52.
Andrew M. Hunter III, 537 Harrington Road, Wayzata, Minnesota 55391:
Director of FAIF, FAF and FASF since January 1997, and of FAIP since August
1999; Chairman of Hunter, Keith Industries, a diversified manufacturing and
services management company, since 1975. Age: 51.
Leonard W. Kedrowski, 16 Dellwood Avenue, Dellwood, Minnesota 55110:
Director of FAF and FAIF since November 1993, of FASF since June 1996, and of
FAIP since August 1999; Owner and President of Executive and Management
Consulting, Inc., a management consulting firm since 1992; Vice President, Chief
Financial Officer, Treasurer, Secretary and Director of Anderson Corporation, a
large privately-held manufacturer of wood windows, from 1983 to October 1992.
Age: 57.
* John M. Murphy, Jr., 601 Second Avenue South, Minneapolis, Minnesota
55402; Director of FAIF, FAF and FASF since June 1999, and of FAIP since August
1999; Executive Vice President of U.S. Bancorp since January 1999; Chairman and
Chief Investment Officer of First American Asset Management and U.S. Bank Trust,
N.A., and Executive Vice President of U.S. Bancorp, from 1991 to 1999. Age 57.
* Robert L. Spies, 4715 Twin Lakes Avenue, Brooklyn Center, Minnesota
55429: Director of FAIF, FAF and FASF since January 31, 1997, and of FAIP since
August 1999; employed by U.S. Bancorp and subsidiaries from 1957 to January 31,
1997, most recently as Vice President, U.S. Bank National Association. Age: 65.
Joseph D. Strauss, 8617 Edenbrook Crossing, # 443, Brooklyn Park,
Minnesota 55443: Director of FAF since 1984 and of FAIF since April 1991, of
FASF since June 1996, and of FAIP since August 1999; Chairman of FAF's and
FAIF's Boards from 1993 to September 1997 and of FASF's Board from June 1996 to
September 1997; President of FAF and FAIF from June 1989 to November 1989; Owner
and President, Strauss Management Company, since 1993; Owner and President,
Community Resource Partnerships, Inc., a community business retention survey
company, since 1992; attorney-at-law. Age: 58.
Virginia L. Stringer, 712 Linwood Avenue, St. Paul, Minnesota 55105:
Director of FAIF since August 1987, of FAF since April 1991, of FASF since June
1996, and of FAIP since August 1999; Chair of FAIF's, FAF's and FASF's Boards
since September 1997; Owner and President, Strategic Management Resources, Inc.
since 1993; formerly President and Director of The Inventure Group, a management
consulting and training company, President of Scott's, Inc., a transportation
company, and Vice President of Human Resources of The Pillsbury Company. Age:
55.
EXECUTIVE OFFICERS
Thomas Plumb, First American Asset Management, 22 South 9th Street,
16th floor, Minneapolis, Minnesota 55402; President of FAIF, FAF, FASF, and FAIP
since March 11, 2000; Chief Executive Officer of First American Asset Management
since 1999; Executive Vice President of First American Asset Management from
1997-1999; Senior Vice President of First American Asset Management from
1992-1997. Age: 40.
Paul A. Dow, First American Asset Management, 601 Second Avenue South,
Minneapolis, Minnesota 55402, Vice President Investments of FAIF, FAF, FASF and
FAIP since March 11, 2000; Chief Investment Officer and President of First
American Asset Management since 1999; Senior Vice President of First American
Asset Management from 1998-1999; Chief Executive Officer of Piper Jaffray from
1997-1998; Chief Investment Officer of Piper Jaffray from 1989-1997. Age: 49.
Jeffery M. Wilson, First American Asset Management, 601 Second Avenue
South, Minneapolis, Minnesota 55402; Vice President Administration of FAIF, FAF,
FASF and FAIP since March 11, 2000; Senior Vice President of First American
Asset Management. Age: 44.
Robert H. Nelson, First American Asset Management, 601 Second Avenue
South, Minneapolis, Minnesota 55402; Treasurer of FAIF, FAF, FASF and FAIP since
March 11, 2000; Senior Vice President of First American Asset Management since
1998; Senior Vice President of Piper Jaffray from 1994-1998. Age: 35.
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Christopher J. Smith, First American Asset Management, 601 Second
Avenue South, Minneapolis, Minnesota 55402; Secretary of FAIF, FAF, FASF and
FAIP since March 11, 2000; Executive Vice President of First American Asset
Management since 1998; General Counsel of Investment Advisors Inc. from
1991-1998. Age: 37.
Michael J. Radmer, 220 South Sixth Street, Minneapolis, Minnesota
55402; Secretary of FAIF since April 1991, and of FAF since 1981, and of FASF
since June 1996, and of FAIP since September 1999; Partner, Dorsey & Whitney
LLP, a Minneapolis-based law firm and general counsel of FAIF, FAF and FASF.
Age: 55.
James D. Alt, 220 South Sixth Street, Minneapolis, Minnesota 55402;
Assistant Secretary of FAF, FAIF and FASF since September 1998, and of FAIP
since September 1999; Partner, Dorsey & Whitney LLP, a Minneapolis-based law
firm. Age: 48.
Kathleen L. Prudhomme, 220 South Sixth Street, Minneapolis, Minnesota
55402; Assistant Secretary of FAF, FAIF and FASF since September 1998, and of
FAIP since September 1999; Partner, Dorsey & Whitney LLP, a Minneapolis-based
law firm. Age: 46.
Alaina Metz, Bysis Fund Services, 3435 Stelzer Road, Suite 1000,
Columbus, Ohio 43219; Assistant Secretary for FAIF, FAF, FASF and FAIP since
March 11, 2000; Chief Administrative Officer of Bysis Fund Services. Age: 32.
COMPENSATION
The First American Family of Funds, which includes FAIF, FAF, FASF,
FAIP and FACEF, currently pays only to directors of the funds who are not paid
employees or affiliates of the funds a fee of $27,000 per year ($40,500 in the
case of the Chair) plus $4,000 ($6,000 in the case of the Chair) per meeting of
the Board attended and $1,200 per committee meeting attended ($1,800 in the case
of a committee chair) and reimburses travel expenses of directors and officers
to attend Board meetings. In the event of telephonic Board or committee meetings
(other than Pricing Committee meetings for which the regular meeting schedule
applies), each director receives a fee of $500 per Board or committee meeting
($750 in the case of the Chair or committee chair). In addition, directors may
receive a per diem fee of $1,500 per day, plus travel expenses when directors
travel out of town on fund business. However, directors do not receive the
$1,500 per diem amount plus the foregoing Board or committee fee for an
out-of-town committee or Board meeting but instead receive the greater of the
total per diem fee or meeting fee. Legal fees and expenses are also paid to
Dorsey & Whitney LLP, the law firm of which Michael J. Radmer, secretary of
FAIF, FAF, FASF, FAIP and FACEF, James D. Alt, assistant secretary of of FAIF,
FAF, FASF, FAIP and FACEF, and Kathleen L. Prudhomme, assistant secretary of of
FAIF, FAF, FASF, FAIP and FACEF, are partners. The following table sets forth
information concerning aggregate compensation paid to each director of FAIP (i)
by FAIP (column 2), and (ii) by FAIF, FAF, FASF and FACEF collectively (column
5) during the fiscal year ended September 30, 1999 (no fees were paid by FAIP
during the fiscal year ended September 30, 1999). No executive officer or
affiliated person of FAIP had aggregate compensation from FAIP in excess of
$60,000 during such fiscal year:
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
NAME OF PERSON, POSITION AGGREGATE PENSION OR ESTIMATED ANNUAL TOTAL COMPENSATION
COMPENSATION RETIREMENT BENEFITS UPON FROM REGISTRANT AND
FUND REGISTRANT BENEFITS ACCRUED RETIREMENT FUND COMPLEX PAID
AS PART OF FUND TO DIRECTORS
EXPENSES
<S> <C> <C> <C> <C>
Robert J. Dayton, Director -0- -0- -0- $ 64,750.00
Roger A. Gibson, Director -0- -0- -0- 56,200.00
Andrew M. Hunter III, Director -0- -0- -0- 68,530.00
Leonard W. Kedrowski, Director -0- -0- -0- 62,200.00
Robert L. Spies, Director -0- -0- -0- 60,400.00
John M. Murphy, Jr., Director -0- -0- -0- -0-
Joseph D. Strauss, Director -0- -0- -0- 73,110.00
Virginia L. Stringer, Director -0- -0- -0- 80,052.00
</TABLE>
The directors may elect to defer payment of up to 100% of the fees they
receive in accordance with a Deferred Compensation Plan (the "Plan"). Under the
Plan, a director may elect to have his or her deferred fees treated as if they
had been invested in the shares of one or more funds and the amount paid to the
director under the Plan will be
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determined based on the performance of such investments. Distributions may be
taken in a lump sum or over a period years. The Plan will remain unfunded for
federal income tax purposes under the Internal Revenue Code of 1986, as amended.
Deferral of director fees in accordance with the Plan will have a negligible
impact on Portfolio assets and liabilities and will not obligate the Portfolios
to retain any director or pay any particular level of compensation.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORY AGREEMENT
U.S. Bank National Association (the "Advisor"), 601 Second Avenue
South, Minneapolis, Minnesota 55480, serves as the investment Advisor and
manager of the Portfolios through its First American Asset Management group. The
Advisor is a national banking association that has professionally managed
accounts for individuals, insurance companies, foundations, commingled accounts,
trust funds, and others for over 75 years. The Advisor is a subsidiary of U.S.
Bancorp ("USB"), 601 Second Avenue South, Minneapolis, Minnesota 55402, which is
a regional multi-state bank holding company headquartered in Minneapolis,
Minnesota that primarily serves the Midwestern, Rocky Mountain and Northwestern
states. USB operates four banks and eleven trust companies with banking offices
in 16 contiguous states. USB also has various other subsidiaries engaged in
financial services. At September 30, 1999, USB and its consolidated subsidiaries
had consolidated assets of more than $77 billion, consolidated deposits of more
than $47 billion and shareholders' equity of more than $6 billion.
Pursuant to an Investment Advisory Agreement dated December 8, 1999
(the "Advisory Agreement") as amended, the Portfolios engage the Advisor to act
as investment Advisor for and to manage the investment of the assets of the
Portfolios. Each Portfolio, other than International Portfolio, pays the Advisor
monthly fees calculated on an annual basis equal to 0.70% of its average daily
net assets. International Portfolio pays the Advisor monthly fees calculated on
an annual basis equal to 1.25% of its respective average daily net assets. The
Advisory Agreement requires the Advisor to provide FAIP with all necessary
office space, personnel and facilities necessary and incident to the Advisor's
performance of its services thereunder. The Advisor is responsible for the
payment of all compensation to personnel of FAIP and the officers and directors
of FAIP, if any, who are affiliated with the Advisor or any of its affiliates.
In addition to the investment advisory fee, each Portfolio pays all its
expenses that are not expressly assumed by the Advisor or any other organization
with which the Portfolio may enter into an agreement for the performance of
services. Each Portfolio is liable for such nonrecurring expenses as may arise,
including litigation to which the Portfolio may be a party, and it may have an
obligation to indemnify its directors and officers with respect to such
litigation.
The Advisor may, at its option, waive any or all of its fees, or
reimburse expenses, with respect to any Portfolio from time to time. Any such
waiver or reimbursement is voluntary and may be discontinued at any time. The
Advisor also may absorb or reimburse expenses of the Portfolios from time to
time, in its discretion, while retaining the ability to be reimbursed by the
Portfolios for such amounts prior to the end of the fiscal year. This practice
would have the effect of lowering a Portfolio's overall expense ratio and of
increasing yield to investors, or the converse, at the time such amounts are
absorbed or reimbursed, as the case may be.
The Portfolios had not commenced operations prior to the date of this
Statement of Additional Information. The contractual fee rate (as a percentage
of average daily net assets) is shown in the following table:
ADVISORY FEE
Large Cap Growth Portfolio 0.70%
Technology Portfolio 0.70%
International Portfolio 1.25%
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<PAGE>
SUB-ADVISORY AGREEMENT FOR INTERNATIONAL PORTFOLIO
Marvin & Palmer Associates, Inc., 1201 North Market Street, Suite 2300,
Wilmington, Delaware 19801 ("Marvin & Palmer") is Sub-Advisor for International
Portfolio under an agreement with the Advisor (the "Marvin & Palmer Sub-Advisory
Agreement"). Marvin & Palmer, a privately-held company, was founded in 1986 by
David F. Marvin and Stanley Palmer. Marvin & Palmer is engaged in the management
of global, non-United States, United States, and emerging markets equity
portfolios principally for institutional accounts. As of December 31, 1999,
Marvin & Palmer managed a total of approximately $14 billion in investments.
Pursuant to Marvin & Palmer Sub-Advisory Agreement, Marvin & Palmer is
responsible for the investment and reinvestment of International Portfolio's
assets and the placement of brokerage transactions in connection therewith.
Under the Marvin & Palmer Sub-Advisory Agreement, Marvin & Palmer is required,
among other things, to report to the Advisor or the Board regularly at such
times and in such detail as the Advisor or the Board may from time to time
request in order to permit the Advisor and the Board to determine the adherence
of International Portfolio to its respective investment objectives, policies and
restrictions. The Marvin & Palmer Sub-Advisory Agreement also requires Marvin &
Palmer to provide all office space, personnel and facilities necessary and
incident to Marvin & Palmer's performance of its services under the Marvin &
Palmer Sub-Advisory Agreement.
For its services to International Portfolio under the Marvin & Palmer
Sub-Advisory Agreement, Marvin & Palmer is paid a monthly fee by the Advisor
calculated on an annual basis equal to 0.75% of the first $100 million of
International Portfolio's average daily net assets, 0.50% of International
Portfolio's average daily net assets in excess of $100 million up to $300
million, 0.45% of International Portfolio's average daily net assets in excess
of $300 million up to $500 million and 0.40% of International Portfolio's
average daily net assets in excess of $500 million.
ADMINISTRATION AGREEMENT
In addition to acting as the advisor, U.S. Bank also serves as the
administrator (the "Administrator") for the Portfolios pursuant to an
Administration Agreement between it and the Portfolios. Under the Administration
Agreement, the Administrator is compensated to provide, or, compensates other
entities to provide services to the Portfolios. These services include, various
legal, oversight and administrative services, accounting services, transfer
agency and dividend disbursing services and shareholder services. The Portfolios
pay the Administrator at an annual rate, which is calculated daily and paid
monthly, equal to each Portfolio's pro rata share of an amount equal to 0.07% of
the aggregate average daily assets of all open-end mutual funds in the First
American fund family up to $8 billion, and 0.05% of the aggregate average daily
net assets of all open-end mutual funds in the First American fund family in
excess of $8 billion. (For the purposes of this Agreement, the First American
fund family includes all series of FAF, FASF, FAIF, and FAIP.) In addition, the
Portfolios pay the Administrator annual fees of $18,500 per CUSIP, shareholder
account fees of $15.00 per account and closed account fees of $3.50 per account.
CUSTODIAN; COUNSEL; AUDITORS
CUSTODIAN. U.S. Bank also acts as the custodian (the "Custodian"). U.S.
Bank's custodian operations are located at U.S. Bank Center, 180 East Fifth
Street, St. Paul, Minnesota 55101. All of the instruments representing the
investments of the Portfolios and all cash is held by the Custodian or, for
International Portfolio, by a sub-custodian. The Custodian or such sub-custodian
delivers securities against payment upon sale and pays for securities against
delivery upon purchase. The Custodian also remits Portfolio assets in payment of
Portfolio expenses, pursuant to instructions of FAIP's officers or resolutions
of the Board of Directors.
As compensation for its services to the Portfolios, the Custodian is
paid a monthly fee calculated on an annual basis equal to 0.03% (0.10% in the
case of International Portfolio) of such Portfolio's average daily net assets.
Sub-custodian fees with respect to International Portfolio are paid by the
Custodian out of its fees from such Portfolio. In addition, the Custodian is
reimbursed for its out-of-pocket expenses incurred while providing its services
to the Portfolios. The Custodian continues to serve so long as its appointment
is approved at least annually by the Board of Directors including a majority of
the directors who are not interested persons (as defined under the 1940 Act) of
FAIP.
COUNSEL. Dorsey & Whitney LLP, 220 South Sixth Street, Minneapolis,
Minnesota 55402, is independent counsel for the First American funds.
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Ernst & Young LLP, 1400 Pillsbury Center, Minneapolis, Minnesota
55402, serves as the First American funds' independent auditors, providing audit
services, including audits of the annual financial statements and assistance and
consultation in connection with SEC filings.
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
Decisions with respect to placement of the Portfolios' transactions are
made by the Advisor or, in the case International Portfolio, its Sub-Advisor.
The Portfolios' policy is to seek to place portfolio transactions with brokers
or dealers who will execute transactions as efficiently as possible and at the
most favorable price. The Advisor or Sub-Advisor may, however, select a broker
or dealer to effect a particular transaction without communicating with all
brokers or dealers who might be able to effect such transaction because of the
volatility of the market and the desire of the Advisor or Sub-Advisor to accept
a particular price for a security because the price offered by the broker or
dealer meets guidelines for profit, yield or both. Many of the portfolio
transactions involve payment of a brokerage commission by the appropriate
Portfolio. In some cases, transactions are with dealers or issuers who act as
principal for their own accounts and not as brokers. Transactions effected on a
principal basis are made without the payment of brokerage commissions but at net
prices, which usually include a spread or markup. In effecting transactions in
over-the-counter securities, the Portfolios deal with market makers unless it
appears that better price and execution are available elsewhere.
While the Advisor and, in the case of International Portfolio, its
Sub-Advisor, do not deem it practicable and in the Portfolios' best interest to
solicit competitive bids for commission rates on each transaction, consideration
will regularly be given by the Advisor and, in the case of International
Portfolio, its Sub-Advisor, to posted commission rates as well as to other
information concerning the level of commissions charged on comparable
transactions by other qualified brokers.
It is expected that International Portfolio will purchase most foreign
equity securities in the over-the-counter markets or stock exchanges located in
the countries in which the respective principal offices of the issuers of the
various securities are located if that is the best available market. The fixed
commission paid in connection with most such foreign stock transactions
generally is higher than negotiated commission on United States transactions.
There generally is less governmental supervision and regulation of foreign stock
exchanges than in the United States. Foreign securities settlements may in some
instances be subject to delays and related administrative uncertainties.
Foreign equity securities may be held in the form of American
Depositary Receipts, or ADRs, European Depositary Receipts, or EDRs, or
securities convertible into foreign equity securities. ADRs and EDRs may be
listed on stock exchanges or traded in the over-the-counter markets in the
United States or overseas. The foreign and domestic debt securities and money
market instruments in which the Portfolios may invest are generally traded in
the over-the-counter markets.
Subject to the policy of seeking favorable price and execution for the
transaction size and risk involved, in selecting brokers and dealers and
determining commissions paid to them, the Advisor, or Marvin & Palmer, may
consider ability to provide supplemental performance, statistical and other
research information as well as computer hardware and software for research
purposes for consideration, analysis and evaluation by the staff of the Advisor
or Marvin & Palmer. In accordance with this policy, the Portfolios do not
execute brokerage transactions solely on the basis of the lowest commission rate
available for a particular transaction. Subject to the requirements of favorable
price and efficient execution, placement of orders by securities firms for the
purchase of shares of the Portfolios may be taken into account as a factor in
the allocation of portfolio transactions.
Research services that may be received by the Advisor or Marvin &
Palmer would include advice, both directly and indirectly and in writing, as to
the value of securities, the advisability of investing in, purchasing, or
selling securities, and the availability of securities or purchasers or sellers
of securities, as well as analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy, and the performance
of accounts. The research services may allow the Advisor or Marvin & Palmer to
supplement its own investment research activities and enable the Advisor or
Marvin & Palmer to obtain the views and information of individuals and research
staffs of many different securities firms prior to making investment decisions
for the Portfolios. To the extent portfolio transactions are effected with
brokers and dealers who furnish research services, the Advisor or Marvin &
Palmer would
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<PAGE>
receive a benefit, which is not capable of evaluation in dollar amounts, without
providing any direct monetary benefit to the Portfolios from these transactions.
Research services furnished by brokers and dealers used by the Portfolios for
portfolio transactions may be utilized by the Advisor or Marvin & Palmer in
connection with investment services for other accounts and, likewise, research
services provided by brokers and dealers used for transactions of other accounts
may be utilized by the Advisor or Marvin & Palmer in performing services for the
Portfolios. The Advisor or Marvin & Palmer determine the reasonableness of the
commissions paid in relation to their view of the value of the brokerage and
research services provided, considered in terms of the particular transactions
and their overall responsibilities with respect to all accounts as to which they
exercise investment discretion.
The Advisor or Marvin & Palmer have not entered into any formal or
informal agreements with any broker or dealer, and do not maintain any "formula"
that must be followed in connection with the placement of Portfolio portfolio
transactions in exchange for research services provided to the Advisor or Marvin
& Palmer, except as noted below. The Advisor or Marvin & Palmer may, from time
to time, maintain an informal list of brokers and dealers that will be used as a
general guide in the placement of Portfolio business in order to encourage
certain brokers and dealers to provide the Advisor or Marvin & Palmer with
research services, which the Advisor or Marvin & Palmer anticipates will be
useful to it. Any list, if maintained, would be merely a general guide, which
would be used only after the primary criteria for the selection of brokers and
dealers (discussed above) had been met, and accordingly, substantial deviations
from the list could occur. The Advisor or Marvin & Palmer would authorize the
Portfolios to pay an amount of commission for effecting a securities transaction
in excess of the amount of commission another broker or dealer would have
charged only if the Advisor or Marvin & Palmer determined in good faith that the
amount of such commission was reasonable in relation to the value of the
brokerage and research services provided by such broker or dealer, viewed in
terms of either that particular transaction or the overall responsibilities of
the Advisor or Marvin & Palmer with respect to the Portfolios.
The Portfolios do not effect any brokerage transactions in their
portfolio securities with any broker or dealer affiliated directly or indirectly
with the Advisor unless such transactions, including the frequency thereof, the
receipt of commission payable in connection therewith, and the selection of the
affiliated broker or dealer effecting such transactions are not unfair or
unreasonable to the shareholders of the Portfolios, as determined by the Board
of Directors. Any transactions with an affiliated broker or dealer must be on
terms that are both at least as favorable to the Portfolios as the Portfolios
can obtain elsewhere and at least as favorable as such affiliated broker or
dealer normally gives to others.
When two or more clients of the Advisor or Marvin & Palmer are
simultaneously engaged in the purchase or sale of the same security, the prices
and amounts are allocated in accordance with a formula considered by the Advisor
or Marvin & Palmer to be equitable to each client. In some cases, this system
could have a detrimental effect on the price or volume of the security as far as
each client is concerned. In other cases, however, the ability of the clients to
participate in volume transactions may produce better executions for each
client.
CAPITAL STOCK
Each share of each Portfolio's $.01 par value common stock is fully
paid, nonassessable, and transferable. Shares may be issued as either full or
fractional shares. Fractional shares have pro rata the same rights and
privileges as full shares. Shares of the Portfolios have no preemptive or
conversion rights.
Each share of a Portfolio has one vote. On some issues, such as the
election of directors, all shares of all FAIP Portfolios vote together as one
series. The shares do not have cumulative voting rights. Consequently, the
holders of more than 50% of the shares voting for the election of directors are
able to elect all of the directors if they choose to do so. On issues affecting
only a particular Portfolio, the shares of that Portfolio will vote as a
separate series. An example of such an issue would be a proposal to alter a
fundamental investment restriction pertaining to a Portfolio.
The Bylaws of FAIP provide that annual shareholders meetings are not
required and that meetings of shareholders need only be held with such frequency
as required under Minnesota law and the 1940 Act.
As of April 14, 2000, U.S. Bank National Association, 601 Second Avenue
South, Minneapolis, 55402, owned 100% of the outstanding shares of each
Portfolio. U.S. Bank will be able to control the votes of each Portfolio's
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shares until others purchase a number of shares of a Portfolio sufficient to
constitute a majority of such Portfolio's shares.
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The public offering price of the shares of a Portfolio generally equals
the Portfolio's net asset value. On May 1, 2000, the net asset value per share
for each Portfolio was calculated as follows:
Net Asset Value
-------------------------------
Large Cap Growth Portfolio $ 10.00
Technology Portfolio $ 10.00
International Portfolio $ 10.00
The net asset value of each Portfolio's shares is determined on each
day during which the New York Stock Exchange (the "NYSE") is open for business.
The NYSE is not open for business on the following holidays (or on the nearest
Monday or Friday if the holiday falls on a weekend): New Year's Day, Martin
Luther King, Jr. Day, Washington's Birthday (observed), Good Friday, Memorial
Day (observed), Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Each year the NYSE may designate different dates for the observance of these
holidays as well as designate other holidays for closing in the future. To the
extent that the securities of a Portfolio are traded on days that the Portfolio
is not open for business, such Portfolio's net asset value per share may be
affected on days when investors may not purchase or redeem shares. This may
occur, for example, where International Portfolio holds securities which are
traded in foreign markets.
PORTFOLIO PERFORMANCE
Advertisements and other sales literature for the Portfolios may refer
to a Portfolio's "average annual total return" and "cumulative total return." In
addition, each Portfolio may provide yield calculations in advertisements and
other sales literature. All such yield and total return quotations are based on
historical earnings and are not intended to indicate future performance. The
return on and principal value of an investment in any of the Portfolios will
fluctuate, so that an investor's shares, when redeemed, may be worth more or
less than their original cost.
AVERAGE ANNUAL TOTAL RETURN. Average annual total return is the average
annual compounded rate of return on a hypothetical $1,000 investment made at the
beginning of the advertised period. Average annual total return figures are
computed according to the following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the
period of a hypothetical $1,000 payment
made at the beginning of such period
This calculation deducts the maximum sales charge from the initial hypothetical
$1,000 investment, assumes all dividends and capital gains distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the applicable Prospectus, and includes all recurring fees, such as
investment advisory and management fees, charged to all shareholder accounts.
The Advisor has waived a portion of their fees on a voluntary basis,
thereby increasing total return and yield. These fees may or may not be waived
in the future in the Advisor's discretion.
CUMULATIVE TOTAL RETURN. Cumulative total return is calculated by
subtracting a hypothetical $1,000 investment in a Portfolio from the redeemable
value of such investment at the end of the advertised period, dividing such
difference by $1,000 and multiplying the quotient by 100. Cumulative total
return is computed according to the following formula:
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CTR = (ERV-P) 100
------
P
Where: CTR = Cumulative total return;
ERV = ending redeemable value at the end of the
period of a hypothetical $1,000 payment made
at the beginning of such period; and
P = initial payment of $1,000.
This calculation assumes all dividends and capital gain distributions are
reinvested at net asset value on the appropriate reinvestment dates as described
in the applicable Prospectus and includes all recurring fees, such as investment
advisory and management fees, charged to all shareholder accounts.
YIELD. Yield is computed by dividing the net investment income per
share (as defined under Securities and Exchange Commission rules and
regulations) earned during the advertised period by the offering price per share
(including the maximum sales charge) on the last day of the period. The result
will then be "annualized" using a formula that provides for semi-annual
compounding of income. Yield is computed according to the following formula:
YIELD = 2[(a-b + 1)6 - 1]
--------------
cd
Where: a = dividends and interest earned during the
period;
b = expenses accrued for the period (net of
reimbursements);
c = the average daily number of shares
outstanding during the period that were
entitled to receive dividends; and
d = the maximum offering price per share on the
last day of the period.
TAXATION
Shares of the Portfolios are offered only to separate accounts that
fund variable annuity contracts and variable life insurance policies issued by
participating insurance companies. See the Prospectus of such contracts for a
discussion of the special taxation of insurance companies with respect to the
Separate Accounts, the variable annuity contracts, variable insurance policies,
and the holders thereof.
The following is a summary of the principal U.S. federal income, and
certain state and local, tax considerations regarding the purchase, ownership
and disposition of shares in each Portfolio of FAIP. This summary does not
address special tax rules applicable to certain classes of investors, such as
tax-exempt entities, insurance companies and financial institutions. Each
prospective shareholder is urged to consult his or her own tax adviser with
respect to the specific federal, state, local and foreign tax consequences of
investing in each Portfolio. The summary is based on the laws in effect on the
date of this Statement of Additional Information, which are subject to change.
GENERAL. The following is only a summary of certain additional tax
considerations generally affecting each Portfolio that are not described in the
Prospectus. The discussions below and in the Prospectus are not intended as
substitutes for careful tax planning.
The holders of variable life insurance policies or annuity contracts
should not be subject to tax with respect to distributions made on, or
redemptions of, Portfolio shares, assuming that the variable life insurance
policies and annuity contracts qualify under the Internal Revenue Code of 1986,
as amended (the "Code"), as life insurance or annuities, respectively, and that
the shareholders are treated as owners of the Portfolio shares. Thus, this
summary does not describe the tax consequences to a holder of a life insurance
policy or annuity contract as a result of the ownership of such policies or
contracts. Policy or contract holders must consult the prospectuses of their
respective policies or contracts for information concerning the federal income
tax consequences of owning such policies or contracts. This summary also does
not describe the tax consequences applicable to the owners of the Portfolio
shares because the
20
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Portfolio shares will be sold only to insurance companies. Thus, purchasers of
Portfolio shares must consult their own tax advisers regarding the federal,
state, and local tax consequences of owning Portfolio shares.
Each Portfolio intends to fulfill the requirements of Subchapter M of
the Code, as a regulated investment company. If so qualified, each Portfolio
will not be liable for federal income taxes to the extent it distributes its
taxable income to its shareholders.
Qualification as a regulated investment company under the Code
requires, among other things, that (a) a Portfolio derive at least 90% of its
gross income for its taxable year from dividends, interest, payments with
respect to securities loans and gains from the sale or other disposition of
stocks or securities or foreign currencies, or other income (including but not
limited to gains from options, futures, and forward contracts) derived with
respect to its business of investing in such stock, securities or currencies
(the "90% gross income test"); and (b) such Portfolio diversify its holdings so
that, at the close of each quarter of its taxable year, (i) at least 50% of the
market value of such Portfolio's total (gross) assets is comprised of cash, cash
items, U.S. Government securities, securities of other regulated investment
companies and other securities limited in respect of any one issuer to an amount
not greater in value than 5% of the value of such Portfolio's total assets and
to not more than 10% of the outstanding voting securities of such issuer, and
(ii) not more than 25% of the value of its total (gross) assets is invested in
the securities of any one issuer (other than U.S. Government securities and
securities of other regulated investment companies) or two or more issuers
controlled by the Portfolio and engaged in the same, similar or related trades
or businesses.
If a Portfolio complies with such provisions, then in any taxable year
in which such Portfolio distributes, in compliance with the Code's timing and
other requirements, at least 90% of its "investment company taxable income"
(which includes dividends, taxable interest, taxable accrued original issue
discount and market discount income, income from securities lending, any net
short-term capital gain in excess of net long-term capital loss, certain net
realized foreign exchange gains and any other taxable income other than "net
capital gain," as defined below, and is reduced by deductible expenses), and at
least 90% of the excess of its gross tax-exempt interest income (if any) over
certain disallowed deductions, such Portfolio (but not its shareholders) will be
relieved of federal income tax on any income of the Portfolio, including
long-term capital gains, distributed to shareholders. However, if a Portfolio
retains any investment company taxable income or "net capital gain" (the excess
of net long-term capital gain over net short-term capital loss), it will be
subject to a tax at regular corporate rates on the amount retained. If the
Portfolio retains any net capital gain, the Portfolio may designate the retained
amount as undistributed capital gains in a notice to its shareholders who, if
subject to U.S. federal income tax on long-term capital gains, (i) will be
required to include in income for federal income tax purposes, as long-term
capital gain, their shares of such undistributed amount, and (ii) will be
entitled to credit their proportionate shares of the tax paid by the Portfolio
against their U.S. federal income tax liabilities, if any, and to claim refunds
to the extent the credit exceeds such liabilities. For U.S. federal income tax
purposes, the tax basis of shares owned by a shareholder of the Portfolio will
be increased by an amount equal under current law to 65% of the amount of
undistributed net capital gain included in the shareholder's gross income. Each
Portfolio intends to distribute for each taxable year to its shareholders all or
substantially all of its investment company taxable income, net capital gain and
any net tax-exempt interest.
If a Portfolio invests in U.S. Treasury inflation-protection
securities, it will be required to treat as original issue discount any increase
in the principal amount of the securities that occurs during the course of its
taxable year. If a Portfolio purchases such inflation-protection securities that
are issued in stripped form either as stripped bonds or coupons, it will be
treated as if it had purchased a newly issued debt instrument having original
issue discount. Generally, the original issue discount equals the difference
between the "stated redemption price at maturity" of the obligation and its
"issue price" as those terms are defined in the Code. A Portfolio holding an
obligation with original issue discount is required to accrue as ordinary income
a portion of such original issue discount even though it receives no cash
currently as interest payment corresponding to the amount of the original issue
discount. Because each Portfolio is required to distribute substantially all of
its net investment income (including accrued original issue discount) in order
to be taxed as a regulated investment company, it may be required to distribute
an amount greater than the total cash income it actually receives. Accordingly,
in order to make the required distributions, a Portfolio may be required to
borrow or liquidate securities.
Some of the investment practices that may be employed by the Portfolios
will be subject to special provisions that, among other things, may defer the
use of certain losses of such Portfolios, affect the holding period of the
securities held by the Portfolios and, particularly in the case of transactions
in or with respect to foreign currencies,
21
<PAGE>
affect the character of the gains or losses realized. These provisions may also
require the Portfolios to mark-to-market some of the positions in their
respective Portfolios (i.e., treat them as closed out) or to accrue original
discount, both of which may cause such Portfolios to recognize income without
receiving cash with which to make distributions in amounts necessary to satisfy
the distribution requirements for qualification as a regulated investment
company and for avoiding income and excise taxes. Accordingly, in order to make
the required distributions, a Portfolio may be required to borrow or liquidate
securities. Each Portfolio will monitor its transactions and may make certain
elections in order to mitigate the effect of these rules and prevent
disqualification of the Portfolios as regulated investments companies.
It is expected that any net gain realized from the closing out of
futures contracts, options, or forward currency contracts will be considered
gain from the sale of securities or currencies and therefore qualifying income
for purposes of the 90% of gross income from qualified sources requirement, as
discussed above.
Pursuant to the Code, distributions of net investment income by a
Portfolio to a shareholder who is a foreign shareholder (as defined below) will
be subject to U.S. withholding tax (at a rate of 30% or lower treaty rate).
Withholding will not apply if a dividend paid by a Portfolio to a foreign
shareholder is "effectively connected" with a U.S. trade or business of such
shareholder, in which case the reporting and withholding requirements applicable
to U.S. citizens or domestic corporations will apply. Distributions of net
long-term capital gains are not subject to tax withholding but, in the case of a
foreign shareholder who is a nonresident alien individual, such distributions
ordinarily will be subject to U.S. income tax at a rate of 30% if the individual
is physically present in the U.S. for more than 182 days during the taxable
year. Each Portfolio will report annually to its shareholders the amount of any
withholding.
A foreign shareholder is any person who is not (i) a citizen or
resident of the United States, (ii) a corporation, partnership or other entity
organized in the United States or under the laws of the Untied States or a
political subdivision thereof, (iii) an estate whose income is includible in
gross income for U.S. federal income tax purposes or (iv) a trust whose
administration is subject to the primary supervision of the U.S. court and which
has one or more U.S. fiduciaries who have authority to control all substantial
decisions of the trust.
Each Portfolio intends to comply with the diversification requirements
imposed by Section 817(h) of the Code and the regulations thereunder. Under Code
Section 817(h), a variable life insurance or annuity contract will not be
treated as a life insurance policy or annuity contract, respectively, under the
Code, unless the segregated asset account upon which such contract or policy is
based is "adequately diversified." A segregated asset account will be adequately
diversified if it satisfies one of two alternative tests set forth in the
Treasury Regulations. Specifically, the Treasury Regulations provide that,
except as permitted by the "safe harbor" discussed below, as of the end of each
calendar quarter (or within 30 days thereafter) no more than 55% of the
segregated asset account's total assets may be represented by any one
investment, no more than 70% by any two investments, no more than 80% by any
three investments and no more than 90% by any four investments. For this
purpose, all securities of the same issuer are considered a single investment,
and each U.S. Government agency and instrumentality is considered a separate
issuer. As a safe harbor, a segregated asset account will be treated as being
adequately diversified if the diversification requirements under Subchapter M
are satisfied and no more than 55% of the value of the account's total assets
are cash and cash items, U.S. Government securities and securities of other
regulated investment companies. In addition, a segregated asset account with
respect to a variable life insurance contract is treated as adequately
diversified to the extent of its investment in securities issued by the United
States Treasury.
For purposes of these alternative diversification tests, a segregated
asset account investing in shares of a regulated investment company will be
entitled to "look through" the regulated investment company to its pro rata
portion of the regulated investment company's assets, provided that the shares
of such regulated investment company are held only by insurance companies and
certain fund managers (a "Closed Fund").
If the segregated asset account upon which a variable contract is based
is not "adequately diversified" under the foregoing rules for each calendar
quarter, then (a) the variable contract is not treated as a life insurance
contract or annuity contract under the Code for all subsequent periods during
which such account is not "adequately diversified" and (b) the holders of such
contract must include as ordinary income the "income on the contract" for each
taxable year. Further, the income on a life insurance contract for all prior
taxable years is treated as received or accrued during the taxable year of the
policyholder in which the contract ceases to meet the definition of a "life
insurance contract" under the Code. The "income on the contract" is, generally,
the excess of (i) the sum of the increase in the net surrender value of the
contract during
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the taxable year and the cost of the life insurance protection provided under
the contract during the year, over (ii) the premiums paid under the contract
during the taxable year. In addition, if a Portfolio does not constitute a
Closed Fund, the holders of the contracts and annuities which invest in the
Portfolio through a segregated asset account may be treated as owners of
Portfolio shares and may be subject to tax on distributions made by the
Portfolio.
In order to avoid a 4% federal excise tax, each Portfolio must
distribute (or be deemed to have distributed) by December 31 of each calendar
year at least 98% of its taxable ordinary income for such year, at least 98% of
the excess of its capital gains over its capital losses (generally computed on
the basis of the one-year period ending on October 31 of such year), and all
taxable ordinary income and the excess of capital gains over capital losses for
the previous year that were not distributed for such year and on which the
Portfolio paid no federal income tax. For federal income tax purposes, dividends
declared by a Portfolio in October, November or December to shareholders of
record on a specified date in such a month and paid during January of the
following year are taxable to such shareholders as if received on December 31 of
the year declared. The Portfolios anticipate that they will generally make
timely distributions of income and capital gains in compliance with these
requirements so that they will generally not be required to pay the excise tax.
For federal income tax purposes, each Portfolio is permitted to carry forward a
net capital loss in any year to offset its own capital gains, if any, during the
eight years following the year of the loss.
Certain Portfolios will be subject to foreign taxes on their income
(possibly including, in some cases, capital gains) from foreign securities. Tax
conventions between certain countries and the U.S. may reduce or eliminate such
taxes in some cases.
STATE AND LOCAL. Each Portfolio may be subject to state or local taxes
in jurisdictions in which such Portfolio may be deemed to be doing business. In
addition, in those states or localities which have income tax laws, the
treatment of such Portfolio and its shareholders under such laws may differ from
their treatment under federal income tax laws, and investment in such Portfolio
may have tax consequences for shareholders different from those of a direct
investment in such Portfolio's securities.
The foregoing relates only to federal income taxation and is a general
summary of the federal tax law in effect as of the date of this Statement of
Additional Information.
RATINGS
A rating of a rating service represents that service's opinion as to
the credit quality of the rated security. However, such ratings are general and
cannot be considered absolute standards of quality or guarantees as to the
creditworthiness of an issuer. A rating is not a recommendation to purchase,
sell or hold a security, because it does not take into account market value or
suitability for a particular investor. Markets values of debt securities may
change as a result of a variety of factors unrelated to credit quality,
including changes in market interest rates.
When a security has been rated by more than one service, the ratings
may not coincide, and each rating should be evaluated independently. Ratings are
based on current information furnished by the issuer or obtained by the rating
services from other sources which they consider reliable. Ratings may be
changed, suspended or withdrawn as a result of changes in or unavailability of
such information, or for other reasons. In general, the Portfolios are not
required to dispose of a security if its rating declines after it is purchased,
although they may consider doing so.
RATINGS OF CORPORATE DEBT OBLIGATIONS
STANDARD & POOR'S
AAA: Securities rated AAA have the highest rating assigned by Standard
& Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.
AA: Securities rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only to a
small degree.
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A: Securities rated A have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to adverse
effects of changes in circumstances and economic conditions than bonds
in higher rated categories.
BBB: Securities rated BBB are regarded as having an adequate capacity
to pay interest and repay principal. Although such securities normally
exhibit adequate protection standards, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity
to pay interest and repay principal for securities in this category
than for those in higher rated categories.
Debt rated BB, B, CCC, CC, and C by Standard & Poor's is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
BB: Securities rated BB have less near-term vulnerability to default
than other speculative issues. However, they face major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely
interest and principal payments. The BB rating category is also used
for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
B: Securities rated B have a greater vulnerability to default but
currently have the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions will
likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BB or BB- rating.
CCC: Securities rated CCC have a currently identifiable vulnerability
to default, and are dependent upon favorable business, financial, and
economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic
conditions, they are not likely to have the capacity to pay interest
and repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B or
B- rating.
The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories.
Securities rated SD or D are in selective default or default, respectively. Such
a rating is assigned when an obligor has failed to pay one or more of its
financial obligations (rated or unrated) when it came due.
MOODY'S
Aaa: Securities which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are protected
by a large or exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Securities which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group, they comprise what are
generally known as high grade securities. They are rated lower than the
best securities because margins of protection may not be as large as in
Aaa securities, or fluctuation of protective elements may be of greater
magnitude, or there may be other elements present which make the
long-term risks appear somewhat greater than in Aaa securities.
A: Securities which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
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Baa: Securities which are rated Baa are considered as medium grade
obligations, being neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
securities lack outstanding investment characteristics, and in fact
have some speculative characteristics.
Ba: An issue which is rated Ba is judged to have speculative elements;
its future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes issues in this class.
B: An issue which is rated B generally lacks characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
Caa: An issue which is rated Caa is of poor standing. Such an issue may
be in default or there may be present elements of danger with respect
to principal or interest.
Those securities in the Aa, A and Baa groups which Moody's believes possess the
strongest investment attributes are designated by the symbols Aa-1, A-1 and
Baa-1. Other Aa, A and Baa securities comprise the balance of their respective
groups. These rankings (1) designate the securities which offer the maximum in
security within their quality groups, (2) designate securities which can be
bought for possible upgrading in quality and (3) additionally afford the
investor an opportunity to gauge more precisely the relative attractiveness of
offerings in the marketplace.
RATINGS OF PREFERRED STOCK
STANDARD & POOR'S. Standard & Poor's ratings for preferred stock have
the following definitions:
AAA: An issue rated "AAA" has the highest rating that may be assigned
by Standard & Poor's to a preferred stock issue and indicates an
extremely strong capacity to pay the preferred stock obligations.
AA: A preferred stock issue rated "AA" also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations
is very strong, although not as overwhelming as or issues rated "AAA."
A: An issue rated "A" is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more susceptible
to the adverse effects of changes in circumstances and economic
conditions.
BBB: An issue rated "BBB" is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make
payments for a preferred stock in this category than for issues in the
category.
MOODY'S. Moody's ratings for preferred stock include the following:
aaa: An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred
stocks.
aa: An issue which is rated "aa" is considered a high grade preferred
stock. This rating indicates that there is reasonable assurance that
earnings and asset protection will remain relatively well maintained in
the foreseeable future.
baa: An issue which is rated "baa" is considered to be medium grade,
neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any
great length of time.
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RATINGS OF COMMERCIAL PAPER
STANDARD & POOR'S. Commercial paper ratings are graded into four
categories, ranging from "A" for the highest quality obligations to "D"
for the lowest. Issues assigned the A rating are regarded as having the
greatest capacity for timely payment. Issues in this category are
further refined with the designation 1, 2 and 3 to indicate the
relative degree of safety. The "A-1" designation indicates that the
degree of safety regarding timely payment is very strong. Those issues
determined to possess overwhelming safety characteristics will be
denoted with a plus (+) symbol designation. None of the Portfolios will
purchase commercial paper rated A-3 or lower.
MOODY'S. Moody's commercial paper ratings are opinions as to the
ability of the issuers to timely repay promissory obligations not
having an original maturity in excess of nine months. Moody's makes no
representation that such obligations are exempt from registration under
the Securities Act of 1933, and it does not represent that any specific
instrument is a valid obligation of a rated issuer or issued in
conformity with any applicable law. Moody's employs the following three
designations, all judged to be investment grade, to indicate the
relative repayment capacity of rated issuers:
PRIME-1: Superior capacity for repayment.
PRIME-2: Strong capacity for repayment.
PRIME-3: Acceptable capacity for repayment.
None of the Portfolios will purchase Prime-3 commercial paper.
[SEED MONEY BALANCE SHEET]
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FIRST AMERICAN INSURANCE PORTFOLIOS, INC.
PART C -- OTHER INFORMATION
ITEM 23. EXHIBITS
(a)(1) Amended and Restated Articles of Incorporation, as filed
August 27, 1999 (Filed with the Registration Statement,
December 30, 1999, File Nos. 333- 93883 and 811-09765).
(a)(2) Certificate of Designation designating Series D, Class One
Shares, dated December 1999 (Filed with the Registration
Statement, December 30, 1999, File Nos. 333-93883 and
811-09765).
(b) By-laws of Registrant, as Amended through December 8, 1999
(Filed with the Registration Statement, December 30, 1999,
File Nos. 333- 93883 and 811-09765).
(c) Not Applicable.
(d)(1) Investment Advisory Agreement between Registrant and U.S. Bank
National Association, dated December 8, 1999 (Filed with the
Registration Statement, December 30, 1999, File Nos. 333-93883
and 811-09765).
* (d)(2) Investment Sub-Advisory Agreement with Marvin & Palmer
Associates, dated April 11, 2000.
(e) Not Applicable.
(f) Not Applicable.
(g)(1) Custodian Agreement between Registrant and U.S. Bank National
Association, dated December 8, 1999 (Filed with the
Registration Statement, December 30, 1999, File Nos. 333-93883
and 811-09765).
(g)(2) Compensation Agreement Dated as of December 8, 1999 Pursuant
to Custodian Agreement (Filed with the Registration Statement,
December 30, 1999, File Nos. 333-93883 and 811-09765).
(h)(1) Administration Agreement between Registrant and U.S. Bank
National Association, dated December 8, 1999 (with Schedule
attached) (Filed with the Registration Statement, December 30,
1999, File Nos. 333-93883 and 811-09765).
* (h)(2) Participation Agreement between Registrant, U.S. Bank National
Association and Hartford Life Insurance Company, dated April
7, 2000.
* (h)(3) Participation Agreement between Registrant, U.S. Bank National
Association and Hartford Life and Annuity Insurance Company,
dated April 7, 2000.
* (i) Opinion of Dorsey & Whitney LLP with respect to First
American Insurance Portfolios, Inc.
<PAGE>
of the securities being registered, stating whether the
securities will, when sold, be legally issued, fully paid, and
non-assessable.
* (j) Consent of Ernst & Young LLP.
(k) Not Applicable.
* (l) Seed money balance sheet; statement of assets and liabilities
dated April 14, 2000.
(m) Not Applicable.
(n) Not Applicable.
(o) Reserved.
* (p) Code of Ethics.
* To be filed by amendment.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
Not Applicable.
ITEM 25. INDEMNIFICATION
The Registrant's Articles of Incorporation and Bylaws provide that the
Registrant shall indemnify such persons for such expenses and liabilities, in
such manner, under such circumstances, and to the full extent as permitted by
Section 302A.521 of the Minnesota Statutes, as now enacted or hereafter amended;
provided, however, that no such indemnification may be made if it would be in
violation of Section 17(h) of the Investment Company Act of 1940, as now enacted
or hereafter amended, and any rules, regulations, or releases promulgated
thereunder.
Section 302A.521 of the Minnesota Statutes, as now enacted, provides
that a corporation shall indemnify a person made or threatened to be made a
party to a proceeding by reason of the former or present official capacity of
the person against judgments, penalties, fines, settlements and reasonable
expenses, including attorneys' fees and disbursements, incurred by the person in
connection with the proceeding if, with
<PAGE>
respect to the acts or omissions of the person complained of in the proceeding,
the person has not been indemnified by another organization for the same
judgments, penalties, fines, settlements, and reasonable expenses incurred by
the person in connection with the proceeding with respect to the same acts or
omissions; acted in good faith, received no improper personal benefit, and the
Minnesota Statutes dealing with directors' conflicts of interest, if applicable,
have been satisfied; in the case of a criminal proceeding, had no reasonable
cause to believe that the conduct was unlawful; and reasonably believed that the
conduct was in the best interests of the corporation or, in certain
circumstances, reasonably believed that the conduct was not opposed to the best
interests of the corporation.
The Registrant undertakes that no indemnification or advance will be
made unless it is consistent with Sections 17(h) or 17(i) of the Investment
Company Act of 1940, as now enacted or hereafter amended, and Securities and
Exchange Commission rules, regulations, and releases (including, without
limitation, Investment Company Act of 1940 Release No. 11330, September 2,
1980).
Insofar as the indemnification for liability arising under the
Securities Act of 1933, as amended, 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 such Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933, as amended, and will be governed by the final
adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Information on the business of the Registrant's investment adviser,
U.S. Bank National Association (the "Advisor"), is described in the section the
Statement of Additional Information, filed as part of this Registration
Statement, entitled "Investment Advisory and Other Services." The directors and
officers of the Advisor are listed below, together with their principal
occupation or other positions of a substantial nature during the past two fiscal
years.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES OTHER POSITIONS AND OFFICES
NAME WITH THE ADVISOR AND PRINCIPAL BUSINESS ADDRESS
-------- ----------------------------- --------------------------------------------------
<PAGE>
<S> <C> <C>
John F. Grundhofer Chairman, President and Chief Chairman, President and Chief
Executive Officer Executive Officer of U.S. Bancorp*
Richard A. Zona Director and Vice Chairman--Finance Vice Chairman--Finance of U.S. Bancorp*
Philip G. Heasley Director and Vice Chairman Vice Chairman and Group Head of the
Retail Product Group of U.S. Bancorp*
J. Robert Hoffmann Director, Chief Credit Officer and Executive Vice President and Chief Credit
Executive Vice President Officer of U.S. Bancorp*
Lee R. Mitau Director, General Counsel, Executive Executive Vice President, Secretary, and
Vice President and Secretary General Counsel of U.S. Bancorp*
Susan E. Lester Director, Executive Vice President and Executive Vice President and Chief
Chief Financial Officer Financial Officer of U.S. Bancorp*
Robert D. Sznewajs Director and Vice Chairman Vice Chairman of U.S. Bancorp*
Gary T. Duim Director and Vice Chairman Vice Chairman of U.S. Bancorp*
</TABLE>
- ----------------------------------
* Address: 601 Second Avenue South, Minneapolis, Minnesota 55402.
ITEM 27. PRINCIPAL UNDERWRITERS:
(a) Not Applicable.
(b) Not Applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books, and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the rules promulgated
thereunder are maintained by U.S. Bank National Association, 601 Second Avenue
South, Minneapolis, Minnesota 55402.
ITEM 29. MANAGEMENT SERVICES
<PAGE>
Not applicable.
ITEM 30. UNDERTAKINGS
Not applicable.
SIGNATURES
As required by the Securities Act of 1933, as amended, and the
Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all of the requirements for effectiveness of this Registration Statement
under the Securities Act of 1933, as amended, and has duly caused this
Registration Statement File Nos. 333-93883 and 811-09765, to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Minneapolis, State of Minnesota on the 19th day of April, 2000.
FIRST AMERICAN INSURANCE PORTFOLIOS, INC.
ATTEST: /s/ Jeff Wilson By: /s/ Christopher J. Smith
------------------------------ -----------------------------
Jeff Wilson Christopher J. Smith
Senior Vice President Secreatary
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed below by the
following persons in the capacity and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Jeff Wilson Senior Vice President **
- -------------------------------
Jeff Wilson
* Director **
- -------------------------------
John M. Murphy, Jr.
* Director **
- -------------------------------
Robert J. Dayton
* Director **
- -------------------------------
Andrew M. Hunter III
<PAGE>
* Director **
- -------------------------------
Leonard W. Kedrowski
* Director **
- -------------------------------
Robert L. Spies
* Director **
- -------------------------------
Joseph D. Strauss
* Director **
- -------------------------------
Virginia L. Stringer
* Director **
- -------------------------------
Roger A. Gibson
* By: /s/ Christopher J. Smith
-------------------------
Christopher J. Smith
Attorney-in-Fact
** April 19, 2000
EXHIBIT (d)(2)
SUB-ADVISORY AGREEMENT
This Agreement, made as of this 11th day of April, 2000, by and between
U.S. Bank National Association, a national banking association organized and
existing under the laws of the United States of America (the "Adviser"), and
Marvin & Palmer Associates, Inc., a Delaware corporation (the "Sub-Adviser").
WHEREAS, First American Insurance Portfolios, Inc., a Minnesota
corporation ("FAIP"), on behalf of its International Portfolio, a separately
managed series of FAIP ("International Portfolio"), has appointed the Adviser as
International Portfolio's investment adviser pursuant to an Investment Advisory
Agreement dated December 8, 1999 (the "Advisory Agreement"); and
WHEREAS, pursuant to the terms of the Advisory Agreement, the Adviser
desires to appoint the Sub-Adviser as its sub-adviser for International
Portfolio, and the Sub-Adviser is willing to act in such capacity upon the terms
set forth herein; and
WHEREAS, pursuant to the terms of the Advisory Agreement, FAIP has
approved the appointment of the Sub-Adviser as the sub-adviser for International
Portfolio.
NOW, THEREFORE, the Adviser and the Sub-Adviser agree as follows:
1. The Adviser hereby retains the Sub-Adviser, and the
Sub-Adviser hereby agrees to act, as sub-adviser for, and to
manage the investment of the assets of, International
Portfolio as set forth herein. Without limiting the generality
of the foregoing, it is specifically understood and agreed by
the Adviser and the Sub-Adviser that:
(a) The investment of International Portfolio's assets
shall at all times be subject to the investment
objectives, policies and restrictions of
International Portfolio as set forth in FAIP's
then-effective Registration Statement under the
Securities Act of 1933, as amended, including the
Prospectus and Statement of Additional Information of
International Portfolio contained therein. The
Adviser shall communicate to the Sub-Adviser any
changes or additions to or interpretations of such
investment objectives, policies and restrictions of
International Portfolio made by the Board of
Directors of FAIP (the "Board"). The Sub-Adviser
shall report to the Adviser and the Board regularly
at such times and in such detail as the Adviser or
the Board may from time to time request in order to
permit the Adviser and the Board to determine the
adherence of International Portfolio to its
investment objectives, policies and restrictions.
(b) The Sub-Adviser hereby agrees that upon the request
of the Board or the Adviser, copies of all records
pertaining to International Portfolio's investments
will be provided to FAIP or to such person as is
designated by
1
<PAGE>
FAIP. If a transfer of investment advisory or
sub-advisory services with respect to International
Portfolio should occur, the Sub-Adviser will
promptly, and at its own expense, take all steps
necessary or appropriate to segregate such records
and deliver them to FAIP or to such person as is
designated by FAIP.
(c) Any investment decisions made by the Sub-Adviser on
behalf of International Portfolio shall be subject,
in the discretion of the Adviser, to review, approval
or ratification by the Adviser.
In acting hereunder, the Sub-Adviser shall be an independent
contractor and, unless otherwise expressly provided or
authorized hereunder or by the Board, shall have no authority
to act for or represent the Adviser, FAIP or International
Portfolio in any way or otherwise be an agent of the Adviser,
FAIP or International Portfolio.
2. The Sub-Adviser, at its own expense, shall provide all office
space, personnel and facilities necessary and incident to the
performance of the Sub-Adviser's services hereunder. The
Sub-Adviser may consult with counsel to International
Portfolio and shall be protected insofar as it acts in
conformity with advice rendered to it by such counsel. The
fees and expenses of counsel to International Portfolio shall
be paid by International Portfolio.
3. The Sub-Adviser shall be responsible only for those expenses
expressly stated in paragraph 2 to be the responsibility of
the Sub-Adviser and shall not be responsible for any other
expenses of the Adviser, International Portfolio or FAIP,
including, as illustrative and without limitation, fees and
charges of any custodian (including charges as custodian and
for keeping books and records and similar services to FAIP and
International Portfolio); fees and expenses of directors; fees
and expenses of independent auditors, legal counsel, transfer
agents, dividend disbursing agents, and registrars; costs of
and incident to issuance, redemption and transfer of
International Portfolio's shares, and distributions to
shareholders (including dividend payments and reinvestment of
dividends); brokers' commissions; interest charges; taxes and
corporate fees payable to any government or governmental body
or agency (including those incurred on account of the
registration or qualification of securities issues by FAIP);
dues and other expenses incident to FAIP's membership in the
Investment Company Institute and other like associations;
costs of stock certificates, shareholder meetings, corporate
reports, reports and notices to shareholders; and costs of
printing, stationery and bookkeeping forms.
4. The Sub-Adviser shall not purchase or sell securities for
International Portfolio in any transaction in which the
Sub-Adviser or any affiliate of the Sub-Adviser is acting as
broker or dealer. The Sub-Adviser may, with the prior consent
of the Adviser, utilize FAIP's distributor or the Adviser or
an affiliate of the Adviser as a broker, including as a
principal broker, provided that the brokerage transactions
2
<PAGE>
and procedures are in accordance with Rule 17e-1 under the
Investment Company Act of 1940, as amended (the "Act"), other
applicable provisions, if any, of the Act, and the
then-effective Registration Statement of FAIP under the
Securities Act of 1933, as amended. All allocation of
portfolio transactions shall be subject to such policies and
supervision as the Board or any committee thereof deem
appropriate and any brokerage policy set forth in the
then-current Registration Statement of FAIP as provided to the
Sub-Adviser. The Sub-Adviser shall provide to the Adviser and
the Board such reports in respect to placement of security
transactions for International Portfolio as the Adviser or the
Board may reasonably request. The Sub-Adviser also shall
provide to the Adviser and the Board such reports assessing
the likelihood, if any, of expropriation, nationalization,
freezes or confiscation of International Portfolio's assets in
each country in which it invests; foreseeable difficulties, if
any, in converting International Portfolio's cash and cash
equivalents into U.S. dollars; and similar matters, as the
Adviser or the Board may reasonably request in order to assist
the Board in making the determinations required to be made by
it pursuant to Rule 17f-5 under the Act.
5. For the services provided and the expenses assumed by the
Sub-Adviser pursuant to this Agreement, the Adviser will pay
to the Sub-Adviser as full compensation therefor a fee based
on an annual rate of 0.75% of the first $100 million of
International Portfolio's average daily net assets; 0.50% of
International Portfolio's average daily assets in excess of
$100 million up to $300 million; 0.45% of International
Portfolio's average daily assets in excess of $300 million up
to $500 million; and 0.40% of International Portfolio's
average daily assets in excess of $500 million. This fee will
be computed based on net assets at the beginning of each day
and will be paid to the Sub-Adviser monthly on or before the
fifteenth day of the month next succeeding the month for which
the fee is paid. The fee shall be prorated for any fraction of
a fiscal year at the commencement and termination of this
Agreement. Anything to the contrary herein notwithstanding,
the Sub-Adviser may at any time and from time to time waive
any part or all of any fee payable to it pursuant to this
Agreement.
6. Nothing in this Agreement shall prevent the Sub-Adviser or any
partner, officer, employee or other affiliate thereof from
acting as investment adviser for any other person, firm or
corporation, or from engaging in any other lawful activity,
and shall not in any way limit or restrict the Sub-Adviser or
any of its partners, officers, employees or agents from
buying, selling or trading any securities for its or their own
accounts or for the accounts of others for whom it or they may
be acting, provided, however, that the Sub-Adviser will
undertake and permit such persons to undertake no activities
which, in its judgment, will adversely affect the performance
of its obligations under this Agreement.
The Sub-Adviser agrees to indemnify International Portfolio,
FAIP and the Adviser with respect to any loss, liability,
judgment, cost or penalty which International Portfolio, FAIP
or the Adviser may directly or indirectly suffer or
3
<PAGE>
incur in any way arising out of or in connection with any
material breach of this Agreement by the Sub-Adviser. The
Adviser agrees to indemnify the Sub-Adviser with respect to
any loss, liability, judgment, cost or penalty which the
Sub-Adviser may directly or indirectly suffer or incur in any
way arising out of the performance of its duties under this
Agreement, except as provided in the following paragraph.
The Sub-Adviser shall give International Portfolio the benefit
of its best judgment and effort in rendering services
hereunder, but the Sub-Adviser shall not be liable for any act
or omission or for any loss sustained by International
Portfolio in connection with the matters to which this
Agreement relates, except a loss resulting from willful
misfeasance, bad faith or negligence in the performance of its
duties, or by reason of its reckless disregard of its
obligations and duties, under this Agreement. The Sub-Adviser
shall not be entitled to indemnity for any loss, liability,
judgment, cost or penalty resulting from willful misfeasance,
bad faith or negligence in the performance of its duties, or
by reason of its reckless disregard of its obligations and
duties, under this Agreement.
7. The Sub-Adviser represents, warrants and agrees that the
Sub-Adviser is registered as an "investment adviser" under the
Investment Advisers Act of 1940, as amended (the "Advisers
Act"), and is and shall continue at all times to be in
compliance in all material respects with the requirements
imposed upon it by the Advisers Act. The Sub-Adviser agrees to
(a) supply the Adviser with such documents as the Adviser may
reasonably request to document the Sub-Adviser's compliance
with such laws and regulations, and (b) immediately notify the
Adviser of the occurrence of any event which would disqualify
the Sub-Adviser from serving as an investment adviser of an
investment company pursuant to any applicable law or
regulation. The Sub-Adviser will furnish to the Adviser a copy
of any amendment to the Sub-Adviser's Form ADV promptly
following the filing of such amendment with the Securities and
Exchange Commission.
8. The Adviser and the Sub-Adviser each represents and warrants
that it has the power to execute and deliver this Agreement
and any other documentation relating hereto and to perform its
respective obligations under this Agreement and that it has
taken all necessary action to authorize such execution,
delivery and performance. Such execution, delivery and
performance do not violate or conflict with any law applicable
to the Adviser or the Sub-Adviser, respectively, any order or
judgment of any court or other governmental agency, or any
contractual restriction binding on or affecting the Adviser or
the Sub-Adviser, respectively. The obligations of the Adviser
and the Sub-Adviser, respectively, under this Agreement
constitute their respective legal, valid and binding
obligations, enforceable against each of them in accordance
with the terms hereof.
9. The effective date of this Agreement shall be the date set
forth in the first paragraph hereof. Unless sooner terminated
as hereinafter provided, this Agreement shall continue in
effect for a period of more than two years from the
4
<PAGE>
date of its execution but only as long as such continuance is
specifically approved at least annually by (a) the Board or by
the vote of a majority of the outstanding shares of
International Portfolio and (b) the vote of a majority of the
directors, who are not parties to this Agreement or
"interested persons" (as defined in the Act) of the Adviser,
of the Sub-Adviser or of FAIP, cast in person at a meeting
called for the purpose of voting on such approval.
10. This Agreement may be terminated at any time, without the
payment of any penalty, by the Board or by the vote of a
majority of the outstanding shares of International Portfolio,
or by the Adviser or the Sub-Adviser, upon 60 days' written
notice to the other parties.
This Agreement shall automatically terminate in the event of
its "assignment" (as defined in the Act), provided, however,
that such automatic termination shall be prevented in a
particular case by an order of exemption from the Securities
and Exchange Commission or a no-action letter of the staff of
the Commission to the effect that such assignment does not
require termination as a statutory or regulatory matter.
11. This Agreement may be modified by mutual consent, such consent
only to be authorized by a majority of the directors of FAIP
who are not parties to this Agreement or "interested persons"
(as defined in the Act) of the Adviser, of the Sub-Adviser or
of FAIP and the vote of a majority of the outstanding shares
of International Portfolio.
12. Wherever referred to in this Agreement, the vote or approval
of the holders of a majority of the outstanding shares of
International Portfolio shall mean the lesser of (a) the vote
of 67% or more of the shares of International Portfolio at a
meeting where more than 50% of the outstanding shares are
present in person or by proxy, or (b) the vote of more than
50% of the outstanding shares of International Portfolio.
13. If any provision of this Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the
remainder shall not be thereby affected.
14. Any notice under this Agreement shall be in writing,
addressed, delivered or mailed, postage prepaid, to the other
party at such address as such other party may designate in
writing for receipt of such notice.
15. The internal law, and not the law of conflicts, of the State
of Minnesota will govern all questions concerning the
construction, validity and interpretation of this Agreement
and the performance of the obligations imposed by this
Agreement.
5
<PAGE>
16. This Agreement constitutes the entire agreement between the
parties concerning its subject matter and supersedes all prior
and contemporaneous agreements, representations and
understandings of the parties.
IN WITNESS WHEREOF, the Adviser and the Sub-Adviser have caused this
Agreement to be executed by their duly authorized officers as of the
day and year first above written.
FIRST AMERICAN ASSET MANAGEMENT,
A DIVISION OF U.S. BANK NATIONAL
ASSOCIATION
By
---------------------------------------
Its
------------------------------------
MARVIN & PALMER ASSOCIATES, INC.
By
---------------------------------------
Its
------------------------------------
6
EXHIBIT (h)(2)
PARTICIPATION AGREEMENT
BY AND AMONG
FIRST AMERICAN INSURANCE PORTFOLIOS, INC.,
FIRST AMERICAN ASSET MANAGEMENT,
A DIVISION OF U.S. BANK NATIONAL ASSOCIATION,
AND
HARTFORD LIFE INSURANCE COMPANY,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS.
TABLE OF CONTENTS
DESCRIPTION PAGE
- ----------- ----
Section 1. Available Funds 2
1.1 Availability 2
1.2 Addition, Deletion or Modification of Funds 2
1.3 No Sales to the General Public 2
Section 2. Processing Transactions 2
2.1 Timely Pricing and Orders 2
2.2 Timely Payments 3
2.3 Applicable Price 3
2.4 Dividends and Distributions 4
2.5 Book Entry 4
Section 3. Costs and Expenses 4
3.1 General 4
3.2 Registration 4
3.3 Other (Non-Sales-Related) 5
3.4 Parties To Cooperate 6
Section 4. Legal Compliance 6
4.1 Tax Laws 6
4.2 Insurance and Certain Other Laws 7
4.3 Securities Laws 7
4.4 Notice of Certain Proceedings and Other Circumstances 9
4.5 Company To Provide Documents; Information About
FAIP 10
4.6 FAIP To Provide Documents; Information About
Company 11
Section 5. Mixed and Shared Funding 12
5.1 General 12
5.2 Disinterested Directors 12
5.3 Monitoring for Material Irreconcilable Conflicts 13
i
<PAGE>
DESCRIPTION PAGE
- ----------- ----
5.4 Conflict Remedies 13
5.5 Notice to Company 15
5.6 Information Requested by Board of Directors 15
5.7 Compliance with SEC Rules 15
5.8 Other Requirements 15
Section 6. Termination 15
6.1 Events of Termination 15
6.2 Notice Requirement for Termination 17
6.3 Funds To Remain Available 17
6.4 Survival of Warranties and Indemnifications 17
6.5 Continuance of Agreement for Certain Purposes 18
Section 7. Parties To Cooperate Respecting Termination 18
Section 8. Assignment 18
Section 9. Notices 18
Section 10. Voting Procedures 19
Section 11. Foreign Tax Credits 20
Section 12. Indemnification 20
12.1 Of FAIP and the Advisor by Company 20
12.2 Of Company by FAIP and Advisor 22
12.3 Effect of Notice 25
12.4 Successors 25
Section 13. Applicable Law 25
Section 14. Execution in Counterparts 25
Section 15. Severability 25
Section 16. Rights Cumulative 26
Section 17. Headings 26
Section 18. Confidentiality 26
Section 19. Parties to Cooperate 27
Section 20. Amendments 27
Section 21. Assignment 27
ii
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the _____ day of _________,
2000 ("Agreement"), by and among First American Insurance Portfolios, Inc., a
Minnesota corporation ("FAIP"); First American Asset Management, a division of
U.S. Bank National Association, a national banking association organized and
existing under the laws of the United States of America (the "Advisor"); and
Hartford Life Insurance Company, a Connecticut life insurance company
("Company"), on behalf of itself and each of its segregated asset accounts
listed in Schedule A hereto, as the parties hereto may amend said Schedule A
from time to time (each, an "Account," and collectively, the "Accounts")
(collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, FAIP 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
WHEREAS, FAIP currently consists of three separate series ("Series"),
shares ("Shares") of each of which are registered under the Securities Act of
1933, as amended (the "1933 Act") and may be sold to one or more separate
accounts of life insurance companies to fund benefits under variable annuity
contracts and variable life insurance contracts; and
WHEREAS, FAIP will make Shares of each Series listed on Schedule A
hereto as the Parties hereto may amend said Schedule A from time to time (each a
"Fund"; reference herein to "Fund" includes reference to each Fund, to the
extent the context requires) available for purchase by the Accounts; and
WHEREAS, Company will be the issuer of certain variable annuity
contracts and variable life insurance contracts ("Contracts") as set forth on
Schedule A hereto, as the Parties hereto may amend said Schedule A from time to
time, which Contracts, if required by applicable law, will be registered under
the 1933 Act; and
WHEREAS, Company will fund the Contracts through the Accounts, each of
which may be divided into two or more subaccounts ("Subaccounts"; reference
herein to an "Account" includes reference to each Subaccount thereof to the
extent the context requires); and
WHEREAS, Company will serve as the depositor of the Accounts, each of
which is registered as a unit investment trust investment company under the 1940
Act (or exempt therefrom), and the security interests deemed to be issued by the
Accounts under the Contracts will be registered as securities under the 1933 Act
(or exempt therefrom); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, Company intends to purchase Shares in one or more of the Funds on
behalf of the Accounts to fund the Contracts.
1
<PAGE>
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
SECTION 1. AVAILABLE FUNDS
1.1 AVAILABILITY.
FAIP will make Shares of each Fund available to Company for purchase
and redemption on behalf of the Accounts at net asset value and with no sales
charges, subject to the terms and conditions of this Agreement. The Board of
Directors of FAIP may refuse to sell Shares of any Fund to any person, or
suspend or terminate the offering of Shares of any Fund if such action is
required by law or by regulatory authorities having jurisdiction or if, in the
sole discretion of the Board of Directors 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 Fund.
1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS.
The Parties hereto may agree, from time to time, to add other Funds to
provide additional funding media for the Contracts, or to delete, combine, or
modify existing Funds, by amending Schedule A hereto. Upon such amendment to
Schedule A, any applicable reference to a Fund or its Shares herein shall
include a reference to any such additional Fund. Schedule A, as amended from
time to time, is incorporated herein by reference and is a part hereof.
1.3 NO SALES TO THE GENERAL PUBLIC.
FAIP represents and warrants that Shares of the Funds have been and
will be sold only to variable annuity separate accounts and variable life
insurance separate accounts of participating insurance companies for the purpose
of funding variable annuity contracts or variable life insurance policies and no
Shares of the Funds have been or will be sold to the general public.
Notwithstanding this, under Treas. Reg. 1.817-5(f)(3)(ii), shares may be held by
the Advisor in connection with the creation of FAIP (or by a person related to
the Advisor in a manner specified in Section 267(d) of the Code).
SECTION 2. PROCESSING TRANSACTIONS
2.1 TIMELY PRICING AND ORDERS.
(a) FAIP or its designated agent will use its best efforts to
provide Company with the net asset value per Share for each
Fund by 5:00 p.m. Central Time on each Business Day. As used
herein, "Business Day" shall mean any day on which (i) the New
York Stock Exchange is open for regular trading, and (ii) on
which FAIP calculates the Fund's net asset value pursuant to
the rules of the SEC.
(b) Company will use the data provided by FAIP each Business Day
pursuant to paragraph (a) immediately above to calculate
Account unit values and to process
2
<PAGE>
transactions that receive that same Business Day's Account
unit values. Company will perform such Account processing the
same Business Day, and will place corresponding orders to
purchase or redeem Shares with FAIP by 9:00 a.m. Central Time
the following Business Day; provided, however, that FAIP shall
provide additional time to Company in the event that FAIP is
unable to meet the 5:00 p.m. time stated in paragraph (a)
immediately above. Such additional time shall be no more than
the additional time that FAIP took to make the net asset
values available to Company.
(c) With respect to payment of the purchase price by Company and
of redemption proceeds by FAIP, Company and FAIP shall net
purchase and redemption orders with respect to each Fund and
shall transmit one total net payment for all Funds in
accordance with Section 2.2, below.
(d) If FAIP provides materially incorrect Share net asset value
information (as determined under SEC guidelines and the net
asset value error policy as approved by the Board of Directors
of FAIP), Company shall be entitled to an adjustment to the
number of Shares purchased or redeemed to reflect the correct
net asset value per Share. Any material error in the
calculation or reporting of net asset value per Share,
dividend or capital gain information shall be reported
promptly upon discovery to Company. If an Account, due to such
error has received amounts in excess of the amounts to which
it is entitled, the Company, when requested by FAIP or the
Advisor, shall make adjustments to the Account to reflect the
change in the values of the Shares as reflected in the unit
values of the affected contract owners who still have values
in the Funds.
2.2 TIMELY PAYMENTS.
Company will wire payment in federal funds for net purchases to a
custodial account designated by Fund by 1:00 p.m. Central Time on the same day
as the order for Shares is placed, to the extent practicable. FAIP will wire
payment for net redemptions in federal funds to an account designated by Company
by 1:00 p.m. Central Time on the same day as the order is placed.
Notwithstanding the foregoing, if the payment of redemption proceeds would
require the Fund to dispose of portfolio securities or otherwise incur
substantial additional costs, and if the Fund has determined to settle
redemption transactions for all shareholders on a delayed basis, proceeds in
federal funds shall be wired after the date the order is placed, but in any
event within three (3) calendar days after the date the order is placed in order
to enable Company to pay redemption proceeds within the time specified in
Section 22(e) of the 1940 Act or such shorter period of time as may be required
by law.
2.3 APPLICABLE PRICE.
(a) Share purchase payments and redemption orders that result from
purchase payments, premium payments, surrenders and all other
Participant transactions under Contracts (collectively,
"Contract transactions") that Company receives prior to the
close of regular trading on the New York Stock Exchange on a
3
<PAGE>
Business Day will be executed at the net asset values of the
appropriate Funds next computed after receipt by Fund or its
designated agent of the orders. For purposes of this Section
2.3(a), Company shall be the designated agent of FAIP for
receipt of orders relating to Contract transactions on each
Business Day and receipt by such designated agent shall
constitute receipt by FAIP, provided that FAIP receives notice
of such orders by 9:00 a.m. Central Time on the next following
Business Day, or such later time as computed in accordance
with Section 2.1(b) hereof.
(b) Share purchases and redemptions by Company not received by
FAIP in accordance with Section 2.3(a) hereof, will be
effected at the net asset values of the appropriate Funds next
computed after receipt by FAIP of the order therefor, and such
orders will be irrevocable.
2.4 DIVIDENDS AND DISTRIBUTIONS.
FAIP will furnish notice by wire or telephone (followed by written
confirmation) on or prior to the payment date to Company of any income dividends
or capital gain distributions payable on the Shares of any Fund. Company hereby
elects to reinvest all dividends and capital gains distributions in additional
Shares of the corresponding Fund at the ex-dividend date net asset values until
Company otherwise notifies FAIP in writing, it being agreed by the Parties that
the ex-dividend date and the payment date with respect to any dividend or
distribution will be the same business day. Company reserves the right to revoke
this election and to receive all such income dividends and capital gain
distributions in cash.
2.5 BOOK ENTRY.
Issuance and transfer of FAIP Shares will be by book entry only. Stock
certificates will not be issued to Company. Shares ordered from FAIP will be
recorded in an appropriate title for Company, on behalf of its Account.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided herein, each Party will bear
all expenses incident to its performance under this Agreement.
3.2 REGISTRATION.
(a) FAIP will bear the cost of its registering as a management
investment company under the 1940 Act and registering its
Shares under the 1933 Act, and keeping such registrations
current and effective; including, without limitation, the
preparation of and filing with the SEC of Forms N-SAR and Rule
24f-2 Notices with respect to FAIP and its Shares and, to the
extent required, payment of all applicable registration or
filing fees with respect to any of the foregoing.
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(b) Company will bear the cost of registering, to the extent
required, each Account as a unit investment trust under the
1940 Act and registering units of interest under the Contracts
under the 1933 Act and keeping such registrations current and
effective; including, without limitation, the preparation and
filing with the SEC of Forms N-SAR and Rule 24f-2 Notices with
respect to each Account and its units of interest and payment
of all applicable registration or filing fees with respect to
any of the foregoing.
3.3 OTHER (NON-SALES-RELATED).
(a) FAIP will provide camera-ready film or computer diskettes
containing the Funds' prospectus, statement of additional
information, reports to shareholders and, as required, other
communications to shareholders, for Company to print and
distribute to prospective and existing Contract owners.
(i) The Company, at its expense, will print and
distribute the Contract prospectuses for use with
prospective Contract owners.
(ii) The Company will print and deliver prospectuses,
statements of additional information, reports to
shareholders and other shareholder communications to
existing Contract owners and FAIP will pay that part
of the expense of printing and delivery of such
materials attributable to FAIP's prospectuses, FAIP's
statements of additional information, FAIP's reports
to shareholders and other FAIP shareholder
communications.
(iii) The Company may elect upon 10 (ten) days notice that,
in lieu of camera-ready film or computer diskettes
containing the Funds' prospectus, statement of
additional information, reports to shareholders or
other communications to shareholders, that FAIP, at
its expense, will provide as many printed copies of
such shareholder information as Company may
reasonably request to deliver, at FAIP's expense, to
existing Contract owners.
(b) The Company may elect to print prospectuses, statements of
additional information and reports to shareholders in
combination with other fund companies' prospectuses,
statements of additional information, and reports.
(c) FAIP, at its expense, will provide the Company with as many
printed copies of its proxy solicitations as may be required
to deliver to existing Contract owners. The Company, at FAIP's
expense, will distribute proxy materials in accordance with
the procedures set forth in Section 10 hereof.
(d) Unregistered separate accounts subject to the Employee
Retirement Income Security Act of 1974 ("ERISA") will refrain
from voting shares for which no
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instructions are received if such shares are held subject to
the provisions of ERISA.
3.4 PARTIES TO COOPERATE.
Each Party agrees to cooperate with the others, as applicable, in
arranging to print, mail and/or deliver, in a timely manner, combined or
coordinated prospectuses or other materials of FAIP and the Accounts.
SECTION 4. LEGAL COMPLIANCE
4.1 TAX LAWS.
(a) FAIP and the Advisor represent and warrant (i) that each Fund
is currently qualified as a regulated investment company
("RIC") under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), and (ii) that they will
maintain qualification of each Fund as a RIC. FAIP and the
Advisor will notify Company immediately upon having a
reasonable basis for believing that a Fund has ceased to so
qualify or that it might not so qualify in the future.
(b) FAIP and the Advisor represent and warrant that, at all times,
each Fund will comply with the diversification requirements
set forth in Section 817(h) of the Code and Section 1.817-5(b)
of the regulations under the Code. FAIP and the Advisor will
notify Company immediately upon having a reasonable basis for
believing that a Fund has ceased to so comply or that a Fund
might not so comply in the future. In the event a Fund ceases
to comply, FAIP and the Advisor will take all reasonable steps
to adequately diversify the Fund so as to achieve compliance
within the grace period afforded by Section 1.817-5 of the
regulations under the Code.
(c) The Parties hereto agree that if the Internal Revenue Service
("IRS") asserts, in connection with any governmental audit or
review of Company, FAIP or the Advisor, that any Fund has
failed to comply with the diversification requirements of
Section 817(h) of the Code and Section 1.817-5(b) of the
regulations under the Code, or if a Party otherwise becomes
aware of any facts that could give rise to any claim against
Company, FAIP or the Advisor as a result of such failure or
alleged failure to comply with these requirements:
(i) Such Party shall promptly notify the other Parties of
such potential claims;
(ii) The Parties shall consult with each other as to how
to minimize any liability that may arise as a result
of such failure or alleged failure; and
(iii) The Parties shall provide each other with reasonable
access to books and records related to any such
failure or alleged failure, and shall provide any
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written materials provided to the IRS associated with
any proceedings arising out of any such failure or
alleged failure.
(d) Company represents and warrants that the Contracts, upon
issuance, will be treated as annuity contracts or life
insurance contracts under applicable provisions of the Code
and that it will maintain such treatment. Company will notify
FAIP immediately upon having a reasonable basis for believing
that any of the Contracts have ceased to be treated as annuity
contracts or life insurance contracts under applicable
provisions of the Code or that they might not be so treated in
the future.
(e) Company represents and warrants that each Account is a
"segregated asset account" and that interests in each Account
are offered exclusively through the purchase of or transfer
into a "variable contract," within the meaning of such terms
under Section 817 of the Code and the regulations thereunder.
Company will notify FAIP immediately upon having a reasonable
basis for believing that such requirements have ceased to be
met or that they might not be met in the future.
4.2 INSURANCE AND CERTAIN OTHER LAWS.
(a) FAIP will comply with any applicable state insurance laws or
regulations, to the extent specifically requested in writing
by Company, including, the furnishing of information not
otherwise available to Company which is required by state
insurance law to enable Company to obtain the authority needed
to issue the Contracts in any applicable state.
(b) Company represents and warrants that (i) it is an insurance
company duly organized, validly existing and in good standing
under the laws of the State of Connecticut and has full
corporate power, authority and legal right to execute, deliver
and perform its duties and comply with its obligations under
this Agreement, (ii) it has legally and validly established
and maintains each Account as a segregated asset account under
Connecticut Insurance Law and the regulations thereunder, and
(iii) the Contracts comply in all material respects with all
other applicable federal and state laws and regulations.
(c) FAIP and the Advisor represent and warrant that FAIP is a
corporation duly organized, validly existing, and in good
standing under the laws of the State of Minnesota and has full
power, authority, and legal right to execute, deliver, and
perform its duties and comply with its obligations under this
Agreement.
4.3 SECURITIES LAWS.
(a) Company represents and warrants that (i) interests in each
Account pursuant to the Contracts will be registered under the
1933 Act to the extent required by the 1933 Act, (ii) the
Contracts will be duly authorized for issuance and sold in
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compliance with all applicable federal and state laws,
including, without limitation, the 1933 Act, the 1934 Act, the
1940 Act and Connecticut law, (iii) each Account is and will
remain registered under the 1940 Act, to the extent required
by the 1940 Act, (iv) each Account does and will comply in all
material respects with the requirements of the 1940 Act and
the rules thereunder, to the extent required, (v) each
Account's 1933 Act registration statement relating to the
Contracts, together with any amendments thereto, will at all
times comply in all material respects with the requirements of
the 1933 Act and the rules thereunder, (vi) Company will amend
the registration statement for its Contracts under the 1933
Act and for its Accounts under the 1940 Act from time to time
as required in order to effect the continuous offering of its
Contracts or as may otherwise be required by applicable law,
and (vii) each Account Prospectus will at all times comply in
all material respects with the requirements of the 1933 Act
and the rules thereunder.
(b) Company will at its expense register and qualify the Contracts
for sale in accordance with the laws of any state or other
jurisdiction if and to the extent reasonably deemed advisable
by Company.
(c) FAIP represents and warrants that (i) Shares sold pursuant to
this Agreement will be registered under the 1933 Act to the
extent required by the 1933 Act and duly authorized for
issuance and sold in compliance with Minnesota law, (ii) FAIP
is and will remain registered under the 1940 Act to the extent
required by the 1940 Act, (iii) FAIP will amend the
registration statement for its Shares under the 1933 Act and
itself under the 1940 Act from time to time as required in
order to effect the continuous offering of its Shares, (iv)
FAIP does and will comply in all material respects with the
requirements of the 1940 Act and the rules thereunder, (v)
FAIP's 1933 Act registration statement, together with any
amendments thereto, will at all times comply in all material
respects with the requirements of the 1933 Act and rules
thereunder, and (vi) FAIP's Prospectus will at all times
comply in all material respects with the requirements of the
1933 Act and the rules thereunder.
(d) FAIP will at its expense register and qualify its Shares for
sale in accordance with the laws of any state or other
jurisdiction if and to the extent reasonably deemed advisable
by FAIP.
(e) FAIP currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940
Act or otherwise, although it reserves the right to make such
payments in the future. To the extent that it decides to
finance distribution expenses pursuant to Rule 12b-1, FAIP
undertakes to have its Board of Directors, a majority of whom
are not "interested" persons of FAIP, formulate and approve
any plan under Rule 12b-1 to finance distribution expenses.
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<PAGE>
(f) FAIP represents and warrants that all of its directors,
officers, employees, investment advisers, and other
individuals/entities having access to the Funds and/or
securities of the Funds are and continue to be at all times
covered by a blanket fidelity bond or similar coverage for the
benefit of the Funds in an amount not less than the minimal
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 includes coverage for larceny and
embezzlement and is issued by a reputable bonding company.
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
(a) FAIP will immediately notify Company of (i) the issuance by
any court or regulatory body of any stop order, cease and
desist order, or other similar order with respect to FAIP's
registration statement under the 1933 Act or FAIP Prospectus,
(ii) any request by the SEC for any amendment to such
registration statement or Fund Prospectus that may affect the
offering of Shares of FAIP, (iii) the initiation of any
proceedings for that purpose or for any other purpose relating
to the registration or offering of FAIP's Shares, or (iv) any
other action or circumstances that may prevent the lawful
offer or sale of Shares of any Fund in any state or
jurisdiction, including, without limitation, any circumstances
in which (a) such Shares are not registered and, in all
material respects, issued and sold in accordance with
applicable state and federal law, or (b) such law precludes
the use of such Shares as an underlying investment medium of
the Contracts issued or to be issued by Company. FAIP will
make every reasonable effort to prevent the issuance, with
respect to any Fund, of any such stop order, cease and desist
order or similar order and, if any such order is issued, to
obtain the lifting thereof at the earliest possible time.
(b) Company will immediately notify FAIP of (i) the issuance by
any court or regulatory body of any stop order, cease and
desist order, or other similar order with respect to each
Account's registration statement under the 1933 Act relating
to the Contracts or each Account Prospectus, (ii) any request
by the SEC for any amendment to such registration statement or
Account Prospectus that may affect the offering of Shares of
FAIP, (iii) the initiation of any proceedings for that purpose
or for any other purpose relating to the registration or
offering of each Account's interests pursuant to the
Contracts, or (iv) any other action or circumstances that may
prevent the lawful offer or sale of said interests in any
state or jurisdiction, including, without limitation, any
circumstances in which said interests are not registered and,
in all material respects, issued and sold in accordance with
applicable state and federal law. Company will make every
reasonable effort to prevent the issuance of any such stop
order, cease and desist order or similar order and, if any
such order is issued, to obtain the lifting thereof at the
earliest possible time.
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4.5 COMPANY TO PROVIDE DOCUMENTS; INFORMATION ABOUT FAIP.
(a) Company will provide to FAIP or its designated agent at least
one (1) complete copy of all SEC registration statements,
Account Prospectuses, reports, any preliminary and final
voting instruction solicitation material, applications for
exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to each Account or the
Contracts, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
(b) Company will provide to FAIP or its designated agent at least
one (1) complete copy of each piece of sales literature or
other promotional material in which FAIP or any of its
affiliates is named, at least ten (10) Business Days prior to
its use or such shorter period as the Parties hereto may, from
time to time, agree upon. No such material shall be used if
FAIP or its designated agent objects to such use within ten
(10) Business Days after receipt of such material or such
shorter period as the Parties hereto may, from time to time,
agree upon.
(c) Neither Company nor any of its affiliates, will give any
information or make any representations or statements on
behalf of or concerning FAIP or its affiliates in connection
with the sale of the Contracts other than (i) the information
or representations contained in the registration statement,
including the FAIP Prospectus contained therein, relating to
Shares, as such registration statement and FAIP Prospectus may
be amended from time to time; or (ii) in reports or proxy
materials for FAIP; or (iii) in published reports for FAIP
that are in the public domain and approved by FAIP for
distribution; or (iv) in sales literature or other promotional
material approved by FAIP, except with the express written
permission of FAIP.
(d) Company shall adopt and implement procedures reasonably
designed to ensure that information concerning FAIP and its
affiliates that is intended for use only by brokers or agents
selling the Contracts (i.e., information that is not intended
for distribution to Participants) ("broker only materials") is
so used, and neither FAIP nor any of its affiliates shall be
liable for any losses, damages or expenses relating to the
improper use of such broker only materials.
(e) For the purposes of this Section 4.5, the phrase "sales
literature or other promotional material" includes, but is not
limited to, advertisements (such as material published, or
designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, or
other public media, (e.g., on-line networks such as the
Internet or other electronic messages), sales literature
(i.e., any written communication distributed or made generally
available to customers or the public, including brochures,
circulars, research reports, market letters, form letters,
seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article),
educational or training materials or other communications
distributed or made generally available to some or all agents
or employees,
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registration statements, prospectuses, statements of
additional information, shareholder reports, and proxy
materials and any other material constituting sales literature
or advertising under the NASD rules, the 1933 Act or the 1940
Act.
4.6 FAIP TO PROVIDE DOCUMENTS; INFORMATION ABOUT COMPANY.
(a) FAIP will provide to Company at least one (1) complete copy of
all SEC registration statements, FAIP Prospectuses, reports,
any preliminary and final proxy material, applications for
exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to FAIP or the Shares of a
Fund, contemporaneously with the filing of such document with
the SEC or other regulatory authorities.
(b) FAIP will provide to Company camera ready or computer diskette
copies of all FAIP shareholder communication information
(including prospectuses, statements of additional information
and reports to shareholders) pursuant to Section 3.3. FAIP
will provide such information to Company in a timely manner so
as to enable Company, as the case may be, to print and
distribute such materials within the time required by law to
be furnished to Participants.
(c) FAIP will provide to Company or its designated agent at least
one (1) complete copy of each piece of sales literature or
other promotional material in which Company, or any of its
respective affiliates is named, or that refers to the
Contracts, at least ten (10) Business Days prior to its use or
such shorter period as the Parties hereto may, from time to
time, agree upon. No such material shall be used if Company or
its designated agent objects to such use within ten (10)
Business Days after receipt of such material or such shorter
period as the Parties hereto may, from time to time, agree
upon. Company shall receive all such sales literature until
such time as it appoints a designated agent by giving notice
to FAIP in the manner required by Section 9 hereof.
(d) Neither FAIP nor any of its affiliates will give any
information or make any representations or statements on
behalf of or concerning Company, each Account, or the
Contracts other than (i) the information or representations
contained in the registration statement, including each
Account Prospectus contained therein, relating to the
Contracts, as such registration statement and Account
Prospectus may be amended from time to time; or (ii) in
published reports for the Account or the Contracts that are in
the public domain and approved by Company for distribution; or
(iii) in sales literature or other promotional material
approved by Company or its affiliates, except with the express
written permission of Company.
(e) FAIP and Advisor shall adopt and implement procedures
reasonably designed to ensure that information concerning
Company, and its respective affiliates that is intended for
use only by brokers or agents selling the Contracts (i.e.,
information that is not intended for distribution to
Participants) ("broker only materials") is so used, and
neither Company, nor any of its respective affiliates shall be
liable for
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any losses, damages or expenses relating to the improper use
of such broker only materials.
(f) For purposes of this Section 4.6, the phrase "sales literature
or other promotional material" includes, but is not limited
to, advertisements (such as material published, or designed
for use in, a newspaper, magazine, or other periodical, radio,
television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media,
(e.g., on-line networks such as the Internet or other
electronic messages), sales literature (i.e., any written
communication distributed or made generally available to
customers or the public, including brochures, circulars,
research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales
literature, or published article), educational or training
materials or other communications distributed or made
generally available to some or all agents or employees,
registration statements, prospectuses, statements of
additional information, shareholder reports, and proxy
materials and any other material constituting sales literature
or advertising under the NASD rules, the 1933 Act or the 1940
Act.
SECTION 5. MIXED AND SHARED FUNDING
5.1 GENERAL.
FAIP has applied to the SEC for an order exempting it from certain
provisions of the 1940 Act and rules thereunder so that FAIP may be available
for investment by certain other entities, including, without limitation,
separate accounts funding variable annuity contracts or variable life insurance
contracts, separate accounts of insurance companies unaffiliated with Company,
and trustees of qualified pension and retirement plans (collectively, "Mixed and
Shared Funding"). The Parties recognize that the SEC may impose terms and
conditions for such orders that are substantially identical to many of the
provisions of this Section 5. FAIP hereby notifies Company that it intends to
include in the Fund Prospectus disclosure regarding the potential risks of Mixed
and Shared Funding.
5.2 DISINTERESTED DIRECTORS.
FAIP agrees that a majority of the Board of Directors of FAIP ("Board")
will consist of persons who are not "interested persons" of the Company, as
defined by Section 2(a)(19) of the 1940 Act and the rules thereunder and as
modified by any applicable orders of the SEC ("Disinterested Directors"), except
that if this condition is not met by reason of the death, disqualification, or
bona fide resignation of any director, then the operation of this condition
shall be suspended (a) for a period of forty-five (45) days if the vacancy or
vacancies may be filled by the Board; (b) for a period of sixty (60) days if a
vote of shareholders is required to fill the vacancy or vacancies; or (c) for
such longer period as the SEC may prescribe by order upon application.
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5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS.
FAIP agrees that its Board of Directors will monitor the Funds for the
existence of any material irreconcilable conflict between the interests of the
Participants in all separate accounts of life insurance companies utilizing FAIP
("Participating Insurance Companies"), including each Account, and of
participants in qualified retirement and pension plans investing in the Funds
("Participating Plans") and determine what action, if any, should be taken in
response to such conflicts. A material irreconcilable conflict may arise for a
variety of reasons, including:
(a) an action by any state insurance or other 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 Fund are being
managed;
(e) a difference in voting instructions given by variable annuity
contract and variable life insurance contract Participants or
by Participants in Participating Plans;
(f) a decision by a Participating Insurance Company to disregard
the voting instructions of Participant; or
(g) a decision by a Participating Plan to disregard the voting
instructions of its Participants.
Consistent with the SEC's requirements in connection with exemptive
orders of the type referred to in Section 5.1 hereof, FAIP and Company will
report any potential or existing conflicts to the Board and will be responsible
for assisting the Board in carrying out its responsibilities under these
conditions by providing the Board with all information reasonably necessary for
the Board to consider any issues raised. This responsibility includes, but is
not limited to, an obligation of Company to inform the Board whenever it has
determined to disregard Participant voting instructions. Company agrees that
such responsibilities will be carried out with a view only to the interests of
Participants.
5.4 CONFLICT REMEDIES.
(a) It is agreed that if it is determined by a majority of the
members of the Board of Directors or a majority of its
Disinterested Directors that a material irreconcilable
conflict exists, Company will, if it is a Participating
Insurance Company for which a material irreconcilable conflict
is relevant, at its own expense and to the extent reasonably
practicable (as determined by a majority of the Disinterested
Directors), take whatever steps are necessary to remedy or
eliminate the material irreconcilable conflict, which steps
may include, but are not limited to:
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(i) withdrawing the assets allocable to some or all of
the Accounts from FAIP or any Fund and reinvesting
such assets in a different investment medium,
including another Fund of FAIP, or submitting the
question whether such segregation should be
implemented to a vote of all affected Participants
and, as appropriate, segregating the assets of any
particular group (e.g., variable annuity contract
owners or variable life insurance contract owners)
that votes in favor of such segregation, or offering
to the affected contract owners the option of making
such a change; and
(ii) establishing a new registered management investment
company or a new separate account that is operated as
a management company.
(b) If the material irreconcilable conflict arises because of
Company's decision to disregard Participants' voting
instructions and that decision represents a minority position
or would preclude a majority vote, Company may be required, at
FAIP's election, to withdraw each Account's investment in FAIP
or any Fund. No charge or penalty will be imposed as a result
of such withdrawal. Any such withdrawal must take place within
six (6) months after FAIP gives notice to Company that this
provision is being implemented, and until such withdrawal FAIP
shall continue to accept and implement orders by Company for
the purchase and redemption of Shares of FAIP.
(c) If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to
Company conflicts with the majority of other state regulators,
then Company will withdraw each Account's investment in FAIP
within six (6) months after FAIP's Board of Directors informs
Company that it has determined that such decision has created
a material irreconcilable conflict, and until such withdrawal
FAIP shall continue to accept and implement orders by Company
for the purchase and redemption of Shares of FAIP. No charge
or penalty will be imposed as a result of such withdrawal.
(d) Company agrees that any remedial action taken by it in
resolving any material irreconcilable conflict will be carried
out at its expense and with a view only to the interests of
Participants.
(e) For purposes hereof, a majority of the Disinterested Directors
will determine whether or not any proposed action adequately
remedies any material irreconcilable conflict. In no event,
however, will FAIP or any of its affiliates be required to
establish a new funding medium for any Contracts. Company will
not be required by the terms hereof to establish a new funding
medium for any Contracts if an offer to do so has been
declined by vote of a majority of Participants materially
adversely affected by the material irreconcilable conflict.
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(f) The Board's determination of the existence of a material
irreconcilable conflict and its implications will be made
known promptly and in writing to all Participants.
5.5 NOTICE TO COMPANY.
FAIP will promptly make known in writing to Company the Board of
Directors' determination of the existence of a material irreconcilable conflict,
a description of the facts that give rise to such conflict and the implications
of such conflict.
5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS.
Company and FAIP (or the Advisor) will, upon request, submit to the
Board of Directors of FAIP such reports, materials or data as the Board of
Directors may reasonably request so that the Board of Directors may fully carry
out the obligations imposed upon it by the provisions hereof or any exemptive
order granted by the SEC to permit Mixed and Shared Funding, and said reports,
materials and data will be submitted at any reasonable time deemed appropriate
by the Board of Directors. All reports received by the Board of Directors of
potential or existing conflicts, and all Board of Directors actions with regard
to determining the existence of a conflict, notifying Participating Insurance
Companies and Participating Plans of a conflict, and determining whether any
proposed action adequately remedies a conflict, will be properly recorded in the
minutes of the Board of Directors or other appropriate records, and such minutes
or other records will be made available to the SEC upon request.
5.7 COMPLIANCE WITH SEC RULES.
If and to the extent that Rules 6e-2 and 6e-3(T) under the 1940 Act are
amended (or if Rule 6e-3 under the 1940 Act is adopted) to provide exemptive
relief from any provision of the 1940 Act, or the rules thereunder, with respect
to mixed or shared funding on terms and conditions materially different from any
exemptions granted in the order obtained by FAIP, then FAIP and/or Company, as
appropriate, shall take such steps as may be necessary to comply with Rules 6e-2
and 6e-3(T), as amended, or Rule 6e-3, as adopted, to the extent applicable.
5.8 OTHER REQUIREMENTS.
FAIP will require that each Participating Insurance Company and
Participating Plan enter into an agreement with FAIP that contains in substance
the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a), 4.4(b),
4.5(a), 5, and 10 of this Agreement.
SECTION 6. TERMINATION
6.1 EVENTS OF TERMINATION.
Subject to Section 6.4 below, this Agreement will terminate as to a
Fund:
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(a) at the option of any Party, with or without cause with respect
to the Fund, upon six (6) months advance written notice to the
other Parties, unless otherwise agreed to in writing by the
Parties; or
(b) at the option of FAIP upon institution of formal proceedings
against Company or any of its affiliates by the NASD, the SEC,
any state insurance regulator or any other regulatory body
regarding Company's obligations under this Agreement or
related to the sale of the Contracts, the operation of any
Account, or the purchase of Shares, if, in each case, FAIP
reasonably determines that such proceedings, or the facts on
which such proceedings would be based, have a material
likelihood of imposing material adverse consequences on the
Fund with respect to which the Agreement is to be terminated;
or
(c) at the option of Company upon institution of formal
proceedings against FAIP, its principal underwriter, or its
investment adviser by the NASD, the SEC, or any state
insurance regulator or any other regulatory body regarding
FAIP's obligations under this Agreement or related to the
operation or management of FAIP or the purchase of Fund
Shares, if, in each case, Company reasonably determines that
such proceedings, or the facts on which such proceedings would
be based, have a material likelihood of imposing material
adverse consequences on Company, or the Subaccount
corresponding to the Fund with respect to which the Agreement
is to be terminated; or
(d) at the option of any Party in the event that (i) the Fund's
Shares are not registered and, in all material respects,
issued and sold in accordance with any applicable federal or
state law, or (ii) such law precludes the use of such Shares
as an underlying investment medium of the Contracts issued or
to be issued by Company; or
(e) upon termination of the corresponding Subaccount's investment
in the Fund pursuant to Section 5 hereof; or
(f) at the option of Company if the Fund ceases to qualify as a
RIC under Subchapter M of the Code or under successor or
similar provisions, or if the Company reasonably believes that
the Fund may fail to so qualify or comply; or
(g) at the option of Company if the Fund fails to comply with
Section 817(h) of the Code or with successor or similar
provisions, or if the Company reasonably believes that the
Fund may fail to so qualify or comply; or
(h) at the option of FAIP if the Contracts issued by Company cease
to qualify as annuity contracts or life insurance contracts
under the Code (other than by reason of the Fund's
noncompliance with Section 817(h) or Subchapter M of the
Code), or if FAIP reasonably believes that the Contracts
issued by Company may fail to so qualify or comply; or
16
<PAGE>
(i) at the option of FAIP if interests in an Account under the
Contracts are not registered, where required, and, in all
material respects, are not issued or sold in accordance with
any applicable federal or state law, or if FAIP reasonably
believes that the interests in an Account under the Contracts
are not registered, issued, or sold in accordance with any
applicable federal and state law.
(j) upon another Party's material breach of any provision of this
Agreement.
6.2 NOTICE REQUIREMENT FOR TERMINATION.
No termination of this Agreement will be effective unless and until the
Party terminating this Agreement gives prior written notice to the other Parties
to this Agreement of its intent to terminate, and such notice shall set forth
the basis for such termination. Furthermore:
(a) in the event that any termination is based upon the provisions
of Sections 6.1(a) or 6.1(e) hereof, such prior written notice
shall be given at least six (6) months in advance of the
effective date of termination unless a shorter time is agreed
to by the Parties hereto;
(b) in the event that any termination is based upon the provisions
of Sections 6.1(b) or 6.1(c) hereof, such prior written notice
shall be given at least sixty (60) days in advance of the
effective date of termination unless a shorter time is agreed
to by the Parties hereto; and
(c) in the event that any termination is based upon the provisions
of Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h), 6.1(i) or 6.1(j)
hereof, such prior written notice may be given at any time
after the terminating Party learns of the event causing
termination to be required.
6.3 FUNDS TO REMAIN AVAILABLE.
Notwithstanding any termination of this Agreement, FAIP will, at the
option of 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 such further sale of shares of the
Fund is proscribed by law, regulation of applicable regulating body.
Specifically, without limitation, the owners of the Existing Contracts will be
permitted to reallocate investments in the Fund, redeem investments in the Fund
and/or invest in the Fund upon the making of additional purchase payments under
the Existing Contracts. The Parties agree that this Section 6.3 will not apply
to any terminations under Section 5 and the effect of such terminations will be
governed by Section 5 of this Agreement.
6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS.
All warranties and indemnifications will survive the termination of
this Agreement.
17
<PAGE>
6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES.
If any Party terminates this Agreement with respect to any Fund
pursuant to Sections 6.1(a), 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h),
6.1(i) or 6.1(j) hereof, this Agreement shall nevertheless continue in effect as
to any Shares of that Fund that are outstanding as of the date of such
termination (the "Initial Termination Date"). This continuation shall extend to
the date as of which an Account owns no Shares of the affected Fund (the "Final
Termination Date").
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
The Parties hereto agree to cooperate and give reasonable assistance to
one another in taking all necessary and appropriate steps for the purpose of
ensuring that an Account owns no Shares of a Fund after the Final Termination
Date with respect thereto. Such steps may include combining the affected Account
with another Account, substituting other mutual fund's shares for those of the
affected Fund, or otherwise terminating participation by the Contracts in such
Fund.
SECTION 8. ASSIGNMENT
This Agreement may not be assigned by any Party, except with the
written consent of each other Party.
SECTION 9. NOTICES
Notices and communications required or permitted by Section 9 hereof
will be given by means mutually acceptable to the Parties concerned. Each other
notice or communication required or permitted by this Agreement will be given to
the following persons at the following addresses and facsimile numbers, or such
other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:
FIRST AMERICAN INSURANCE PORTFOLIOS, INC.
601 Second Avenue South, MPFP 1816
Minneapolis, MN 55402
Facsimile: (612) 973-0620
Attn: Jeff Wilson, Senior Vice President
FIRST AMERICAN ASSET MANAGEMENT
A DIVISION OF U.S. BANK NATIONAL ASSOCIATION
601 Second Avenue South, MPFP 1816
Minneapolis, MN 55402
Facsimile: (612) 973-0620
Attn: Jeff Wilson, Vice President
18
<PAGE>
cc: FIRST AMERICAN ASSET MANAGEMENT
A DIVISION OF U.S. BANK NATIONAL ASSOCIATION
601 Second Avenue South, MPFP 2016
Minneapolis, MN 55402
Facsimile: (612) 973-0072
Attn: Christopher J. Smith, General Counsel
Hartford Life Insurance Company
200 Hopmeadow Street
Simsbury, CT 06089
Facsimile: (860) 843-6329
Attn: Tom Marra, President
cc: Hartford Life Insurance Company
200 Hopmeadow Street
Simsbury, CT 06089
Facsimile: (860) 843-8665
Attn: Lynda Godkin, General Counsel
SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3
hereof, Company will distribute all proxy material furnished by FAIP to
Participants to whom pass-through voting privileges are required to be extended
and will solicit voting instructions from Participants. Company will vote Shares
in accordance with timely instructions received from Participants. Company will
vote Shares that are (a) not attributable to Participants to whom pass-through
voting privileges are extended, or (b) attributable to Participants, but for
which no timely instructions have been received, in the same proportion as
Shares for which said instructions have been received from Participants, so long
as and to the extent that the SEC continues to interpret the 1940 Act to require
pass through voting privileges for Participants. Neither Company nor any of its
affiliates will in any way recommend action in connection with or oppose or
interfere with the solicitation of proxies for the Shares held for such
Participants. Company reserves the right to vote shares held in any Account in
its own right, to the extent permitted by law. Company shall be responsible for
assuring that each of its Accounts holding Shares calculates voting privileges
in a manner consistent with that of other Participating Insurance Companies or
in the manner required by the Mixed and Shared Funding exemptive order obtained
by FAIP. FAIP will notify Company of any changes of interpretations or
amendments to Mixed and Shared Funding exemptive order it has obtained. FAIP
will comply with all provisions of the 1940 Act requiring voting by
shareholders, and in particular, FAIP either will provide for annual meetings
(except insofar as the SEC may interpret Section 16 of the 1940 Act not to
require such meetings) or will comply with Section 16(c) of the 1940 Act
(although Fund is not one of the trusts described in Section 16(c) of that Act)
as well as with Sections 16(a) and, if and when applicable, 16(b). Further, FAIP
will act in accordance with the
19
<PAGE>
SEC's interpretation of the requirements of Section 16(a) with respect to
periodic elections of directors and with whatever rules the SEC may promulgate
with respect thereto.
SECTION 11. FOREIGN TAX CREDITS
FAIP agrees to consult in advance with Company concerning any decision
to elect or not to elect pursuant to Section 853 of the Code to pass through the
benefit of any foreign tax credits to its shareholders.
SECTION 12. INDEMNIFICATION
12.1 OF FAIP AND THE ADVISOR BY COMPANY
(a) Except to the extent provided in Sections 12.1(b), 12.1(c),
and 12.1(d), hereof, Company agrees to indemnify and hold
harmless FAIP and the Advisor, and each person, if any, who
controls FAIP within the meaning of Section 15 of the 1933 Act
and each of its directors and officers, (collectively, the
"Indemnified Parties" for purposes of this Section 12.1)
against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent
of Company) or actions in respect thereof (including, to the
extent reasonable, legal and other expenses), to which the
Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise; provided, the Account
owns or at the relevant time owned shares of the Funds and
insofar as such losses, claims, damages, liabilities or
actions and are related to the sale or acquisition of Fund
shares or the Contracts and:
(i) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in any Account's 1933 Act registration
statement, any Account Prospectus, the Contracts, or
sales literature or advertising 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 Company by or on behalf of
FAIP specifically for use in any Account's 1933 Act
registration statement, any Account Prospectus, the
Contracts, or sales literature or advertising or
otherwise for use in connection with the sale of
Contracts or Shares (or any amendment or supplement
to any of the foregoing) or was consented to by FAIP
pursuant to Section 4.5(c); or
(ii) arise out of or as a result of any other statements
or representations (other than statements or
representations contained in FAIP's 1933 Act
registration statement, FAIP Prospectus, sales
literature or advertising of
20
<PAGE>
FAIP, or any amendment or supplement to any of the
foregoing, not supplied for use therein by or on
behalf of Company or its affiliates and on which such
persons have reasonably relied) or the negligent,
illegal or fraudulent conduct of Company or its
affiliates or persons under their control (including,
without limitation, their employees and "Associated
Persons," as that term is defined in paragraph (m) of
Article I of the NASD's By-Laws), in connection with
the sale or distribution of the Contracts or Shares;
or
(iii) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in FAIP's 1933 Act registration statement,
FAIP Prospectus, sales literature or advertising of
FAIP, or any amendment or supplement to any of the
foregoing, or the omission or alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein
not misleading if such a statement or omission was
made in reliance upon and in conformity with
information furnished in writing to FAIP or its
affiliates by or on behalf of Company or its
affiliates specifically for use in FAIP's 1933 Act
registration statement, FAIP Prospectus, sales
literature or advertising of FAIP, or any amendment
or supplement to any of the foregoing or was
consented to by Company pursuant to Section 4.6 (d);
or
(iv) arise as a result of any failure by Company to
perform the obligations, provide the services and
furnish the materials required of them under the
terms of this Agreement, or any material breach of
any representation and/or warranty made by Company in
this Agreement or arise out of or result from any
other material breach of this Agreement by Company;
or
(v) arise as a result of failure by the Contracts issued
by Company to qualify as annuity contracts or life
insurance contracts under the Code, otherwise than by
reason of any Fund's failure to comply with
Subchapter M or Section 817(h) of the Code.
(b) Company shall not be liable under this Section 12.1 with
respect to any losses, claims, damages, liabilities or actions
to which an Indemnified Party would otherwise be subject by
reason of willful misfeasance, bad faith, or gross negligence
in the performance by that Indemnified Party of its duties or
by reason of that Indemnified Party's reckless disregard of
obligations or duties under this Agreement;
(c) Company shall not be liable under this Section 12.1 with
respect to any action against an Indemnified Party unless the
Indemnified Party shall have notified Company in writing
within a reasonable time after the summons or other first
legal process giving information of the nature of the action
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
Company of
21
<PAGE>
any such action shall not relieve Company from any liability
which they may have to the Indemnified Party against whom such
action is brought unless the ability of Company to defend such
action is materially impaired thereby, except as otherwise
provided herein, in case any such action is brought against an
Indemnified Party, Company shall be entitled to participate,
at their own expense, in the defense of such action and also
shall be entitled to assume the defense thereof, with counsel
approved by the Indemnified Party named in the action, which
approval shall not be unreasonably withheld. After notice from
Company to such Indemnified Party of Company's election to
assume the defense thereof (which shall include, without
limitation, the conduct of any ruling request or closing
agreement or offer settlement proceeding with the IRS), the
Indemnified Party will cooperate fully with Company and shall
bear the fees and expenses of any additional counsel retained
by it, and Company will not be liable to such Indemnified
Party under this Agreement for any legal or other expenses
subsequently incurred by such Indemnified Party independently
in connection with the defense thereof, other than reasonable
costs of investigation.
(d) In no event shall the Company be liable under the
indemnification provisions contained in this Agreement to any
Indemnified Party with respect to any losses, claims, damages,
liabilities or expenses that arise out of or result from (i) a
breach of any representation, warranty, and/or covenant made
by FAIP or Advisor hereunder; (ii) the failure by FAIP to
qualify as a legally and validly established corporation under
applicable state law and as duly registered under the 1940
Act; or (iii) the failure by FAIP or Advisor to maintain the
qualification of any Fund under Subchapter M of the Code or
Section 817 of the Code.
12.2 OF COMPANY BY FAIP AND ADVISOR
(a) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e), hereof, FAIP and the Advisor agree to indemnify and
hold harmless Company, its affiliates, and each person, if
any, who controls Company or its affiliates within the meaning
of Section 15 of the 1933 Act and each of their respective
directors and officers, (collectively, the "Indemnified
Parties" for purposes of this Section 12.2) against any and
all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of FAIP) or
actions in respect thereof (including, to the extent
reasonable, legal and other expenses), to which the
Indemnified Parties may become subject under any statute,
regulation, at common law, or otherwise; provided, insofar as
such losses, claims, damages, liabilities or actions are
related to the sale or acquisition of FAIP's shares or the
Contracts and:
(i) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in FAIP's 1933 Act registration statement,
FAIP Prospectus or sales literature or advertising of
FAIP (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
22
<PAGE>
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 FAIP or its affiliates by or
on behalf of Company or its affiliates specifically
for use in FAIP's 1933 Act registration statement,
FAIP Prospectus, or in sales literature or
advertising or otherwise for use in connection with
the sale of Contracts or Shares (or any amendment or
supplement to any of the foregoing) or was consented
to by Company pursuant to Section 4.6(d); or
(ii) arise out of or as a result of any other statements
or representations (other than statements or
representations contained in any Account's 1933 Act
registration statement, any Account Prospectus, sales
literature or advertising for the Contracts, or any
amendment or supplement to any of the foregoing, not
supplied for use therein by or on behalf of FAIP or
its affiliates and on which such persons have
reasonably relied) or the negligent, illegal or
fraudulent conduct of FAIP or its affiliates or
persons under their control (including, without
limitation, their employees and "Associated Persons"
as that Term is defined in Section (ee) of Article 1
of the NASD By-Laws), in connection with the sale or
distribution of FAIP Shares; or
(iii) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in any Account's 1933 Act registration
statement, any Account Prospectus, sales literature
or advertising covering the Contracts, or any
amendment or supplement to any of the foregoing, 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 in conformity with information
furnished in writing to Company or its affiliates by
or on behalf of FAIP or its affiliates specifically
for use in any Account's 1933 Act registration
statement, any Account Prospectus, sales literature
or advertising covering the Contracts, or any
amendment or supplement to any of the foregoing or
was consented to by FAIP pursuant to Section 4.5(c);
or
(iv) arise as a result of any failure by FAIP or the
Advisor to perform the obligations, provide the
services and furnish the materials required of it
under the terms of this Agreement, or any material
breach of any representation and/or warranty made by
FAIP or the Advisor in this Agreement or arise out of
or result from any other material breach of this
Agreement by FAIP or the Advisor.
(b) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e) hereof, FAIP and the Advisor agree to indemnify and
hold harmless the Indemnified Parties from and against any and
all losses, claims, damages, liabilities (including
23
<PAGE>
amounts paid in settlement thereof with, the written consent
of FAIP) or actions in respect thereof (including, to the
extent reasonable, legal and other expenses) to which the
Indemnified Parties may become subject directly or indirectly
under any statute, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or actions directly or
indirectly result from or arise out of the failure of any Fund
to operate as a regulated investment company in compliance
with (i) Subchapter M of the Code and regulations thereunder,
or (ii) Section 817(h) of the Code and regulations thereunder,
including, without limitation, any income taxes and related
penalties, rescission charges, liability under state law to
Participants asserting liability against Company pursuant to
the Contracts, the costs of any ruling and closing agreement
or other settlement with the IRS, and the cost of any
substitution by Company of Shares of another investment
company or portfolio for those of any adversely affected Fund
as a funding medium for each account that Company reasonably
deems necessary or appropriate as a result of the
noncompliance.
(c) FAIP and the Advisor shall not be liable under this Section
12.2 with respect to any losses, claims, damages, liabilities
or actions to which an Indemnified Party would otherwise be
subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance by that Indemnified Party of its
duties or by reason of such Indemnified Party's reckless
disregard of its obligations and duties under this Agreement.
(d) FAIP and the Advisor shall not be liable under this Section
12.2 with respect to any action against an Indemnified Party
unless the Indemnified Party shall have notified FAIP in
writing within a reasonable time after the summons or other
first legal process giving information of the nature of the
action 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
FAIP of any such action shall not relieve FAIP from any
liability which it may have to the Indemnified Party against
whom such action is brought unless the ability of Company to
defend such action is materially impaired thereby, except as
otherwise provided herein, in case any such action is brought
against an Indemnified Party and/or FAIP will be entitled to
participate, at its own expense, in the defense of such action
and also shall be entitled to assume the defense thereof
(which shall include, without limitation, the conduct of any
ruling request and closing agreement or other settlement
proceeding with the IRS), with counsel approved by the
Indemnified Party named in the action, which approval shall
not be unreasonably withheld. After notice from FAIP to such
Indemnified Party of FAIP's election to assume the defense
thereof, the Indemnified Party will cooperate fully with FAIP
and shall bear the fees and expenses of any additional counsel
retained by it, and FAIP will not be liable to such
Indemnified Party under this Agreement for any legal or other
expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof, other
than reasonable costs of investigation.
24
<PAGE>
(e) In no event shall FAIP and the Advisor be liable under the
indemnification provisions contained in this Agreement to any
Indemnified Party, with respect to any losses, claims,
damages, liabilities or expenses that arise out of or result
from (i) a breach of any representation, warranty, and/or
covenant made by Company; (ii) the failure by Company to
maintain its segregated asset account (which invests in any
Fund) as a legally and validly established segregated asset
account under applicable state law and as a duly registered
unit investment trust under the provisions of the 1940 Act
(unless exempt therefrom); or (iii) the failure by Company to
maintain its variable annuity or life insurance contracts
(with respect to which any Fund serves as an underlying
funding vehicle) as annuity contracts or life insurance
contracts under applicable provisions of the Code other than
where such failure arises from the Funds' non-compliance with
Subchapter M of the Code or Section 817 of the Code.
12.3 EFFECT OF NOTICE.
Any notice given by the indemnifying Party to an Indemnified Party
referred to in Sections 12.1(c) or 12.2(d) above of participation in or control
of any action by the indemnifying Party will in no event be deemed to be an
admission by the indemnifying Party of liability, culpability or responsibility,
and the indemnifying Party will remain free to contest liability with respect to
the claim among the Parties or otherwise.
12.4 SUCCESSORS.
A successor by law of any Party shall be entitled to the benefits of
the indemnification contained in this Section 12.
SECTION 13. APPLICABLE LAW
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Minnesota law, without regard for that state's
principles of conflict of laws.
SECTION 14. EXECUTION IN COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
SECTION 15. SEVERABILITY
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
25
<PAGE>
SECTION 16. RIGHTS 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, that the Parties are entitled to under federal and state
laws.
SECTION 17. HEADINGS
The Table of Contents and headings used in this Agreement are for
purposes of reference only and shall not limit or define the meaning of the
provisions of this Agreement.
SECTION 18. CONFIDENTIALITY
FAIP and the Advisor acknowledge that the identities of the customers
of Company or any of its affiliates (collectively, the "Company Protected
Parties" for purposes of this Section 18), information maintained regarding
those customers, and all computer programs and procedures or other information
developed by the Company Protected Parties or any of their employees or agents
in connection with Company's performance of its duties under this Agreement are
the valuable property of the Company Protected Parties. FAIP agrees that if it
comes into possession of any list or compilation of the identities of or other
information about the Company Protected Parties' customers, or any other
information or property of the Company Protected Parties, other than such
information as may be independently developed or compiled by FAIP from
information supplied to it by the Company Protected Parties' customers who also
maintain accounts directly with FAIP, FAIP will hold such information or
property in confidence and refrain from using, disclosing or distributing any of
such information or other property except: (a) with Company's prior written
consent; or (b) as required by law or judicial process. Company acknowledges
that the identities of the customers of FAIP or any of its affiliates
(collectively the "FAIP Protected Parties" for purposes of this Section 18),
information maintained regarding those customers, and all computer programs and
procedures or other information developed by the FAIP Protected Parties or any
of their employees or agents in connection with FAIP's performance of its duties
under this Agreement are the valuable property of the FAIP Protected Parties.
Company agrees that if it comes into possession of any list or compilation of
the identities of or other information about the FAIP Protected Parties'
customers or any other information or property of the FAIP Protected Parties,
other than such information as may be independently developed or compiled by
Company from information supplied to it by the FAIP Protected Parties' customers
who also maintain accounts directly with Company, Company will hold such
information or property in confidence and refrain from using, disclosing or
distributing any of such information or other property except: (a) with FAIP's
prior written consent; or (b) as required by law or judicial process. Each party
acknowledges that any breach of the agreements in this Section 18 would result
in immediate and irreparable harm to the other parties for which there would be
no adequate remedy at law and agree that in the event of such a breach, the
other parties will be entitled to equitable relief by way of temporary and
permanent injunctions, as well as such other relief as any court of competent
jurisdiction deems appropriate.
26
<PAGE>
SECTION 19. PARTIES TO COOPERATE
Each party to this Agreement will cooperate with each other party and
all appropriate governmental authorities (including, without limitation, the
SEC, the NASD and state insurance regulators) and will permit each other and
such authorities reasonable access to its books and records (including copies
thereof) in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
SECTION 20. AMENDMENTS
No provision of this Agreement may be amended or modified in any manner
except by a written agreement executed by all parties hereto.
SECTION 21. ASSIGNMENT
This Agreement may not be assigned without the prior written consent of
all parties hereto.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers signing below.
FIRST AMERICAN INSURANCE
PORTFOLIOS, INC.
By
---------------------------------------
Its
------------------------------------
FIRST AMERICAN ASSET MANAGEMENT,
a division of U.S. Bank National
Association
By
---------------------------------------
Its
------------------------------------
HARTFORD LIFE INSURANCE COMPANY
By
---------------------------------------
Its
------------------------------------
27
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SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
* First American Insurance Portfolios, Inc.:
Large Cap Growth Portfolio
Technology Portfolio
International Portfolio
SEPARATE ACCOUNTS UTILIZING THE FUNDS
* Hartford Life Insurance Company Separate Account Two
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
* Contract Form # HLVA99
28
EXHIBIT (h)(3)
PARTICIPATION AGREEMENT
BY AND AMONG
FIRST AMERICAN INSURANCE PORTFOLIOS, INC.,
FIRST AMERICAN ASSET MANAGEMENT,
A DIVISION OF U.S. BANK NATIONAL ASSOCIATION,
AND
HARTFORD LIFE AND ANNUITY INSURANCE COMPANY,
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS.
TABLE OF CONTENTS
DESCRIPTION PAGE
- ----------- ----
Section 1. Available Funds 2
1.1 Availability 2
1.2 Addition, Deletion or Modification of Funds 2
1.3 No Sales to the General Public 2
Section 2. Processing Transactions 2
2.1 Timely Pricing and Orders 2
2.2 Timely Payments 3
2.3 Applicable Price 3
2.4 Dividends and Distributions 4
2.5 Book Entry 4
Section 3. Costs and Expenses 4
3.1 General 4
3.2 Registration 4
3.3 Other (Non-Sales-Related) 5
3.4 Parties To Cooperate 6
Section 4. Legal Compliance 6
4.1 Tax Laws 6
4.2 Insurance and Certain Other Laws 7
4.3 Securities Laws 7
4.4 Notice of Certain Proceedings and Other Circumstances 9
4.5 Company To Provide Documents; Information About
FAIP 10
4.6 FAIP To Provide Documents; Information About
Company 11
Section 5. Mixed and Shared Funding 12
5.1 General 12
5.2 Disinterested Directors 12
5.3 Monitoring for Material Irreconcilable Conflicts 13
i
<PAGE>
DESCRIPTION PAGE
- ----------- ----
5.4 Conflict Remedies 13
5.5 Notice to Company 15
5.6 Information Requested by Board of Directors 15
5.7 Compliance with SEC Rules 15
5.8 Other Requirements 15
Section 6. Termination 15
6.1 Events of Termination 15
6.2 Notice Requirement for Termination 17
6.3 Funds To Remain Available 17
6.4 Survival of Warranties and Indemnifications 17
6.5 Continuance of Agreement for Certain Purposes 18
Section 7. Parties To Cooperate Respecting Termination 18
Section 8. Assignment 18
Section 9. Notices 18
Section 10. Voting Procedures 19
Section 11. Foreign Tax Credits 20
Section 12. Indemnification 20
12.1 Of FAIP and the Advisor by Company 20
12.2 Of Company by FAIP and Advisor 22
12.3 Effect of Notice 25
12.4 Successors 25
Section 13. Applicable Law 25
Section 14. Execution in Counterparts 25
Section 15. Severability 25
Section 16. Rights Cumulative 26
Section 17. Headings 26
Section 18. Confidentiality 26
Section 19. Parties to Cooperate 27
Section 20. Amendments 27
Section 21. Assignment 27
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PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the _____ day of _________,
2000 ("Agreement"), by and among First American Insurance Portfolios, Inc., a
Minnesota corporation ("FAIP"); First American Asset Management, a division of
U.S. Bank National Association, a national banking association organized and
existing under the laws of the United States of America (the "Advisor"); and
Hartford Life and Annuity Insurance Company, a Connecticut life insurance
company ("Company"), on behalf of itself and each of its segregated asset
accounts listed in Schedule A hereto, as the parties hereto may amend said
Schedule A from time to time (each, an "Account," and collectively, the
"Accounts") (collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, FAIP 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
WHEREAS, FAIP currently consists of three separate series ("Series"),
shares ("Shares") of each of which are registered under the Securities Act of
1933, as amended (the "1933 Act") and may be sold to one or more separate
accounts of life insurance companies to fund benefits under variable annuity
contracts and variable life insurance contracts; and
WHEREAS, FAIP will make Shares of each Series listed on Schedule A
hereto as the Parties hereto may amend said Schedule A from time to time (each a
"Fund"; reference herein to "Fund" includes reference to each Fund, to the
extent the context requires) available for purchase by the Accounts; and
WHEREAS, Company will be the issuer of certain variable annuity
contracts and variable life insurance contracts ("Contracts") as set forth on
Schedule A hereto, as the Parties hereto may amend said Schedule A from time to
time, which Contracts, if required by applicable law, will be registered under
the 1933 Act; and
WHEREAS, Company will fund the Contracts through the Accounts, each of
which may be divided into two or more subaccounts ("Subaccounts"; reference
herein to an "Account" includes reference to each Subaccount thereof to the
extent the context requires); and
WHEREAS, Company will serve as the depositor of the Accounts, each of
which is registered as a unit investment trust investment company under the 1940
Act (or exempt therefrom), and the security interests deemed to be issued by the
Accounts under the Contracts will be registered as securities under the 1933 Act
(or exempt therefrom); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, Company intends to purchase Shares in one or more of the Funds on
behalf of the Accounts to fund the Contracts.
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NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
SECTION 1. AVAILABLE FUNDS
1.1 AVAILABILITY.
FAIP will make Shares of each Fund available to Company for purchase
and redemption on behalf of the Accounts at net asset value and with no sales
charges, subject to the terms and conditions of this Agreement. The Board of
Directors of FAIP may refuse to sell Shares of any Fund to any person, or
suspend or terminate the offering of Shares of any Fund if such action is
required by law or by regulatory authorities having jurisdiction or if, in the
sole discretion of the Board of Directors 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 Fund.
1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS.
The Parties hereto may agree, from time to time, to add other Funds to
provide additional funding media for the Contracts, or to delete, combine, or
modify existing Funds, by amending Schedule A hereto. Upon such amendment to
Schedule A, any applicable reference to a Fund or its Shares herein shall
include a reference to any such additional Fund. Schedule A, as amended from
time to time, is incorporated herein by reference and is a part hereof.
1.3 NO SALES TO THE GENERAL PUBLIC.
FAIP represents and warrants that Shares of the Funds have been and
will be sold only to variable annuity separate accounts and variable life
insurance separate accounts of participating insurance companies for the purpose
of funding variable annuity contracts or variable life insurance policies and no
Shares of the Funds have been or will be sold to the general public.
Notwithstanding this, under Treas. Reg. 1.817-5(f)(3)(ii), shares may be held by
the Advisor in connection with the creation of FAIP (or by a person related to
the Advisor in a manner specified in Section 267(d) of the Code).
SECTION 2. PROCESSING TRANSACTIONS
2.1 TIMELY PRICING AND ORDERS.
(a) FAIP or its designated agent will use its best efforts to
provide Company with the net asset value per Share for each
Fund by 5:00 p.m. Central Time on each Business Day. As used
herein, "Business Day" shall mean any day on which (i) the New
York Stock Exchange is open for regular trading, and (ii) on
which FAIP calculates the Fund's net asset value pursuant to
the rules of the SEC.
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(b) Company will use the data provided by FAIP each Business Day
pursuant to paragraph (a) immediately above to calculate
Account unit values and to process transactions that receive
that same Business Day's Account unit values. Company will
perform such Account processing the same Business Day, and
will place corresponding orders to purchase or redeem Shares
with FAIP by 9:00 a.m. Central Time the following Business
Day; provided, however, that FAIP shall provide additional
time to Company in the event that FAIP is unable to meet the
5:00 p.m. time stated in paragraph (a) immediately above. Such
additional time shall be no more than the additional time that
FAIP took to make the net asset values available to Company.
(c) With respect to payment of the purchase price by Company and
of redemption proceeds by FAIP, Company and FAIP shall net
purchase and redemption orders with respect to each Fund and
shall transmit one total net payment for all Funds in
accordance with Section 2.2, below.
(d) If FAIP provides materially incorrect Share net asset value
information (as determined under SEC guidelines and the net
asset value error policy as approved by the Board of Directors
of FAIP), Company shall be entitled to an adjustment to the
number of Shares purchased or redeemed to reflect the correct
net asset value per Share. Any material error in the
calculation or reporting of net asset value per Share,
dividend or capital gain information shall be reported
promptly upon discovery to Company. If an Account, due to such
error has received amounts in excess of the amounts to which
it is entitled, the Company, when requested by FAIP or the
Advisor, shall make adjustments to the Account to reflect the
change in the values of the Shares as reflected in the unit
values of the affected contract owners who still have values
in the Funds.
2.2 TIMELY PAYMENTS.
Company will wire payment in federal funds for net purchases to a
custodial account designated by Fund by 1:00 p.m. Central Time on the same day
as the order for Shares is placed, to the extent practicable. FAIP will wire
payment for net redemptions in federal funds to an account designated by Company
by 1:00 p.m. Central Time on the same day as the order is placed.
Notwithstanding the foregoing, if the payment of redemption proceeds would
require the Fund to dispose of portfolio securities or otherwise incur
substantial additional costs, and if the Fund has determined to settle
redemption transactions for all shareholders on a delayed basis, proceeds in
federal funds shall be wired after the date the order is placed, but in any
event within three (3) calendar days after the date the order is placed in order
to enable Company to pay redemption proceeds within the time specified in
Section 22(e) of the 1940 Act or such shorter period of time as may be required
by law.
2.3 APPLICABLE PRICE.
(a) Share purchase payments and redemption orders that result from
purchase payments, premium payments, surrenders and all other
Participant transactions
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under Contracts (collectively, "Contract transactions") that
Company receives prior to the close of regular trading on the
New York Stock Exchange on a Business Day will be executed at
the net asset values of the appropriate Funds next computed
after receipt by Fund or its designated agent of the orders.
For purposes of this Section 2.3(a), Company shall be the
designated agent of FAIP for receipt of orders relating to
Contract transactions on each Business Day and receipt by such
designated agent shall constitute receipt by FAIP, provided
that FAIP receives notice of such orders by 9:00 a.m. Central
Time on the next following Business Day, or such later time as
computed in accordance with Section 2.1(b) hereof.
(b) Share purchases and redemptions by Company not received by
FAIP in accordance with Section 2.3(a) hereof, will be
effected at the net asset values of the appropriate Funds next
computed after receipt by FAIP of the order therefor, and such
orders will be irrevocable.
2.4 DIVIDENDS AND DISTRIBUTIONS.
FAIP will furnish notice by wire or telephone (followed by written
confirmation) on or prior to the payment date to Company of any income dividends
or capital gain distributions payable on the Shares of any Fund. Company hereby
elects to reinvest all dividends and capital gains distributions in additional
Shares of the corresponding Fund at the ex-dividend date net asset values until
Company otherwise notifies FAIP in writing, it being agreed by the Parties that
the ex-dividend date and the payment date with respect to any dividend or
distribution will be the same business day. Company reserves the right to revoke
this election and to receive all such income dividends and capital gain
distributions in cash.
2.5 BOOK ENTRY.
Issuance and transfer of FAIP Shares will be by book entry only. Stock
certificates will not be issued to Company. Shares ordered from FAIP will be
recorded in an appropriate title for Company, on behalf of its Account.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided herein, each Party will bear
all expenses incident to its performance under this Agreement.
3.2 REGISTRATION.
(a) FAIP will bear the cost of its registering as a management
investment company under the 1940 Act and registering its
Shares under the 1933 Act, and keeping such registrations
current and effective; including, without limitation, the
preparation of and filing with the SEC of Forms N-SAR and
Rule 24f-2 Notices
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with respect to FAIP and its Shares and, to the extent
required, payment of all applicable registration or filing
fees with respect to any of the foregoing.
(b) Company will bear the cost of registering, to the extent
required, each Account as a unit investment trust under the
1940 Act and registering units of interest under the Contracts
under the 1933 Act and keeping such registrations current and
effective; including, without limitation, the preparation and
filing with the SEC of Forms N-SAR and Rule 24f-2 Notices with
respect to each Account and its units of interest and payment
of all applicable registration or filing fees with respect to
any of the foregoing.
3.3 OTHER (NON-SALES-RELATED).
(a) FAIP will provide camera-ready film or computer diskettes
containing the Funds' prospectus, statement of additional
information, reports to shareholders and, as required, other
communications to shareholders, for Company to print and
distribute to prospective and existing Contract owners.
(i) The Company, at its expense, will print and
distribute the Contract prospectuses for use with
prospective Contract owners.
(ii) The Company will print and deliver prospectuses,
statements of additional information, reports to
shareholders and other shareholder communications to
existing Contract owners and FAIP will pay that part
of the expense of printing and delivery of such
materials attributable to FAIP's prospectuses, FAIP's
statements of additional information, FAIP's reports
to shareholders and other FAIP shareholder
communications.
(iii) The Company may elect upon 10 (ten) days notice that,
in lieu of camera-ready film or computer diskettes
containing the Funds' prospectus, statement of
additional information, reports to shareholders or
other communications to shareholders, that FAIP, at
its expense, will provide as many printed copies of
such shareholder information as Company may
reasonably request to deliver, at FAIP's expense, to
existing Contract owners.
(b) The Company may elect to print prospectuses, statements of
additional information and reports to shareholders in
combination with other fund companies' prospectuses,
statements of additional information, and reports.
(c) FAIP, at its expense, will provide the Company with as many
printed copies of its proxy solicitations as may be required
to deliver to existing Contract owners. The Company, at FAIP's
expense, will distribute proxy materials in accordance with
the procedures set forth in Section 10 hereof.
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<PAGE>
(d) Unregistered separate accounts subject to the Employee
Retirement Income Security Act of 1974 ("ERISA") will refrain
from voting shares for which no instructions are received if
such shares are held subject to the provisions of ERISA.
3.4 PARTIES TO COOPERATE.
Each Party agrees to cooperate with the others, as applicable, in
arranging to print, mail and/or deliver, in a timely manner, combined or
coordinated prospectuses or other materials of FAIP and the Accounts.
SECTION 4. LEGAL COMPLIANCE
4.1 TAX LAWS.
(a) FAIP and the Advisor represent and warrant (i) that each Fund
is currently qualified as a regulated investment company
("RIC") under Subchapter M of the Internal Revenue Code of
1986, as amended (the "Code"), and (ii) that they will
maintain qualification of each Fund as a RIC. FAIP and the
Advisor will notify Company immediately upon having a
reasonable basis for believing that a Fund has ceased to so
qualify or that it might not so qualify in the future.
(b) FAIP and the Advisor represent and warrant that, at all times,
each Fund will comply with the diversification requirements
set forth in Section 817(h) of the Code and Section 1.817-5(b)
of the regulations under the Code. FAIP and the Advisor will
notify Company immediately upon having a reasonable basis for
believing that a Fund has ceased to so comply or that a Fund
might not so comply in the future. In the event a Fund ceases
to comply, FAIP and the Advisor will take all reasonable steps
to adequately diversify the Fund so as to achieve compliance
within the grace period afforded by Section 1.817-5 of the
regulations under the Code.
(c) The Parties hereto agree that if the Internal Revenue Service
("IRS") asserts, in connection with any governmental audit or
review of Company, FAIP or the Advisor, that any Fund has
failed to comply with the diversification requirements of
Section 817(h) of the Code and Section 1.817-5(b) of the
regulations under the Code, or if a Party otherwise becomes
aware of any facts that could give rise to any claim against
Company, FAIP or the Advisor as a result of such failure or
alleged failure to comply with these requirements:
(i) Such Party shall promptly notify the other Parties of
such potential claims;
(ii) The Parties shall consult with each other as to how
to minimize any liability that may arise as a result
of such failure or alleged failure; and
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(iii) The Parties shall provide each other with reasonable
access to books and records related to any such
failure or alleged failure, and shall provide any
written materials provided to the IRS associated with
any proceedings arising out of any such failure or
alleged failure.
(d) Company represents and warrants that the Contracts, upon
issuance, will be treated as annuity contracts or life
insurance contracts under applicable provisions of the Code
and that it will maintain such treatment. Company will notify
FAIP immediately upon having a reasonable basis for believing
that any of the Contracts have ceased to be treated as annuity
contracts or life insurance contracts under applicable
provisions of the Code or that they might not be so treated in
the future.
(e) Company represents and warrants that each Account is a
"segregated asset account" and that interests in each Account
are offered exclusively through the purchase of or transfer
into a "variable contract," within the meaning of such terms
under Section 817 of the Code and the regulations thereunder.
Company will notify FAIP immediately upon having a reasonable
basis for believing that such requirements have ceased to be
met or that they might not be met in the future.
4.2 INSURANCE AND CERTAIN OTHER LAWS.
(a) FAIP will comply with any applicable state insurance laws or
regulations, to the extent specifically requested in writing
by Company, including, the furnishing of information not
otherwise available to Company which is required by state
insurance law to enable Company to obtain the authority needed
to issue the Contracts in any applicable state.
(b) Company represents and warrants that (i) it is an insurance
company duly organized, validly existing and in good standing
under the laws of the State of Connecticut and has full
corporate power, authority and legal right to execute, deliver
and perform its duties and comply with its obligations under
this Agreement, (ii) it has legally and validly established
and maintains each Account as a segregated asset account under
Connecticut Insurance Law and the regulations thereunder, and
(iii) the Contracts comply in all material respects with all
other applicable federal and state laws and regulations.
(c) FAIP and the Advisor represent and warrant that FAIP is a
corporation duly organized, validly existing, and in good
standing under the laws of the State of Minnesota and has full
power, authority, and legal right to execute, deliver, and
perform its duties and comply with its obligations under this
Agreement.
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4.3 SECURITIES LAWS.
(a) Company represents and warrants that (i) interests in each
Account pursuant to the Contracts will be registered under the
1933 Act to the extent required by the 1933 Act, (ii) the
Contracts will be duly authorized for issuance and sold in
compliance with all applicable federal and state laws,
including, without limitation, the 1933 Act, the 1934 Act, the
1940 Act and Connecticut law, (iii) each Account is and will
remain registered under the 1940 Act, to the extent required
by the 1940 Act, (iv) each Account does and will comply in all
material respects with the requirements of the 1940 Act and
the rules thereunder, to the extent required, (v) each
Account's 1933 Act registration statement relating to the
Contracts, together with any amendments thereto, will at all
times comply in all material respects with the requirements of
the 1933 Act and the rules thereunder, (vi) Company will amend
the registration statement for its Contracts under the 1933
Act and for its Accounts under the 1940 Act from time to time
as required in order to effect the continuous offering of its
Contracts or as may otherwise be required by applicable law,
and (vii) each Account Prospectus will at all times comply in
all material respects with the requirements of the 1933 Act
and the rules thereunder.
(b) Company will at its expense register and qualify the Contracts
for sale in accordance with the laws of any state or other
jurisdiction if and to the extent reasonably deemed advisable
by Company.
(c) FAIP represents and warrants that (i) Shares sold pursuant to
this Agreement will be registered under the 1933 Act to the
extent required by the 1933 Act and duly authorized for
issuance and sold in compliance with Minnesota law, (ii) FAIP
is and will remain registered under the 1940 Act to the extent
required by the 1940 Act, (iii) FAIP will amend the
registration statement for its Shares under the 1933 Act and
itself under the 1940 Act from time to time as required in
order to effect the continuous offering of its Shares, (iv)
FAIP does and will comply in all material respects with the
requirements of the 1940 Act and the rules thereunder, (v)
FAIP's 1933 Act registration statement, together with any
amendments thereto, will at all times comply in all material
respects with the requirements of the 1933 Act and rules
thereunder, and (vi) FAIP's Prospectus will at all times
comply in all material respects with the requirements of the
1933 Act and the rules thereunder.
(d) FAIP will at its expense register and qualify its Shares for
sale in accordance with the laws of any state or other
jurisdiction if and to the extent reasonably deemed advisable
by FAIP.
(e) FAIP currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940
Act or otherwise, although it reserves the right to make such
payments in the future. To the extent that it decides to
finance distribution expenses pursuant to Rule 12b-1, FAIP
undertakes
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to have its Board of Directors, a majority of whom are not
"interested" persons of FAIP, formulate and approve any plan
under Rule 12b-1 to finance distribution expenses.
(f) FAIP represents and warrants that all of its directors,
officers, employees, investment advisers, and other
individuals/entities having access to the Funds and/or
securities of the Funds are and continue to be at all times
covered by a blanket fidelity bond or similar coverage for the
benefit of the Funds in an amount not less than the minimal
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 includes coverage for larceny and
embezzlement and is issued by a reputable bonding company.
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
(a) FAIP will immediately notify Company of (i) the issuance by
any court or regulatory body of any stop order, cease and
desist order, or other similar order with respect to FAIP's
registration statement under the 1933 Act or FAIP Prospectus,
(ii) any request by the SEC for any amendment to such
registration statement or Fund Prospectus that may affect the
offering of Shares of FAIP, (iii) the initiation of any
proceedings for that purpose or for any other purpose relating
to the registration or offering of FAIP's Shares, or (iv) any
other action or circumstances that may prevent the lawful
offer or sale of Shares of any Fund in any state or
jurisdiction, including, without limitation, any circumstances
in which (a) such Shares are not registered and, in all
material respects, issued and sold in accordance with
applicable state and federal law, or (b) such law precludes
the use of such Shares as an underlying investment medium of
the Contracts issued or to be issued by Company. FAIP will
make every reasonable effort to prevent the issuance, with
respect to any Fund, of any such stop order, cease and desist
order or similar order and, if any such order is issued, to
obtain the lifting thereof at the earliest possible time.
(e) Company will immediately notify FAIP of (i) the issuance by
any court or regulatory body of any stop order, cease and
desist order, or other similar order with respect to each
Account's registration statement under the 1933 Act relating
to the Contracts or each Account Prospectus, (ii) any request
by the SEC for any amendment to such registration statement or
Account Prospectus that may affect the offering of Shares of
FAIP, (iii) the initiation of any proceedings for that purpose
or for any other purpose relating to the registration or
offering of each Account's interests pursuant to the
Contracts, or (iv) any other action or circumstances that may
prevent the lawful offer or sale of said interests in any
state or jurisdiction, including, without limitation, any
circumstances in which said interests are not registered and,
in all material respects, issued and sold in accordance with
applicable state and federal law. Company will make every
reasonable effort to prevent the issuance of any such stop
order, cease and desist order or similar order and, if any
such order is issued, to obtain the lifting thereof at the
earliest possible time.
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4.5 COMPANY TO PROVIDE DOCUMENTS; INFORMATION ABOUT FAIP.
(a) Company will provide to FAIP or its designated agent at least
one (1) complete copy of all SEC registration statements,
Account Prospectuses, reports, any preliminary and final
voting instruction solicitation material, applications for
exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to each Account or the
Contracts, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
(b) Company will provide to FAIP or its designated agent at least
one (1) complete copy of each piece of sales literature or
other promotional material in which FAIP or any of its
affiliates is named, at least ten (10) Business Days prior to
its use or such shorter period as the Parties hereto may, from
time to time, agree upon. No such material shall be used if
FAIP or its designated agent objects to such use within ten
(10) Business Days after receipt of such material or such
shorter period as the Parties hereto may, from time to time,
agree upon.
(c) Neither Company nor any of its affiliates, will give any
information or make any representations or statements on
behalf of or concerning FAIP or its affiliates in connection
with the sale of the Contracts other than (i) the information
or representations contained in the registration statement,
including the FAIP Prospectus contained therein, relating to
Shares, as such registration statement and FAIP Prospectus may
be amended from time to time; or (ii) in reports or proxy
materials for FAIP; or (iii) in published reports for FAIP
that are in the public domain and approved by FAIP for
distribution; or (iv) in sales literature or other promotional
material approved by FAIP, except with the express written
permission of FAIP.
(d) Company shall adopt and implement procedures reasonably
designed to ensure that information concerning FAIP and its
affiliates that is intended for use only by brokers or agents
selling the Contracts (i.e., information that is not intended
for distribution to Participants) ("broker only materials") is
so used, and neither FAIP nor any of its affiliates shall be
liable for any losses, damages or expenses relating to the
improper use of such broker only materials.
(e) For the purposes of this Section 4.5, the phrase "sales
literature or other promotional material" includes, but is not
limited to, advertisements (such as material published, or
designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, or
other public media, (e.g., on-line networks such as the
Internet or other electronic messages), sales literature
(i.e., any written communication distributed or made generally
available to customers or the public, including brochures,
circulars, research reports, market letters, form letters,
seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article),
educational or training materials or other communications
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distributed or made generally available to some or all agents
or employees, registration statements, prospectuses,
statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales
literature or advertising under the NASD rules, the 1933 Act
or the 1940 Act.
4.6 FAIP TO PROVIDE DOCUMENTS; INFORMATION ABOUT COMPANY.
(a) FAIP will provide to Company at least one (1) complete copy of
all SEC registration statements, FAIP Prospectuses, reports,
any preliminary and final proxy material, applications for
exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to FAIP or the Shares of a
Fund, contemporaneously with the filing of such document with
the SEC or other regulatory authorities.
(b) FAIP will provide to Company camera ready or computer diskette
copies of all FAIP shareholder communication information
(including prospectuses, statements of additional information
and reports to shareholders) pursuant to Section 3.3. FAIP
will provide such information to Company in a timely manner so
as to enable Company, as the case may be, to print and
distribute such materials within the time required by law to
be furnished to Participants.
(c) FAIP will provide to Company or its designated agent at least
one (1) complete copy of each piece of sales literature or
other promotional material in which Company, or any of its
respective affiliates is named, or that refers to the
Contracts, at least ten (10) Business Days prior to its use or
such shorter period as the Parties hereto may, from time to
time, agree upon. No such material shall be used if Company or
its designated agent objects to such use within ten (10)
Business Days after receipt of such material or such shorter
period as the Parties hereto may, from time to time, agree
upon. Company shall receive all such sales literature until
such time as it appoints a designated agent by giving notice
to FAIP in the manner required by Section 9 hereof.
(d) Neither FAIP nor any of its affiliates will give any
information or make any representations or statements on
behalf of or concerning Company, each Account, or the
Contracts other than (i) the information or representations
contained in the registration statement, including each
Account Prospectus contained therein, relating to the
Contracts, as such registration statement and Account
Prospectus may be amended from time to time; or (ii) in
published reports for the Account or the Contracts that are in
the public domain and approved by Company for distribution; or
(iii) in sales literature or other promotional material
approved by Company or its affiliates, except with the express
written permission of Company.
(e) FAIP and Advisor shall adopt and implement procedures
reasonably designed to ensure that information concerning
Company, and its respective affiliates that is intended for
use only by brokers or agents selling the Contracts (i.e.,
information that is not intended for distribution to
Participants) ("broker only materials") is so
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used, and neither Company, nor any of its respective
affiliates shall be liable for any losses, damages or expenses
relating to the improper use of such broker only materials.
(f) For purposes of this Section 4.6, the phrase "sales literature
or other promotional material" includes, but is not limited
to, advertisements (such as material published, or designed
for use in, a newspaper, magazine, or other periodical, radio,
television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media,
(e.g., on-line networks such as the Internet or other
electronic messages), sales literature (i.e., any written
communication distributed or made generally available to
customers or the public, including brochures, circulars,
research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales
literature, or published article), educational or training
materials or other communications distributed or made
generally available to some or all agents or employees,
registration statements, prospectuses, statements of
additional information, shareholder reports, and proxy
materials and any other material constituting sales literature
or advertising under the NASD rules, the 1933 Act or the 1940
Act.
SECTION 5. MIXED AND SHARED FUNDING
5.1 GENERAL.
FAIP has applied to the SEC for an order exempting it from certain
provisions of the 1940 Act and rules thereunder so that FAIP may be available
for investment by certain other entities, including, without limitation,
separate accounts funding variable annuity contracts or variable life insurance
contracts, separate accounts of insurance companies unaffiliated with Company,
and trustees of qualified pension and retirement plans (collectively, "Mixed and
Shared Funding"). The Parties recognize that the SEC may impose terms and
conditions for such orders that are substantially identical to many of the
provisions of this Section 5. FAIP hereby notifies Company that it intends to
include in the Fund Prospectus disclosure regarding the potential risks of Mixed
and Shared Funding.
5.2 DISINTERESTED DIRECTORS.
FAIP agrees that a majority of the Board of Directors of FAIP ("Board")
will consist of persons who are not "interested persons" of the Company, as
defined by Section 2(a)(19) of the 1940 Act and the rules thereunder and as
modified by any applicable orders of the SEC ("Disinterested Directors"), except
that if this condition is not met by reason of the death, disqualification, or
bona fide resignation of any director, then the operation of this condition
shall be suspended (a) for a period of forty-five (45) days if the vacancy or
vacancies may be filled by the Board; (b) for a period of sixty (60) days if a
vote of shareholders is required to fill the vacancy or vacancies; or (c) for
such longer period as the SEC may prescribe by order upon application.
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5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS.
FAIP agrees that its Board of Directors will monitor the Funds for the
existence of any material irreconcilable conflict between the interests of the
Participants in all separate accounts of life insurance companies utilizing FAIP
("Participating Insurance Companies"), including each Account, and of
participants in qualified retirement and pension plans investing in the Funds
("Participating Plans") and determine what action, if any, should be taken in
response to such conflicts. A material irreconcilable conflict may arise for a
variety of reasons, including:
(a) an action by any state insurance or other 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 Fund are being
managed;
(e) a difference in voting instructions given by variable annuity
contract and variable life insurance contract Participants or
by Participants in Participating Plans;
(f) a decision by a Participating Insurance Company to disregard
the voting instructions of Participant; or
(g) a decision by a Participating Plan to disregard the voting
instructions of its Participants.
Consistent with the SEC's requirements in connection with exemptive
orders of the type referred to in Section 5.1 hereof, FAIP and Company will
report any potential or existing conflicts to the Board and will be responsible
for assisting the Board in carrying out its responsibilities under these
conditions by providing the Board with all information reasonably necessary for
the Board to consider any issues raised. This responsibility includes, but is
not limited to, an obligation of Company to inform the Board whenever it has
determined to disregard Participant voting instructions. Company agrees that
such responsibilities will be carried out with a view only to the interests of
Participants.
5.4 CONFLICT REMEDIES.
(a) It is agreed that if it is determined by a majority of the
members of the Board of Directors or a majority of its
Disinterested Directors that a material irreconcilable
conflict exists, Company will, if it is a Participating
Insurance Company for which a material irreconcilable conflict
is relevant, at its own expense and to the extent reasonably
practicable (as determined by a majority of the Disinterested
Directors), take whatever steps are necessary to remedy or
eliminate the material irreconcilable conflict, which steps
may include, but are not limited to:
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(i) withdrawing the assets allocable to some or all of
the Accounts from FAIP or any Fund and reinvesting
such assets in a different investment medium,
including another Fund of FAIP, or submitting the
question whether such segregation should be
implemented to a vote of all affected Participants
and, as appropriate, segregating the assets of any
particular group (e.g., variable annuity contract
owners or variable life insurance contract owners)
that votes in favor of such segregation, or offering
to the affected contract owners the option of making
such a change; and
(ii) establishing a new registered management investment
company or a new separate account that is operated as
a management company.
(b) If the material irreconcilable conflict arises because of
Company's decision to disregard Participants' voting
instructions and that decision represents a minority position
or would preclude a majority vote, Company may be required, at
FAIP's election, to withdraw each Account's investment in FAIP
or any Fund. No charge or penalty will be imposed as a result
of such withdrawal. Any such withdrawal must take place within
six (6) months after FAIP gives notice to Company that this
provision is being implemented, and until such withdrawal FAIP
shall continue to accept and implement orders by Company for
the purchase and redemption of Shares of FAIP.
(c) If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to
Company conflicts with the majority of other state regulators,
then Company will withdraw each Account's investment in FAIP
within six (6) months after FAIP's Board of Directors informs
Company that it has determined that such decision has created
a material irreconcilable conflict, and until such withdrawal
FAIP shall continue to accept and implement orders by Company
for the purchase and redemption of Shares of FAIP. No charge
or penalty will be imposed as a result of such withdrawal.
(d) Company agrees that any remedial action taken by it in
resolving any material irreconcilable conflict will be carried
out at its expense and with a view only to the interests of
Participants.
(e) For purposes hereof, a majority of the Disinterested Directors
will determine whether or not any proposed action adequately
remedies any material irreconcilable conflict. In no event,
however, will FAIP or any of its affiliates be required to
establish a new funding medium for any Contracts. Company will
not be required by the terms hereof to establish a new funding
medium for any Contracts if an offer to do so has been
declined by vote of a majority of Participants materially
adversely affected by the material irreconcilable conflict.
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(f) The Board's determination of the existence of a material
irreconcilable conflict and its implications will be made
known promptly and in writing to all Participants.
5.5 NOTICE TO COMPANY.
FAIP will promptly make known in writing to Company the Board of
Directors' determination of the existence of a material irreconcilable conflict,
a description of the facts that give rise to such conflict and the implications
of such conflict.
5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS.
Company and FAIP (or the Advisor) will, upon request, submit to the
Board of Directors of FAIP such reports, materials or data as the Board of
Directors may reasonably request so that the Board of Directors may fully carry
out the obligations imposed upon it by the provisions hereof or any exemptive
order granted by the SEC to permit Mixed and Shared Funding, and said reports,
materials and data will be submitted at any reasonable time deemed appropriate
by the Board of Directors. All reports received by the Board of Directors of
potential or existing conflicts, and all Board of Directors actions with regard
to determining the existence of a conflict, notifying Participating Insurance
Companies and Participating Plans of a conflict, and determining whether any
proposed action adequately remedies a conflict, will be properly recorded in the
minutes of the Board of Directors or other appropriate records, and such minutes
or other records will be made available to the SEC upon request.
5.7 COMPLIANCE WITH SEC RULES.
If and to the extent that Rules 6e-2 and 6e-3(T) under the 1940 Act are
amended (or if Rule 6e-3 under the 1940 Act is adopted) to provide exemptive
relief from any provision of the 1940 Act, or the rules thereunder, with respect
to mixed or shared funding on terms and conditions materially different from any
exemptions granted in the order obtained by FAIP, then FAIP and/or Company, as
appropriate, shall take such steps as may be necessary to comply with Rules 6e-2
and 6e-3(T), as amended, or Rule 6e-3, as adopted, to the extent applicable.
5.8 OTHER REQUIREMENTS.
FAIP will require that each Participating Insurance Company and
Participating Plan enter into an agreement with FAIP that contains in substance
the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a), 4.4(b),
4.5(a), 5, and 10 of this Agreement.
SECTION 6. TERMINATION
6.1 EVENTS OF TERMINATION.
Subject to Section 6.4 below, this Agreement will terminate as to a
Fund:
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(a) at the option of any Party, with or without cause with respect
to the Fund, upon six (6) months advance written notice to the
other Parties, unless otherwise agreed to in writing by the
Parties; or
(b) at the option of FAIP upon institution of formal proceedings
against Company or any of its affiliates by the NASD, the SEC,
any state insurance regulator or any other regulatory body
regarding Company's obligations under this Agreement or
related to the sale of the Contracts, the operation of any
Account, or the purchase of Shares, if, in each case, FAIP
reasonably determines that such proceedings, or the facts on
which such proceedings would be based, have a material
likelihood of imposing material adverse consequences on the
Fund with respect to which the Agreement is to be terminated;
or
(c) at the option of Company upon institution of formal
proceedings against FAIP, its principal underwriter, or its
investment adviser by the NASD, the SEC, or any state
insurance regulator or any other regulatory body regarding
FAIP's obligations under this Agreement or related to the
operation or management of FAIP or the purchase of Fund
Shares, if, in each case, Company reasonably determines that
such proceedings, or the facts on which such proceedings would
be based, have a material likelihood of imposing material
adverse consequences on Company, or the Subaccount
corresponding to the Fund with respect to which the Agreement
is to be terminated; or
(d) at the option of any Party in the event that (i) the Fund's
Shares are not registered and, in all material respects,
issued and sold in accordance with any applicable federal or
state law, or (ii) such law precludes the use of such Shares
as an underlying investment medium of the Contracts issued or
to be issued by Company; or
(e) upon termination of the corresponding Subaccount's investment
in the Fund pursuant to Section 5 hereof; or
(f) at the option of Company if the Fund ceases to qualify as a
RIC under Subchapter M of the Code or under successor or
similar provisions, or if the Company reasonably believes that
the Fund may fail to so qualify or comply; or
(g) at the option of Company if the Fund fails to comply with
Section 817(h) of the Code or with successor or similar
provisions, or if the Company reasonably believes that the
Fund may fail to so qualify or comply; or
(h) at the option of FAIP if the Contracts issued by Company cease
to qualify as annuity contracts or life insurance contracts
under the Code (other than by reason of the Fund's
noncompliance with Section 817(h) or Subchapter M of the
Code), or if FAIP reasonably believes that the Contracts
issued by Company may fail to so qualify or comply; or
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(i) at the option of FAIP if interests in an Account under the
Contracts are not registered, where required, and, in all
material respects, are not issued or sold in accordance with
any applicable federal or state law, or if FAIP reasonably
believes that the interests in an Account under the Contracts
are not registered, issued, or sold in accordance with any
applicable federal and state law.
(j) upon another Party's material breach of any provision of this
Agreement.
6.2 NOTICE REQUIREMENT FOR TERMINATION.
No termination of this Agreement will be effective unless and until the
Party terminating this Agreement gives prior written notice to the other Parties
to this Agreement of its intent to terminate, and such notice shall set forth
the basis for such termination. Furthermore:
(a) in the event that any termination is based upon the provisions
of Sections 6.1(a) or 6.1(e) hereof, such prior written notice
shall be given at least six (6) months in advance of the
effective date of termination unless a shorter time is agreed
to by the Parties hereto;
(b) in the event that any termination is based upon the provisions
of Sections 6.1(b) or 6.1(c) hereof, such prior written notice
shall be given at least sixty (60) days in advance of the
effective date of termination unless a shorter time is agreed
to by the Parties hereto; and
(c) in the event that any termination is based upon the provisions
of Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h), 6.1(i) or 6.1(j)
hereof, such prior written notice may be given at any time
after the terminating Party learns of the event causing
termination to be required.
6.3 FUNDS TO REMAIN AVAILABLE.
Notwithstanding any termination of this Agreement, FAIP will, at the
option of 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 such further sale of shares of the
Fund is proscribed by law, regulation of applicable regulating body.
Specifically, without limitation, the owners of the Existing Contracts will be
permitted to reallocate investments in the Fund, redeem investments in the Fund
and/or invest in the Fund upon the making of additional purchase payments under
the Existing Contracts. The Parties agree that this Section 6.3 will not apply
to any terminations under Section 5 and the effect of such terminations will be
governed by Section 5 of this Agreement.
6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS.
All warranties and indemnifications will survive the termination of
this Agreement.
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6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES.
If any Party terminates this Agreement with respect to any Fund
pursuant to Sections 6.1(a), 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h),
6.1(i) or 6.1(j) hereof, this Agreement shall nevertheless continue in effect as
to any Shares of that Fund that are outstanding as of the date of such
termination (the "Initial Termination Date"). This continuation shall extend to
the date as of which an Account owns no Shares of the affected Fund (the "Final
Termination Date").
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
The Parties hereto agree to cooperate and give reasonable assistance to
one another in taking all necessary and appropriate steps for the purpose of
ensuring that an Account owns no Shares of a Fund after the Final Termination
Date with respect thereto. Such steps may include combining the affected Account
with another Account, substituting other mutual fund's shares for those of the
affected Fund, or otherwise terminating participation by the Contracts in such
Fund.
SECTION 8. ASSIGNMENT
This Agreement may not be assigned by any Party, except with the
written consent of each other Party.
SECTION 9. NOTICES
Notices and communications required or permitted by Section 9 hereof
will be given by means mutually acceptable to the Parties concerned. Each other
notice or communication required or permitted by this Agreement will be given to
the following persons at the following addresses and facsimile numbers, or such
other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:
FIRST AMERICAN INSURANCE PORTFOLIOS, INC.
601 Second Avenue South, MPFP 1816
Minneapolis, MN 55402
Facsimile: (612) 973-0620
Attn: Jeff Wilson, Senior Vice President
FIRST AMERICAN ASSET MANAGEMENT
A DIVISION OF U.S. BANK NATIONAL ASSOCIATION
601 Second Avenue South, MPFP 1816
Minneapolis, MN 55402
Facsimile: (612) 973-0620
Attn: Jeff Wilson, Vice President
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cc: FIRST AMERICAN ASSET MANAGEMENT
A DIVISION OF U.S. BANK NATIONAL ASSOCIATION
601 Second Avenue South, MPFP 2016
Minneapolis, MN 55402
Facsimile: (612) 973-0072
Attn: Christopher J. Smith, General Counsel
Hartford Life and Annuity Insurance Company
200 Hopmeadow Street
Simsbury, CT 06089
Facsimile: (860) 843-6329
Attn: Tom Marra, President
cc: Hartford Life and Annuity Insurance Company
200 Hopmeadow Street
Simsbury, CT 06089
Facsimile: (860) 843-8665
Attn: Lynda Godkin, General Counsel
SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3
hereof, Company will distribute all proxy material furnished by FAIP to
Participants to whom pass-through voting privileges are required to be extended
and will solicit voting instructions from Participants. Company will vote Shares
in accordance with timely instructions received from Participants. Company will
vote Shares that are (a) not attributable to Participants to whom pass-through
voting privileges are extended, or (b) attributable to Participants, but for
which no timely instructions have been received, in the same proportion as
Shares for which said instructions have been received from Participants, so long
as and to the extent that the SEC continues to interpret the 1940 Act to require
pass through voting privileges for Participants. Neither Company nor any of its
affiliates will in any way recommend action in connection with or oppose or
interfere with the solicitation of proxies for the Shares held for such
Participants. Company reserves the right to vote shares held in any Account in
its own right, to the extent permitted by law. Company shall be responsible for
assuring that each of its Accounts holding Shares calculates voting privileges
in a manner consistent with that of other Participating Insurance Companies or
in the manner required by the Mixed and Shared Funding exemptive order obtained
by FAIP. FAIP will notify Company of any changes of interpretations or
amendments to Mixed and Shared Funding exemptive order it has obtained. FAIP
will comply with all provisions of the 1940 Act requiring voting by
shareholders, and in particular, FAIP either will provide for annual meetings
(except insofar as the SEC may interpret Section 16 of the 1940 Act not to
require such meetings) or will comply with Section 16(c) of the 1940 Act
(although Fund is not one of the trusts described in Section 16(c) of that Act)
as well as with
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Sections 16(a) and, if and when applicable, 16(b). Further, FAIP will act in
accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of directors and with whatever rules the SEC
may promulgate with respect thereto.
SECTION 11. FOREIGN TAX CREDITS
FAIP agrees to consult in advance with Company concerning any decision
to elect or not to elect pursuant to Section 853 of the Code to pass through the
benefit of any foreign tax credits to its shareholders.
SECTION 12. INDEMNIFICATION
12.1 OF FAIP AND THE ADVISOR BY COMPANY
(a) Except to the extent provided in Sections 12.1(b), 12.1(c),
and 12.1(d), hereof, Company agrees to indemnify and hold
harmless FAIP and the Advisor, and each person, if any, who
controls FAIP within the meaning of Section 15 of the 1933 Act
and each of its directors and officers, (collectively, the
"Indemnified Parties" for purposes of this Section 12.1)
against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent
of Company) or actions in respect thereof (including, to the
extent reasonable, legal and other expenses), to which the
Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise; provided, the Account
owns or at the relevant time owned shares of the Funds and
insofar as such losses, claims, damages, liabilities or
actions and are related to the sale or acquisition of Fund
shares or the Contracts and:
(i) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in any Account's 1933 Act registration
statement, any Account Prospectus, the Contracts, or
sales literature or advertising 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 Company by or on behalf of
FAIP specifically for use in any Account's 1933 Act
registration statement, any Account Prospectus, the
Contracts, or sales literature or advertising or
otherwise for use in connection with the sale of
Contracts or Shares (or any amendment or supplement
to any of the foregoing) or was consented to by FAIP
pursuant to Section 4.5(c); or
(ii) arise out of or as a result of any other statements
or representations (other than statements or
representations contained in FAIP's 1933 Act
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registration statement, FAIP Prospectus, sales
literature or advertising of FAIP, or any amendment
or supplement to any of the foregoing, not supplied
for use therein by or on behalf of Company or its
affiliates and on which such persons have reasonably
relied) or the negligent, illegal or fraudulent
conduct of Company or its affiliates or persons under
their control (including, without limitation, their
employees and "Associated Persons," as that term is
defined in paragraph (m) of Article I of the NASD's
By-Laws), in connection with the sale or distribution
of the Contracts or Shares; or
(iii) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in FAIP's 1933 Act registration statement,
FAIP Prospectus, sales literature or advertising of
FAIP, or any amendment or supplement to any of the
foregoing, or the omission or alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein
not misleading if such a statement or omission was
made in reliance upon and in conformity with
information furnished in writing to FAIP or its
affiliates by or on behalf of Company or its
affiliates specifically for use in FAIP's 1933 Act
registration statement, FAIP Prospectus, sales
literature or advertising of FAIP, or any amendment
or supplement to any of the foregoing or was
consented to by Company pursuant to Section 4.6 (d);
or
(iv) arise as a result of any failure by Company to
perform the obligations, provide the services and
furnish the materials required of them under the
terms of this Agreement, or any material breach of
any representation and/or warranty made by Company in
this Agreement or arise out of or result from any
other material breach of this Agreement by Company;
or
(v) arise as a result of failure by the Contracts issued
by Company to qualify as annuity contracts or life
insurance contracts under the Code, otherwise than by
reason of any Fund's failure to comply with
Subchapter M or Section 817(h) of the Code.
(b) Company shall not be liable under this Section 12.1 with
respect to any losses, claims, damages, liabilities or actions
to which an Indemnified Party would otherwise be subject by
reason of willful misfeasance, bad faith, or gross negligence
in the performance by that Indemnified Party of its duties or
by reason of that Indemnified Party's reckless disregard of
obligations or duties under this Agreement;
(c) Company shall not be liable under this Section 12.1 with
respect to any action against an Indemnified Party unless the
Indemnified Party shall have notified Company in writing
within a reasonable time after the summons or other first
legal process giving information of the nature of the action
shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received
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notice of such service on any designated agent), but failure
to notify Company of any such action shall not relieve Company
from any liability which they may have to the Indemnified
Party against whom such action is brought unless the ability
of Company to defend such action is materially impaired
thereby, except as otherwise provided herein, in case any such
action is brought against an Indemnified Party, Company shall
be entitled to participate, at their own expense, in the
defense of such action and also shall be entitled to assume
the defense thereof, with counsel approved by the Indemnified
Party named in the action, which approval shall not be
unreasonably withheld. After notice from Company to such
Indemnified Party of Company's election to assume the defense
thereof (which shall include, without limitation, the conduct
of any ruling request or closing agreement or offer settlement
proceeding with the IRS), the Indemnified Party will cooperate
fully with Company and shall bear the fees and expenses of any
additional counsel retained by it, and Company will not be
liable to such Indemnified Party under this Agreement for any
legal or other expenses subsequently incurred by such
Indemnified Party independently in connection with the defense
thereof, other than reasonable costs of investigation.
(d) In no event shall the Company be liable under the
indemnification provisions contained in this Agreement to any
Indemnified Party with respect to any losses, claims, damages,
liabilities or expenses that arise out of or result from (i) a
breach of any representation, warranty, and/or covenant made
by FAIP or Advisor hereunder; (ii) the failure by FAIP to
qualify as a legally and validly established corporation under
applicable state law and as duly registered under the 1940
Act; or (iii) the failure by FAIP or Advisor to maintain the
qualification of any Fund under Subchapter M of the Code or
Section 817 of the Code.
12.2 OF COMPANY BY FAIP AND ADVISOR
(a) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e), hereof, FAIP and the Advisor agree to indemnify and
hold harmless Company, its affiliates, and each person, if
any, who controls Company or its affiliates within the meaning
of Section 15 of the 1933 Act and each of their respective
directors and officers, (collectively, the "Indemnified
Parties" for purposes of this Section 12.2) against any and
all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of FAIP) or
actions in respect thereof (including, to the extent
reasonable, legal and other expenses), to which the
Indemnified Parties may become subject under any statute,
regulation, at common law, or otherwise; provided, insofar as
such losses, claims, damages, liabilities or actions are
related to the sale or acquisition of FAIP's shares or the
Contracts and:
(i) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in FAIP's 1933 Act registration statement,
FAIP Prospectus or sales literature or advertising of
FAIP (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
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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 FAIP or its affiliates by or on behalf of Company
or its affiliates specifically for use in FAIP's 1933
Act registration statement, FAIP Prospectus, or in
sales literature or advertising or otherwise for use
in connection with the sale of Contracts or Shares
(or any amendment or supplement to any of the
foregoing) or was consented to by Company pursuant to
Section 4.6(d); or
(ii) arise out of or as a result of any other statements
or representations (other than statements or
representations contained in any Account's 1933 Act
registration statement, any Account Prospectus, sales
literature or advertising for the Contracts, or any
amendment or supplement to any of the foregoing, not
supplied for use therein by or on behalf of FAIP or
its affiliates and on which such persons have
reasonably relied) or the negligent, illegal or
fraudulent conduct of FAIP or its affiliates or
persons under their control (including, without
limitation, their employees and "Associated Persons"
as that Term is defined in Section (ee) of Article 1
of the NASD By-Laws), in connection with the sale or
distribution of FAIP Shares; or
(iii) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact
contained in any Account's 1933 Act registration
statement, any Account Prospectus, sales literature
or advertising covering the Contracts, or any
amendment or supplement to any of the foregoing, 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 in conformity with information
furnished in writing to Company or its affiliates by
or on behalf of FAIP or its affiliates specifically
for use in any Account's 1933 Act registration
statement, any Account Prospectus, sales literature
or advertising covering the Contracts, or any
amendment or supplement to any of the foregoing or
was consented to by FAIP pursuant to Section 4.5(c);
or
(iv) arise as a result of any failure by FAIP or the
Advisor to perform the obligations, provide the
services and furnish the materials required of it
under the terms of this Agreement, or any material
breach of any representation and/or warranty made by
FAIP or the Advisor in this Agreement or arise out of
or result from any other material breach of this
Agreement by FAIP or the Advisor.
(b) Except to the extent provided in Sections 12.2(c), 12.2(d) and
12.2(e) hereof, FAIP and the Advisor agree to indemnify and
hold harmless the Indemnified
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Parties from and against any and all losses, claims, damages,
liabilities (including amounts paid in settlement thereof
with, the written consent of FAIP) or actions in respect
thereof (including, to the extent reasonable, legal and other
expenses) to which the Indemnified Parties may become subject
directly or indirectly under any statute, at common law or
otherwise, insofar as such losses, claims, damages,
liabilities or actions directly or indirectly result from or
arise out of the failure of any Fund to operate as a regulated
investment company in compliance with (i) Subchapter M of the
Code and regulations thereunder, or (ii) Section 817(h) of the
Code and regulations thereunder, including, without
limitation, any income taxes and related penalties, rescission
charges, liability under state law to Participants asserting
liability against Company pursuant to the Contracts, the costs
of any ruling and closing agreement or other settlement with
the IRS, and the cost of any substitution by Company of Shares
of another investment company or portfolio for those of any
adversely affected Fund as a funding medium for each account
that Company reasonably deems necessary or appropriate as a
result of the noncompliance.
(c) FAIP and the Advisor shall not be liable under this Section
12.2 with respect to any losses, claims, damages, liabilities
or actions to which an Indemnified Party would otherwise be
subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance by that Indemnified Party of its
duties or by reason of such Indemnified Party's reckless
disregard of its obligations and duties under this Agreement.
(d) FAIP and the Advisor shall not be liable under this Section
12.2 with respect to any action against an Indemnified Party
unless the Indemnified Party shall have notified FAIP in
writing within a reasonable time after the summons or other
first legal process giving information of the nature of the
action 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
FAIP of any such action shall not relieve FAIP from any
liability which it may have to the Indemnified Party against
whom such action is brought unless the ability of Company to
defend such action is materially impaired thereby, except as
otherwise provided herein, in case any such action is brought
against an Indemnified Party and/or FAIP will be entitled to
participate, at its own expense, in the defense of such action
and also shall be entitled to assume the defense thereof
(which shall include, without limitation, the conduct of any
ruling request and closing agreement or other settlement
proceeding with the IRS), with counsel approved by the
Indemnified Party named in the action, which approval shall
not be unreasonably withheld. After notice from FAIP to such
Indemnified Party of FAIP's election to assume the defense
thereof, the Indemnified Party will cooperate fully with FAIP
and shall bear the fees and expenses of any additional counsel
retained by it, and FAIP will not be liable to such
Indemnified Party under this Agreement for any legal or other
expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof, other
than reasonable costs of investigation.
24
<PAGE>
(e) In no event shall FAIP and the Advisor be liable under the
indemnification provisions contained in this Agreement to any
Indemnified Party, with respect to any losses, claims,
damages, liabilities or expenses that arise out of or result
from (i) a breach of any representation, warranty, and/or
covenant made by Company; (ii) the failure by Company to
maintain its segregated asset account (which invests in any
Fund) as a legally and validly established segregated asset
account under applicable state law and as a duly registered
unit investment trust under the provisions of the 1940 Act
(unless exempt therefrom); or (iii) the failure by Company to
maintain its variable annuity or life insurance contracts
(with respect to which any Fund serves as an underlying
funding vehicle) as annuity contracts or life insurance
contracts under applicable provisions of the Code other than
where such failure arises from the Funds' non-compliance with
Subchapter M of the Code or Section 817 of the Code.
12.3 EFFECT OF NOTICE.
Any notice given by the indemnifying Party to an Indemnified Party
referred to in Sections 12.1(c) or 12.2(d) above of participation in or control
of any action by the indemnifying Party will in no event be deemed to be an
admission by the indemnifying Party of liability, culpability or responsibility,
and the indemnifying Party will remain free to contest liability with respect to
the claim among the Parties or otherwise.
12.4 SUCCESSORS.
A successor by law of any Party shall be entitled to the benefits of
the indemnification contained in this Section 12.
SECTION 13. APPLICABLE LAW
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Minnesota law, without regard for that state's
principles of conflict of laws.
SECTION 14. EXECUTION IN COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
SECTION 15. SEVERABILITY
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
25
<PAGE>
SECTION 16. RIGHTS 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, that the Parties are entitled to under federal and state
laws.
SECTION 17. HEADINGS
The Table of Contents and headings used in this Agreement are for
purposes of reference only and shall not limit or define the meaning of the
provisions of this Agreement.
SECTION 18. CONFIDENTIALITY
FAIP and the Advisor acknowledge that the identities of the customers
of Company or any of its affiliates (collectively, the "Company Protected
Parties" for purposes of this Section 18), information maintained regarding
those customers, and all computer programs and procedures or other information
developed by the Company Protected Parties or any of their employees or agents
in connection with Company's performance of its duties under this Agreement are
the valuable property of the Company Protected Parties. FAIP agrees that if it
comes into possession of any list or compilation of the identities of or other
information about the Company Protected Parties' customers, or any other
information or property of the Company Protected Parties, other than such
information as may be independently developed or compiled by FAIP from
information supplied to it by the Company Protected Parties' customers who also
maintain accounts directly with FAIP, FAIP will hold such information or
property in confidence and refrain from using, disclosing or distributing any of
such information or other property except: (a) with Company's prior written
consent; or (b) as required by law or judicial process. Company acknowledges
that the identities of the customers of FAIP or any of its affiliates
(collectively the "FAIP Protected Parties" for purposes of this Section 18),
information maintained regarding those customers, and all computer programs and
procedures or other information developed by the FAIP Protected Parties or any
of their employees or agents in connection with FAIP's performance of its duties
under this Agreement are the valuable property of the FAIP Protected Parties.
Company agrees that if it comes into possession of any list or compilation of
the identities of or other information about the FAIP Protected Parties'
customers or any other information or property of the FAIP Protected Parties,
other than such information as may be independently developed or compiled by
Company from information supplied to it by the FAIP Protected Parties' customers
who also maintain accounts directly with Company, Company will hold such
information or property in confidence and refrain from using, disclosing or
distributing any of such information or other property except: (a) with FAIP's
prior written consent; or (b) as required by law or judicial process. Each party
acknowledges that any breach of the agreements in this Section 18 would result
in immediate and irreparable harm to the other parties for which there would be
no adequate remedy at law and agree that in the event of such a breach, the
other parties will be entitled to equitable relief by way of temporary and
permanent injunctions, as well as such other relief as any court of competent
jurisdiction deems appropriate.
26
<PAGE>
SECTION 19. PARTIES TO COOPERATE
Each party to this Agreement will cooperate with each other party and
all appropriate governmental authorities (including, without limitation, the
SEC, the NASD and state insurance regulators) and will permit each other and
such authorities reasonable access to its books and records (including copies
thereof) in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
SECTION 20. AMENDMENTS
No provision of this Agreement may be amended or modified in any manner
except by a written agreement executed by all parties hereto.
SECTION 21. ASSIGNMENT
This Agreement may not be assigned without the prior written consent of
all parties hereto.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers signing below.
FIRST AMERICAN INSURANCE
PORTFOLIOS, INC.
By
---------------------------------------
Its
------------------------------------
FIRST AMERICAN ASSET MANAGEMENT,
a division of U.S. Bank National
Association
By
---------------------------------------
Its
------------------------------------
HARTFORD LIFE AND ANNUITY
INSURANCE COMPANY
By
---------------------------------------
Its
------------------------------------
27
<PAGE>
SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
* First American Insurance Portfolios, Inc.:
Large Cap Growth Portfolio
Technology Portfolio
International Portfolio
SEPARATE ACCOUNTS UTILIZING THE FUNDS
* Hartford Life and Annuity Insurance Company Separate Account One
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
* Contract Form # LAVA99
28
EXHIBIT (i)
April 13, 2000
First American Insurance Portfolios, Inc.
601 Second Avenue South
Minneapolis, Minnesota 55402
Ladies and Gentlemen:
We have acted as counsel to First American Insurance
Portfolios, Inc., a Minnesota corporation (the "Company"), in rendering the
opinions hereinafter set forth with respect to the authorization of the
Company's Series A Common Shares, also known as its "Large Cap Growth
Portfolio"; its Series C Common Shares, also known as its "International
Portfolio"; and its Series D Common Shares, also known as its "Technology
Portfolio". The shares of the Company referred to above are referred to herein
collectively as the "Shares".
We understand that the Shares are being registered under the
Securities Act of 1933, as amended, and the Investment Company Act of 1940, as
amended, pursuant to the Company's Registration Statement on Form N-1A (File No.
333-93883) relating to such shares (the "Registration Statement"). In rendering
the opinions hereinafter expressed, we have reviewed the corporate proceedings
taken by the Company in connection with the authorization of the Shares, and we
have reviewed such questions of law and examined copies of such corporate
records of the Company, certificates of public officials and of responsible
officers of the Company, and other documents as we have deemed necessary as a
basis for such opinions. As to the various matters of fact material to such
opinions, we have, when such facts were not independently established, relied to
the extent we deem proper on certificates of public officials and of responsible
officers of the Company. In connection with such review and examination, we have
assumed that all copies of documents provided to us conform to the originals and
that all signatures are genuine. In addition, in rendering the opinions
hereinafter expressed, we have assumed, with the concurrence of the Company,
that all of the Shares will be issued and sold upon the terms and in the manner
set forth in the Registration Statement; that the Company will not issue Shares
in excess of the numbers authorized in the Company's Articles of Incorporation
as in effect at the respective dates of issuance; and that the Company will
maintain its corporate existence and good standing under the laws of the State
of Minnesota in effect at all times after the date of this opinion.
Based on the foregoing, it is our opinion that:
1. The Company is validly existing as a corporation in good
standing under the laws of the State of Minnesota.
2. The Shares issued from and after the date hereof, when
issued and delivered by the Company as described in the Registration Statement,
will be legally issued and fully paid and non-assessable; and the issuance of
such Shares is not subject to preemptive rights.
<PAGE>
In rendering the foregoing opinions, we express no opinion as
to the laws of any jurisdiction other than the State of Minnesota. We hereby
consent to the filing of this opinion letter as an exhibit to the Registration
Statement.
Very truly yours,
/s/ DORSEY & WHITNEY LLP
JDA
EXHIBIT (j)
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Custodian; Counsel;
Auditors" and to the use of our report dated April 14, 2000, included in this
Registration Statement (Form N-1A) and related Prospectus of the Large Cap
Growth Portfolio, Technology Portfolio and International Fund of the First
American Insurance Portfolios, Inc. filed with the Securities and Exchange
Commission in this Pre-Effective Amendment No. 3 under the Securities Act of
1933 (Registration No. 333-93883) and Amendment No. 3 under the Investment
Company Act of 1940 (Registration No. 811-09765).
ERNST & YOUNG LLP
Minneapolis, Minnesota
April 18, 2000
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Shareholder and Board of Directors
First American Insurance Portfolios, Inc.
We have audited the accompanying statements of assets and liabilities of the
First American Insurance Portfolios, Inc. (comprised of the Large Cap Growth,
Technology and International Portfolios) as of April 14, 2000 and the related
statements of operations for the period from August 27, 1999 (organization of
the Portfolios) to April 14, 2000. These financial statements are the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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. Our
procedures included confirmation of cash in bank on demand deposit as of April
14, 2000, by correspondence with the bank. 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, the financial statements referred to above present fairly, in
all material respects, the financial position of each of the respective
portfolios constituting the First American Insurance Portfolios, Inc. at April
14, 2000 and the results of their operations for the period from August 27, 1999
to April 14, 2000, in conformity with accounting principles generally accepted
in the United States.
Minneapolis, Minnesota
April 14, 2000
EXHIBIT (l)
FIRST AMERICAN INSURANCE PORTFOLIOS, INC.
STATEMENTS OF ASSETS AND LIABILITIES
APRIL 14, 2000
<TABLE>
<CAPTION>
LARGE CAP
GROWTH TECHNOLOGY INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
<S> <C> <C> <C>
ASSETS:
Cash in bank on demand deposit $ 30,000 $40,000 $30,000
Deferred offering expenses (note 3) 4,800 6,300 4,800
-------- ------ ------
Total Assets 34,800 46,300 34,800
-------- ------ ------
LIABILITIES:
Organization expenses payable (note 3) 4,800 6,300 4,800
-------- ------ ------
Total Liabilities 4,800 6,300 4,800
-------- ------ ------
NET ASSETS APPLICABLE TO OUTSTANDING SHARES $ 30,000 $40,000 $30,000
======== ====== ======
NET ASSETS ARE COMPOSED OF THE FOLLOWING:
Capital stock - authorized 100 billion shares ($0.01 par value) for
each Portfolio $ 30 $ 40 $ 30
Additional paid-in capital 29,970 39,960 29,970
TOTAL - REPRESENTING NET ASSETS APPLICABLE TO
-------- ------ ------
OUTSTANDING CAPITAL STOCK $ 30,000 $40,000 $30,000
======== ====== ======
SHARES OUTSTANDING 3,000 4,000 3,000
======== ====== ======
NET ASSET VALUE PER SHARE OF OUTSTANDING CAPITAL STOCK $ 10.00 $ 10.00 $ 10.00
======== ====== ======
</TABLE>
See accompanying Notes to Financial Statements.
FIRST AMERICAN INSURANCE PORTFOLIOS, INC.
STATEMENTS OF OPERATIONS
APRIL 14, 2000
LARGE CAP
GROWTH TECHNOLOGY INTERNATIONAL
PORTFOLIO PORTFOLIO PORTFOLIO
--------- --------- ---------
INVESTMENT INCOME $ -- $ -- $ --
------ ------ ------
EXPENSES:
Organization expenses 4,800 6,300 4,800
Expenses reimbursed by the advisor (4,800) (6,300) (4,800)
------ ------ ------
Total expenses -- -- --
------ ------ ------
NET INVESTMENT INCOME $ -- $ -- $ --
====== ====== ======
See accompanying Notes to Financial Statements.
<PAGE>
FIRST AMERICAN INSURANCE PORTFOLIOS, INC.
NOTES TO FINANCIAL STATEMENTS
APRIL 14, 2000
(1) ORGANIZATION
First American Insurance Portfolios, Inc. (the Company) was incorporated on
August 27, 1999, and is registered under the Investment Company Act of 1940
(as amended) as a single, open-end management investment company that
currently includes 3 portfolios, Large Cap Growth Portfolio, Technology
Portfolio and International Portfolio (the Portfolios). The only
transactions of First American Insurance Portfolios, Inc. have been the
sale of 3,000 shares of Large Cap Growth Portfolio, 4,000 shares of
Technology Portfolio, and 3,000 shares of International Portfolio to U.S.
Bank National Association on April 14, 2000.
(2) FEDERAL TAXES
The Portfolios intend to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
taxable income to the shareholders in amounts that will avoid federal
income and excise taxes.
(3) FEES AND EXPENSES
The Company has entered into an investment advisory agreement with U.S.
Bank National Association (the Advisor) under which the Advisor manages the
Portfolios' assets and furnishes related office facilities, equipment,
research and personnel. The agreement requires the Portfolios to pay the
Advisor a monthly fee based on average daily net assets. The fee is equal
to an annualized rate of 0.70% for Large Cap Growth Portfolio and
Technology Portfolio and 1.25% for International Portfolio.
Marvin & Palmer Associates, Inc. serves as Sub-Advisor to the International
Portfolio pursuant to an Sub-Advisory Agreement with the Advisor. Marvin &
Palmer is paid a monthly fee by the Advisor calculated on an annual basis
to equal 0.75% of the first $100 million average daily net assets, and
declining percentages to 0.40% of average daily net assets in excess of
$500 million.
U.S. Bank National Association also provides administrative services,
including certain accounting, legal and shareholder services for a monthly
administrator fee calculated at an annualized rate equal to 0.12% of each
Portfolio's average daily net assets with a minimum annual fee of $50,000
per portfolio. The Company is affiliated with the First American Family of
Funds to the extent that the aggregate net assets of the First American
Family of Funds exceed $8 billion, each Portfolio's annual fee is reduced
to 0.105% for their relative share of the excess net assets. Each Portfolio
is currently subject to the $50,000 minimum annual fee.
Through a separate contractual agreement, U.S. Bank National Association
serves as the Portfolios' custodian. The fee for Large Cap Growth Portfolio
and Technology Portfolio is equal to an annual rate of 0.03% of each
Portfolio's average daily net assets. The fee for International Portfolio
is equal to an annualized rate of 0.10% of average daily net assets. All
fees are computed daily and paid monthly.
In addition to the investment advisory, administrative and custody fees,
the Portfolios are responsible for paying most other operating expenses
including outside directors' fees and expenses, printing and shareholder
reports, transfer agent fees and expenses, legal and auditing services,
insurance, interest and other miscellaneous expenses.
For the fiscal year ended December 31, 2000, U.S. Bank National Association
has agreed to voluntarily limit total fees and expenses of the Portfolios
to an annual rate of 0.80%, 0.90% and 1.45% of average daily net assets of
Large Cap Growth Portfolio, Technology Portfolio and International
Portfolio, respectively.
Costs incurred in connection with the organization of the Portfolios,
estimated at $15,900, will be borne by the Portfolios, subject to the
expense limitation agreement described above.
EXHIBIT (p)
FAAM POLICY & PROCEDURE MANUAL - CODE OF ETHICS, PERSONAL
SECURITIES TRADING
- --------------------------------------------------------------------------------
PROCEDURE NAME: FAAM CODE OF ETHICS
PROCESS REF. #: FAAM 101
CONTACT NAME: CHRIS GRIFFIN
AUTHOR: CHRIS GRIFFIN
APPROVAL DATE: 3/29/99
RELATED POLICY: USBC 101, 102, FAAM 301
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PURPOSE
- --------------------------------------------------------------------------------
While affirming its confidence in the integrity and good faith of all its
employees, officers and directors, First American Asset Management ("FAAM"), a
division of U.S. Bank National Association, recognizes that the knowledge of
present or future portfolio transactions and, in certain instances, the power to
influence portfolio transactions made by or for the First American Funds, Inc.
and the First American Investment Funds, Inc. (collectively, the "Funds") may
place such individuals, if they engage in Personal Securities Transactions in
securities which are eligible for investment by the Funds, in a position where
their personal interest may conflict with that of the Funds.
In view of the above and of the provisions of Rule 17j-1(b)(1) under the
Investment Company Act of 1940 (the "1940 Act") and other regulations and legal
considerations, FAAM has determined to adopt this Code of Ethics to specify and
prohibit certain types of transactions which would create conflicts of interest
(or at least the potential for the appearance of conflicts of interest), and to
establish reporting requirements and enforcement procedures. This Code
supplements but does not supersede or contradict the U.S. Bancorp ("USBC") Code
of Ethics and applicable USBC Trust policies and procedures.
- --------------------------------------------------------------------------------
SCOPE
- --------------------------------------------------------------------------------
The attached Code of Ethics, (Appendix A), applies to all individuals defined as
general access personnel or restricted access personnel by section II of the
code. This includes all FAAM employees engaged in making investment decisions or
supporting the investment process regarding marketable securities and other
employees of U.S. Bancorp, (permanent, temporary and contractors), as defined in
the code.
FAAM 101 - 1
<PAGE>
- --------------------------------------------------------------------------------
PROCEDURE
- --------------------------------------------------------------------------------
TASK/ACTION RESPONSIBILITY
- --------------------------------------------------------------------------------
For Newly Hired and Transferring Access Personnel
* Provide the Code of Ethics to new or transferred access FAAM Compliance
personnel coincident with their hire or transfer date. Officer
* Conduct training/orientation regarding the Code of FAAM Compliance
Ethics and related procedures in groups or in Officer
one-on-one meetings, as appropriate. This must be done
within 10 business days of their hire or transfer.
* Review the Code of Ethics and complete the attached Access Personnel
signoff form within 10 business days of receipt. Return
the signoff forms to FAAM Compliance Officer.
For Annual Review or Code of Ethics Revisions
* Distribute the Code of Ethics and the annual signoff FAAM Compliance
form to all access personnel according to the annual Officer
schedule as defined by FAAM compliance officer.
Complete special distributions of the Code of Ethics
and signoff forms to all access personnel when changes
in the Code of Ethics occur.
* Review the Code of Ethics, or revisions to the Code, Access Personnel
then complete the signoff form and return it to FAAM
Compliance Officer within 10 business days of receipt.
FAAM 101 - 2
<PAGE>
- --------------------------------------------------------------------------------
FAAM CODE OF ETHICS
- --------------------------------------------------------------------------------
APPENDIX A
I. STATEMENT OF GENERAL PRINCIPLES
(1) The interests of the Funds are paramount, and all of FAAM's
employees must conduct themselves and their operations to give
maximum effect to this principle by constantly placing the
interests of the Funds before their own.
(2) All Personal Securities Transactions by FAAM's employees must
be accomplished so as to avoid even the appearance of a
conflict of interest on the part of such personnel with the
interests of the Funds.
(3) All of FAAM's employees must avoid actions or activities that
allow (or appear to allow) a person to profit or benefit from
his or her position with respect to the Funds, or that
otherwise bring into question the person's independence or
judgment.
(4) A General Access or Restricted Access Person shall act on his
or her best judgment in effecting or recommending, or deciding
not to effect or recommend, any transaction on behalf of or to
a Fund or trust client. A General Access or Restricted Access
Person shall not take into consideration his or her personal
financial situation in connection with decisions regarding
portfolio transactions by or on behalf of a Fund or trust
client.
(3) No General Access or Restricted Access Person shall divulge to
any person contemplated or completed securities transactions
of any Fund, except in the performance of his or her duties,
unless such information previously has become a matter of
public knowledge.
II. DEFINITIONS
(1) "General Access Person" shall be each employee of FAAM who, in
connection with his or her regular functions or duties obtains
information regarding the purchase or sale of securities by
the Funds, or who obtains any information concerning which
securities are being recommended prior to the effective
dissemination of such recommendations, and any other USBC
employee, (permanent, temporary or contracted) who obtains
information concerning recommendations made by FAAM with
respect to the purchase or sale of a security by the Funds.
(2) "Restricted Access Person" shall be each employee of FAAM who,
in connection with his or her regular functions or duties,
makes or participates in the making of any recommendations
regarding the purchase or sale of securities by the Funds.
Restricted access persons includes proprietary fund managers,
research analysts, securities lending staff, traders, and
administrative staff that support these functions.
FAAM 101 - 3
<PAGE>
- --------------------------------------------------------------------------------
FAAM CODE OF ETHICS
- --------------------------------------------------------------------------------
APPENDIX A
(3) "Personal Securities Transaction" means a transaction in a
Security in which an individual has or thereby acquired
Beneficial Ownership. A person shall be considered to be
"engaging in" or "effecting" a Personal Securities Transaction
if such a Security is involved, regardless of whether the
transaction is effected by that person or by some other person
(such as an immediate family member).
(4) "Beneficial Ownership" of a security is to be determined in
the same manner as it is for purposes of Section 16a-1(a)(2)
of the Securities Exchange Act of 1934 ("1934 Act"). This
means that a person should generally consider themselves the
beneficial owner of any securities in which they have a direct
or indirect financial interest. In addition, persons should
consider themselves the beneficial owner of securities held by
their spouse, minor children, relatives who share their home,
or other persons by reason of any contract, arrangement,
understanding or relationship that provides them with sole or
shared voting or investment power.
Although the following list is not exhaustive, under the 1934
Act and this Code a person generally would be regarded to be
the beneficial owner of the following securities:
(A) securities held in the person's own name;
(B) securities held with another in joint tenancy, community
property or other joint ownership;
(C) securities held by a bank or broker as nominee or
custodian on such person's behalf or pledged as collateral
for a loan;
(D) securities held by members of the person's immediate
family sharing the same household ("immediate family"
means any child, stepchild, grandchild, parent,
stepparent, grandparent, spouse, sibling, mother-in-law,
father-in-law, son-in-law, daughter-in-law, brother-in-law
or sister-in-law, including adoptive relationships);
(E) securities held by a relative not residing in the person's
home if the person is a custodian, guardian or otherwise
has or shares control over the purchase, sale or voting of
such securities;
(F) securities held by a trust in which the person is a
beneficiary and has or shares the power to make purchase
or sale decisions;
(G) securities held by a trust for which the person serves as
a trustee and in which the person has a pecuniary interest
(including pecuniary interests by virtue of performance
fees and by virtue of holdings by the person's immediate
family);
(H) securities held by a general partnership or limited
partnership in which the person is a general partner;
(I) securities owned by a corporation in which the person has
a control position or in which the person has or shares
investment control over the portfolio securities (other
than a registered investment company);
FAAM 101 - 4
<PAGE>
- --------------------------------------------------------------------------------
FAAM CODE OF ETHICS
- --------------------------------------------------------------------------------
APPENDIX A
(J) securities in a portfolio giving the person certain
performance-related fees;
(K) securities held by another person or entity pursuant to
any agreement, understanding, relationship or other
arrangement giving the person any direct or indirect
pecuniary interest.
(5) "Control" shall have the same meaning as that set forth in
Section 2(a)(9) of the 1940 Act. Section 2(a)(9) provides that
"control" means the power to exercise a controlling influence
over the management or policies of a company, unless such
power is solely the result of an official position with such
company. Ownership of 25% or more of a company's outstanding
voting security is presumed to the holder thereof control over
the company. Such presumption may be countered by the facts
and circumstances of a given situation.
(6) "Fund Manager" means any FAAM employee entrusted with the
direct responsibility and authority to make investment
recommendations to any Fund or investment decisions with
respect to a Fund.
(7) "Purchase or sale of a security" includes, among other things,
the writing of an option to purchase or sell a security.
(8) "Research Analyst" means any FAAM employee with the
responsibility to make investment recommendations to any Fund
Manager.
(9) A Security is "being purchased or sold" by the Funds from the
time when a purchase or sale program has been communicated to
the trader until the time when such program has been fully
completed or terminated.
(10) "Security" shall have the same meaning as that set forth in
Section 2(a)(36) of the 1940 Act ("i.e., any note, stock,
treasury stock, bond, debenture, evidence of indebtedness,
certificate of interest or participation in any profit-sharing
agreement, collateral-trust certificate, reorganization
certificate or subscription, transferable share, investment
contract, voting-trust certificate, certificate of deposit for
a security, fractional undivided interest in oil, gas, or
other mineral rights, any put, call, straddle, option, or
privilege on any security (including a certificate of deposit)
or on any group or index of securities (including any interest
therein or based on the value thereof), or any put, call,
straddle, option, or privilege entered into on a national
securities exchange relating to foreign currency, or, in
general, any interest or instrument commonly known as a
`security', or any certificate of interest or participation
in, temporary or interim certificate for, receipt for,
guarantee of, or warrant or right to subscribe to or purchase,
any of the foregoing"), except that it shall not include
securities issued by the Government of the United States or an
agency thereof, bankers' acceptances, bank certificates of
deposit, commercial paper, shares of registered open-end
investment companies and shares of bank common and collective
funds.
(11) "Watchlist" shall be the daily list of Securities being
recommended and intended for recommendation for trading by the
Funds.
FAAM 101 - 5
<PAGE>
- --------------------------------------------------------------------------------
FAAM CODE OF ETHICS
- --------------------------------------------------------------------------------
APPENDIX A
III PROHIBITED PURCHASES AND SALES OF SECURITIES
(1) No General Access Person or Restricted Access Person shall, in
connection with the purchase or sale, directly or indirectly
of a Security held or to be acquired by the Funds:
(A) employ any device or scheme to defraud any such
Funds;
(B) make to such Funds any untrue statement of a material
fact or omit to state to such Funds a material fact
necessary in order to make the statements made, in
light of the circumstances under which they are made,
not misleading;
(C) engage in any act, practice or course of business
which would operate as a fraud or deceit upon such
Funds; or
(D) engage in any manipulative practice with respect to
any of the Funds.
(2) No Restricted Access Person shall purchase or sell, directly
or indirectly, any Security in which they have any Beneficial
Ownership on a day during which any Fund has a pending "buy"
or "sell" order for the same Security until that order is
executed or withdrawn, or if that Security is under active
consideration by a Fund Manager as indicated on the daily
"Watchlist," except for those items in III (4) (A)-(G)
below.
(3) No General Access Person shall purchase or sell, directly or
indirectly, any Security in which they have any Beneficial
Ownership on a day during which any Fund has a pending "buy"
or "sell" order for the same Security until that order is
executed or withdrawn except for those items in III (4)
(A)-(G) below.
(4) No Restricted Access Person shall purchase or sell, directly
or indirectly, any Security in which they have any Beneficial
Ownership, within 7 calendar days before or after the time
that the same (or a related) Security is being purchased or
sold by any Funds that he or she manages, or within 7 calendar
days before or after they recommend a Security transaction
except for:
(A) Purchases or sales over which the person has no
direct or indirect influence or control.
(B) Purchases or sales which are non-volitional on the
part of the person, including purchases or sales upon
exercise of puts or calls written by the person and
sales from a margin account pursuant to a bona fide
margin call.
(C) Purchases which are part of an automatic dividend
reinvestment plan.
(D) Purchases effected upon the exercise of rights issued
by an issuer pro rata to all holders of a class of
its Securities, to the extent such rights were
acquired from such issuer.
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(E) Purchases or sales of U.S. Treasury or agency
securities, bank CD's, bankers' acceptances,
commercial paper, shares of registered open-end
investment companies or bank common and collective
funds.
(F) Purchases or sales of S&P 500 securities that are not
held by any Funds other than the First American
Investment Funds Equity Index or Asset Allocation
Funds.
(G) Purchases of an employer's stock under employer
sponsored plans (including spouse or partner's
employer plans).
(5) No General Access or Restricted Access Person may acquire
Securities as part of an initial public offering by the
issuer.
(6) No Restricted Access Person shall purchase and sell or sell
and purchase a Security within 60 calendar days of acquiring
Beneficial Ownership of that Security except for circumstances
outlined in III (4)(B) and III (4)(E) above, however, such
prohibition may be waived by the Review Officer in the event
that an Restricted Access Person presents special
circumstances provided that the transaction presents no
reasonable likelihood of harm to the Funds. General Access
Persons are allowed to purchase and sell or sell and purchase
a Security within 60 calendar days of acquiring Beneficial
Ownership of that Security. However, the practice of
short-term trading is discouraged for General Access Persons.
(7) Personal Securities Transactions involving privately placed
Securities shall be limited as follows:
(A) No General Access or Restricted Access Person shall
engage in a Securities transaction that involves a
private placement of Securities without the express
prior written approval of the Review Officer. In
reviewing any request for such approval, the Review
Officer shall consider, among other factors, whether
the investment opportunity should be reserved for a
Fund, and whether the opportunity is being offered to
the requesting individual by virtue of his or her
position with FAAM, USBC or USBNA.
(B) General Access and Restricted Access Persons who have
a Beneficial Ownership interest in any Securities
obtained through a private placement shall disclose
any such interest to the Review Officer if and when
they become involved in any subsequent consideration
of an investment in the Securities of the same issuer
for any Fund. In such case, the decision to invest in
the Securities of such an issuer on behalf of a Fund
shall be subject to the review and approval of a Fund
Manager appointed by the Review Officer who has no
personal interest in such issuer.
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IV. PRE-CLEARANCE OF TRANSACTIONS
(1) Except as provided below, each General Access and Restricted
Access Person must pre-clear each proposed Personal Securities
Transaction in Securities with FAAM's designated Review
Officer or an individual designated by the Review Officer
prior to proceeding with the transaction. No transaction in
Securities may be effected without the prior written approval
of the Review Officer or his or her designee. Pre-clearance
approval is effective only on the day of approval.
(2) The following transactions will not require pre-clearance:
(A) Purchases or sales over which the person has no
direct influence or control.
(B) Purchases or sales which are non-volitional on the
part of the person, including purchases or sales upon
exercise of puts or calls written by the person and
sales from a margin account pursuant to a bona fide
margin call.
(C) Purchases which are part of an automatic dividend
reinvestment plan.
(D) Purchases effected upon the exercise of rights issued
by an issuer pro-rata to all holders of a class of
its Securities, to the extent such rights were
acquired from such issuer.
(E) Purchases or sales of U.S. Treasury or agency
securities, bank CD's, bankers' acceptances,
commercial paper, shares of registered open-end
investment companies or shares of bank common and
collective funds.
(F) Purchases of an employer's stock under employer
sponsored plans (including spouse or partner's
employer plans).
(3) The following transactions shall be entitled to clearance from
the Review Officer or his or her designee.
(A) Transactions which appear upon reasonable inquiry and
investigation to present no reasonable likelihood of
harm to the Funds and which are otherwise in
accordance with Rule 17j-1.
(B) Transactions which the officers of FAAM, as a group
and after consideration of all the facts and
circumstances, determine to be in accordance with
Section III and to present no reasonable likelihood
of harm to the Funds.
(C) Purchases or sales of S&P 500 securities that are not
held by any Funds other than the First American
Investment Funds Equity Index or Asset Allocation
Funds.
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(4) The Review Officer will conduct a review of the previous seven
days' trades in the Funds for all Restricted Access Persons
prior to granting pre-clearance.
(5) (A) Absent extraordinary circumstances, no General Access
Person shall be deemed to have violated the Code for
effecting a Personal Securities Transaction in
Securities, if such Access Person has been advised by
the Review Officer, or an individual designated by
the Review Officer, that the transaction would be
consistent with this Code.
(B) A Restricted Access Person shall be deemed to have
violated the Code for effecting a personal
transaction within the seven day period before a
trade by a Fund, even though they had previously been
advised by the Review Officer, or an individual
designated by the Review Officer, that the
transaction would be consistent with the Code.
V. ADDITIONAL RESTRICTIONS AND REQUIREMENTS
(1) No General Access or Restricted Access Person shall accept or
receive any gift or other thing of more than de minimus value
from any person or entity that does business with or on behalf
of U.S. Bancorp or the Funds. This policy covers, among other
things, gifts, favors, gratuities and social invitations
offered by any broker, Fund, supplier, or other person or
organization with whom U.S. Bancorp has a business
relationship.
(2) No General Access or Restricted Access Person may accept a
position as a director, trustee or general partner of a
publicly-traded company unless such position has been
presented to and approved in writing by FAAM Senior Management
and IFS General Counsel or the FAAM Compliance Director and,
if applicable, by the First American Board of Directors, as
consistent with the interests of the Funds and its
shareholders.
(3) Each General Access and Restricted Access Person must direct
each brokerage firm or bank at which such person maintains a
Securities account to promptly send duplicate copies of such
person's confirmations to the Review Officer. The Employee is
responsible for providing trade documentation to the Review
Officer in a case where no automatic trade confirmation is
available.
(4) Each General Access and Restricted Access Person shall not
divulge to any person contemplated or completed Securities
transactions of any Fund, except in the performance of his or
her duties, unless such information previously has become a
matter of public knowledge.
FAAM 101 - 9
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(5) No General Access or Restricted Access Person may seek any
benefit for himself or herself, a Fund, or anyone else from
material, non-public information about issuers, whether or not
the Securities of such issuers are held in Fund portfolios or
suitable for inclusion in their portfolios. Any Employee who
believes he or she is in possession of such information should
contact the Review Officer immediately. This prohibition does
not preclude an Employee from contacting officers and
employees of issuers or other investment professionals in
seeking information about issuers that is publicly available.
For further guidance in this regard, consult USBC's policies
and procedures concerning the misuse of material non-public
information.
VI. REPORTING OBLIGATION
(1) FAAM shall create and thereafter maintain a list of all
General Access and Restricted Access Persons.
(2) Each General Access and Restricted Access Person shall report
all transactions in Securities in which the person has, or by
reason of such transaction acquires, any direct or indirect
Beneficial Ownership.
(3) Each General Access and Restricted Access Person shall
annually certify that they have read and understand this Code
of Ethics and recognize that they are subject thereto, have
complied with the requirements of the Code and have disclosed
and reported all personal Securities transactions required to
be disclosed or reported pursuant to the requirements of the
Code.
VII. REPORTS
(1) Quarterly reports shall be filed by each General Access and
Restricted Access Person with the Review Officer. The Review
Officer shall submit confidential quarterly reports with
respect to his or her own personal securities transactions to
an officer designated to receive his or her reports
("Alternate Review Officer") who shall act in all respects in
the manner prescribed herein for the Review Officer.
(2) Any such report may contain a statement that the report shall
not be construed as an admission by the person making such
report that he has any direct or indirect beneficial ownership
in the security to which the report relates.
(3) Every General Access and Restricted Access Person shall
specially note and report the name of any publicly-owned
company (or any company anticipating a public offering of its
equity securities) and the total number of its shares
beneficially owned by him if such ownership is more than 1/2
of 1% of the company's outstanding shares.
(4) Every report shall be made not later than 10 days after the
end of the calendar quarter in which the transaction to which
the report relates was effected, and shall contain the
following information:
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(A) The date of the transaction, the title and the number
of shares or the principal amount of each security;
(B) The nature of the transaction (i.e., purchase, sale
or any other type of acquisition or disposition);
(C) The price at which the transaction was effected;
(D) The name of the broker, dealer or bank with or
through whom the transaction was effected; and
(E) A signature and the date the report was signed.
(5) In the event no reportable transactions occurred during the
quarter, the report should be so noted and returned signed and
dated.
VIII. REVIEW AND ENFORCEMENT
(1) The Review Officer shall compare all reported personal
Securities transactions with completed portfolio transactions
of the Funds, pre-clearance forms and the daily Watchlist to
determine whether a violation of this Code may have occurred.
Before making any determination that a violation has been
committed by any person, the Review Officer shall give such
person an opportunity to supply additional explanatory
material.
(2) At least quarterly, the Review Officer, or an individual
designated by the Review Officer, shall review the records of
each General Access and Restricted Access Person's Personal
Securities Transactions for the preceeding time period, to
determine whether such transactions comply with the provisions
of the Code.
(3) If the Review Officer determines that a violation of this Code
may have occurred, he or she shall submit his or her written
determination, together with the confidential report and any
additional explanatory material provided by the individual, to
the IFS General Counsel, who shall make an independent
determination as to whether a violation has occurred.
(4) If the IFS General Counsel finds that a violation has
occurred, the IFS General Counsel may, if warranted by the
circumstances, impose upon the individual such sanctions as he
or she deems appropriate and shall report the violation and
the sanction imposed to the Senior Manager of IFS, the Vice
Chairman for the IFS Group and the USBC General Counsel and,
if applicable, to the First American Funds Board of Directors.
Such sanctions may include disgorgement of profits in
accordance with VIII (4) hereof, a reduction in salary or
position, suspension without pay, dismissal and/or any other
reasonable or appropriate sanction.
FAAM 101 - 11
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(5) In addition to any other sanction imposed under Section VIII
(4) hereof, any profits realized on Personal Securities
Transactions effected in violation of Section III hereof must
be disgorged and contributed to the appropriate Fund. Each
Personal Securities Transaction will be considered
individually and there will be no netting of profits and
losses incurred in the case of multiple Personal Securities
Transactions effected in violation of the Code. If a violation
involves more than one Fund, profits shall be allocated among
the affected Funds in proportion to the relative assets of the
Funds' portfolios as of the date of the violation. Should the
violation not involve any Fund (for example, in the case of
short-swing profits in violation of Section III (6)), profits
shall be paid to a charitable organization chosen at the
discretion of the IFS Legal Counsel.
(6) No person shall participate in a determination of whether he
or she has committed a violation of the Code or of the
imposition of any sanction against himself or herself. If a
Securities transaction of the IFS Legal Counsel is under
consideration, the USBC General Counsel shall act in all
respects in the manner prescribed herein for the IFS Legal
Counsel.
(7) Any General or Restricted Access Person who discovers a
violation or apparent violation of this Code by any other
person shall bring the matter to the attention of the Review
Officer.
IX. RECORDS
FAAM shall maintain records in the manner and to the extent set forth
below, which records shall be available for examination by
representatives of the Securities and Exchange Commission.
(1) A copy of this Code and any other code which is, or at any
time within the past five years has been, in effect shall be
preserved in an easily accessible place;
(2) A record of any violation of this Code and any action taken as
a result of such violation shall be preserved in an easily
accessible place for a period of not less than five years
following the end of the fiscal year in which the violation
occurs;
(3) A copy of each report made by each General Access and
Restricted Access Person pursuant to this Code shall be
preserved for a period of not less than five years from the
end of the fiscal year in which it is made, the first two
years in an easily accessible place; and
(4) A list of all General Access and Restricted Access Persons who
are, or within the past five years have been, required to make
reports pursuant to this Code shall be maintained in an easily
accessible place.
X. MISCELLANEOUS
(1) All reports of securities transactions and any other
information filed pursuant to this Code shall be treated as
confidential and maintained in a secured location.
(2) FAAM may from time to time adopt such interpretations of this
Code as it deems appropriate.
FAAM 101 - 12
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APPENDIX A
(3) The IFS General Counsel or the FAAM Compliance Director shall
report to the IFS Risk Oversight Committee and the Board(s) of
the First American Funds complexes at least annually as to the
operation of this Code and shall address in any such report
the following:
(A) a summary of existing procedures concerning personal
investing and any changes in the procedures made
during the past year;
(B) a list of any violations that required significant
remedial action during the past year, including
details of such violations and the action taken; and
(C) any recommended changes in existing restrictions or
procedures based upon experience under the Code,
evolving industry practices or developments in
applicable laws or regulation.
FAAM 101 - 13
