-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Itylpvg8kiKBMbVlHUf+l6J0YYuBm31d16HhquT+nSTM/0qGI/PHQdBa9XJSnsNk d+VakOuEpIS2fEyhKNrjDw== 0000912057-01-007137.txt : 20010307 0000912057-01-007137.hdr.sgml : 20010307 ACCESSION NUMBER: 0000912057-01-007137 CONFORMED SUBMISSION TYPE: N-4/A PUBLIC DOCUMENT COUNT: 11 FILED AS OF DATE: 20010302 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN FAMILY VARIABLE ACCOUNT II CENTRAL INDEX KEY: 0001122003 STANDARD INDUSTRIAL CLASSIFICATION: [] FILING VALUES: FORM TYPE: N-4/A SEC ACT: SEC FILE NUMBER: 333-45592 FILM NUMBER: 1560239 FILING VALUES: FORM TYPE: N-4/A SEC ACT: SEC FILE NUMBER: 811-10121 FILM NUMBER: 1560240 BUSINESS ADDRESS: STREET 1: 6000 AMERICAN PARKWAY CITY: MADISON STATE: WI ZIP: 53783 BUSINESS PHONE: 6082424100X31689 MAIL ADDRESS: STREET 1: 6000 AMERICAN PARKWAY CITY: MADISON STATE: WI ZIP: 53783 N-4/A 1 a2039901zn-4a.txt N-4/A As Filed with the Securities and Exchange Commission on March 2, 2001 Registration File No. 333-45592 811-10121 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 ------------------------ FORM N-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 PRE-EFFECTIVE AMENDMENT NO. 1 REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 AMENDMENT NO. 1 AMERICAN FAMILY VARIABLE ACCOUNT II (EXACT NAME OF REGISTRANT) AMERICAN FAMILY LIFE INSURANCE COMPANY (NAME OF DEPOSITOR) 6000 AMERICAN PARKWAY MADISON, WISCONSIN 53783-0001 (COMPLETE ADDRESS OF DEPOSITOR'S PRINCIPAL EXECUTIVE OFFICES) JAMES F. ELDRIDGE, ESQ. AMERICAN FAMILY LIFE INSURANCE COMPANY 6000 AMERICAN PARKWAY MADISON, WISCONSIN 53783-0001 (NAME AND COMPLETE ADDRESS OF AGENT FOR SERVICE) COPY TO: STEPHEN E. ROTH, ESQ. SUTHERLAND ASBILL & BRENNAN LLP 1275 PENNSYLVANIA AVENUE, N.W. WASHINGTON, D.C. 20004-2415 It is proposed that this filing will become effective as soon as practicable after the effective date. TITLE OF SECURITIES BEING OFFERED: Flexible Premium Variable Annuity Contracts. The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine. PROSPECTUS ___ __, 2001 Please read this prospectus carefully before investing, and keep it for future reference. It contains important information about the American Family Variable Annuity Contract (the "Contract"). To learn more about the Contract, you may want to read the Statement of Additional Information dated ____ ___, 2001 (known as the "SAI"). For a free copy of the SAI, contact Us at: American Family Life Insurance Company ADMINISTRATIVE SERVICE CENTER P.O. Box 1296 Greenville, SC 29602 1-888-428-5433 (toll free) We have filed the SAI with the U.S. Securities and Exchange Commission ("SEC") and have incorporated it by reference into this prospectus. (It is legally a part of this prospectus.) The SAI's table of contents appears at the end of this prospectus. The SEC maintains an Internet website (http://www.sec.gov) that contains the SAI and other information about Us. You may also read and copy these materials at the SEC's public reference room in Washington, D.C. Call 1-800-SEC-0330 for information about the SEC's public reference room. VARIABLE ANNUITY CONTRACTS INVOLVE CERTAIN RISKS, AND YOU MAY LOSE SOME OR ALL OF YOUR INVESTMENT. - The investment performance of the portfolios in which the Subaccounts invest will vary. - We do not guarantee how any of the portfolios will perform. - The Contract is not a deposit or obligation of any bank, and no bank endorses or guarantees the Contract. - Neither the U.S. Government nor any Federal agency insures your investment in the Contract. AMERICAN FAMILY VARIABLE ANNUITY CONTRACT FLEXIBLE PREMIUM VARIABLE ANNUITY issued by AMERICAN FAMILY LIFE INSURANCE COMPANY through the AMERICAN FAMILY VARIABLE ANNUITY ACCOUNT II HOME OFFICE 6000 American Parkway Madison, Wisconsin 53783-0001 Telephone: (888) 428-5433 The American Family Variable Annuity Contract (the "Contract") has 10 funding choices -- one Fixed Account (paying a guaranteed minimum fixed rate of interest) and 9 Subaccounts. The Subaccounts invest in the following 9 portfolios: FEDERATED INSURANCE SERIES - Federated Quality Bond Fund II - Federated International Equity Fund II FIDELITY VARIABLE INSURANCE PRODUCTS FUND - Fidelity VIP Growth Portfolio - Fidelity VIP Equity-Income Portfolio FIDELITY VARIABLE INSURANCE PRODUCTS FUND II - Fidelity VIP II ContraFund-Registered Trademark- Portfolio FIDELITY VARIABLE INSURANCE PRODUCTS FUND III - Fidelity VIP III Growth and Income Portfolio SEI INSURANCE PRODUCTS TRUST - SEI VP Prime Obligation Fund STRONG VARIABLE INSURANCE FUNDS, INC. - Strong MidCap Growth Fund II STRONG OPPORTUNITY FUND II, INC. - Strong Opportunity Fund II 1 A PROSPECTUS FOR EACH OF THE PORTFOLIOS AVAILABLE THROUGH THE VARIABLE ACCOUNT MUST ACCOMPANY THIS PROSPECTUS. PLEASE READ THESE DOCUMENTS BEFORE INVESTING AND SAVE THEM FOR FUTURE REFERENCE. THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE CONTRACT OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 2 TABLE OF CONTENTS GLOSSARY.......................................................................5 HIGHLIGHTS.....................................................................7 The Contract.....................................................7 How to Invest....................................................7 Cancellation-- The 10 Day Free-Look Period.......................8 Investment Options...............................................8 Transfers........................................................8 Access to Your Money.............................................9 Death Benefit....................................................9 Fees and Charges................................................10 Settlement Options..............................................11 Federal Tax Status..............................................11 Inquiries.......................................................12 FEE TABLE.....................................................................13 CONDENSED FINANCIAL INFORMATION...............................................16 ABOUT AMERICAN FAMILY LIFE INSURANCE COMPANY AND THE VARIABLE ACCOUNT.........16 American Family Life Insurance Company..........................16 Third Party Administrator.......................................20 THE ACCUMULATION PERIOD.......................................................20 Purchasing a Contract...........................................20 Cancellation-- The 10 Day Free-Look Period......................20 Designating Your Investment Options.............................20 Additional Premium Payments.....................................21 Planned Premium Payments........................................21 YOUR ACCUMULATION VALUE.......................................................22 Accumulation Value..............................................22 Surrender Value.................................................22 Subaccount Value................................................22 Unit Value......................................................22 Fixed Account Accumulation Value................................23 TRANSFERS BETWEEN INVESTMENT OPTIONS..........................................24 Dollar Cost Averaging...........................................24 Automatic Asset Reallocation....................................26 Excessive Trading Limits........................................26 Telephone Transfers.............................................26 Transfer Fee....................................................27 ACCESS TO YOUR MONEY..........................................................27 Surrenders......................................................27 Partial Surrenders..............................................27 Systematic Withdrawal Plan......................................28 DEATH BENEFIT.................................................................29 Death Benefit Before the Annuity Commencement Date..............29 Death Benefit Payable...........................................29 Death of the Annuitant..........................................29 Death of Owner..................................................29 FEES AND CHARGES..............................................................30 Mortality and Expense Risk Charge...............................30 Asset-Based Administration Charge...............................30 Partial Surrender Processing Fee................................31 3 Transfer Fee....................................................31 Surrender Charge................................................31 Annual Policy Fee...............................................32 Portfolio Management Fees and Charges...........................32 Premium Taxes...................................................33 Other Taxes.....................................................33 THE PAYOUT PERIOD.............................................................33 The Annuity Commencement Date...................................33 Settlement Options..............................................33 Determining the Amount of Your Income Payment...................34 Fixed Income Payments...........................................34 THE FIXED ACCOUNT.............................................................35 Fixed Account Transfers.........................................35 INVESTMENT PERFORMANCE OF THE SUBACCOUNTS.....................................36 VOTING RIGHTS.................................................................37 FEDERAL TAX MATTERS...........................................................37 Taxation of Non-Qualified Contracts.............................38 Taxation of Qualified Contracts.................................39 Other Tax Issues................................................40 Our Income Taxes................................................40 Possible Tax Law Changes........................................40 OTHER INFORMATION.............................................................41 Payments We Make................................................41 Modifying the Contract..........................................41 Distribution of the Contracts...................................42 Legal Proceedings...............................................42 Reports to Owners...............................................42 Inquiries.......................................................42 Financial Statements............................................42 STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS.........................44 4 GLOSSARY ================================================================================ For your convenience, We are providing a glossary of the special terms We use in this prospectus. ACCUMULATION PERIOD The period of time beginning on the Annuity Contract Date and ending on the earlier of: - the Annuity Commencement Date; or - the date this Contract terminates. ACCUMULATION VALUE The amount during the Accumulation Period calculated as: - the Variable Account Accumulation Value; plus - the Fixed Account Accumulation Value. ADMINISTRATIVE SERVICE CENTER An office that provides administrative services and to which the Owner may direct inquiries as to Beneficiary and ownership changes, requests for surrenders, partial surrenders, and transfers. The address of the Administrative Service Center is P.O. Box 1296, Greenville, SC 29602. AMERICAN FAMILY, WE, US, OUR American Family Life Insurance Company. ANNUITANT The person named as the proposed Annuitant on the Application or named as the Joint Annuitant, whose life determines the benefits payable. ANNUITY COMMENCEMENT DATE The date, unless later changed, on which We base the beginning date of the income payments. ANNUITY CONTRACT DATE The date shown on the Contract schedule that determines each: - Contract year; - Contract anniversary; and - Contract month. APPLICATION The form completed by the proposed Annuitant(s) and/or proposed Owner when applying for coverage under the Contract. This includes any amendments or endorsements; or supplemental applications. ATTAINED AGE The Annuitant's age, at his/her nearest birthday. BENEFICIARY The person selected to receive the death benefit if the Owner dies before the Annuity Commencement Date or upon the death of the Annuitant. BUSINESS DAY A day when the New York Stock Exchange is open for trading, except for the day after Thanksgiving, and any day that a Subaccount's corresponding investment option does not value its shares. Assets are valued at the close of the Business Day (4:00 p.m. Eastern Time). DEATH BENEFIT The amount that We will pay upon the death of the Owner or the Annuitant. EXCESS INTEREST Any interest credited in addition to the guaranteed interest in the Fixed Account. FIXED ACCOUNT An account in which the Accumulation Value accrues interest at no less than the guaranteed minimum rate. The Fixed Account is part of Our General Account. FIXED ACCOUNT ACCUMULATION VALUE The amount under the Annuity Contract in the Fixed Account. FREE-LOOK PERIOD The period during which you may examine and return the Contract to Us at Our Administrative Service Center or the agent who sold the Contract and receive a refund. The length of the Free-Look Period varies by state. 5 FUND An open-end diversified management investment company or unit investment trust in whose Portfolio a Subaccount invests. GENERAL ACCOUNT All Our assets other than those allocated to the Variable Account or any other separate account. We have complete ownership and control of the assets of the General Account. HOME OFFICE Our office at 6000 American Pkwy, Madison, Wisconsin 53783-0001. INCOME PAYMENTS The amount that the proceeds or death benefit will provide when applied under a settlement option of this Contract. Payments can be made on a monthly, quarterly, semiannual or annual basis. ISSUE AGE The Annuitant's age on his/her birthday nearest the Annuity Contract Date. ISSUE DATE The date that this Contract was issued. MONEY PROCESSING CENTER An office to which the Owner may send all premium payments after the initial premium payment. The address of the Money Processing Center is P.O. Box 7430, Madison, Wisconsin 53777. OWNER (you, your) The person named in the Application as the Owner, unless later changed according to the conditions and provisions of this Contract. PLANNED PREMIUM The amount shown on a schedule that the Owner requests to be billed, unless later changed. PREMIUM TAX The amount of tax, if any, charged by a Federal, state, or other governmental entity on premium payments or contract values. PROCEEDS The amount We pay subject to the Contract's provisions: - upon the surrender or partial surrender of this Contract; or - upon full or partial annuitization. SEC The Securities and Exchange Commission, a United States government agency. SURRENDER CHARGE The contingent deferred sales charge is an amount subtracted from the Accumulation Value during the first nine years after each premium payment date upon surrender or partial surrender of the Contract. SURRENDER VALUE An amount equal to: - the Accumulation Value on the surrender date; minus - any surrender charge, any applicable state premium tax and any portion of the annual policy fee due Us. VALUATION PERIOD The time between the close of business on a Business Day and the close of business on the next Business Day. VARIABLE ACCOUNT American Family Variable Separate Account II. VARIABLE ACCOUNT ACCUMULATION VALUE The amount under the Contract in the Variable Account. 6 HIGHLIGHTS ================================================================================ These highlights provide only a brief overview of the more important features of the Contract. More detailed information about the Contract appears later in this prospectus. PLEASE READ THE REMAINDER OF THIS PROSPECTUS CAREFULLY. THE CONTRACT An annuity is a contract between you (the Owner) and an insurance company (American Family Life Insurance Company) in which you agree to make one or more payments to Us and, in return, We agree to pay a series of payments to you at a later date. The American Family Variable Annuity Contract is a special kind of annuity that is: - FLEXIBLE PREMIUM - you may add premium payments at any time. - TAX-DEFERRED - you do not have to pay taxes on earnings until you take money out by surrender, partial surrender, or We make income payments to you, or We pay the death benefit. - VARIABLE - you can direct your premium into any of nine Subaccounts. Each Subaccount invests exclusively in a single portfolio of a fund. The money you invest in the Subaccounts will fluctuate daily based on the performance of the portfolios. You bear the investment risk on the amounts you invest in the Subaccounts. You can also direct money to the Fixed Account. Amounts in the Fixed Account earn interest annually at a fixed rate that is guaranteed by Us never to be less than 3%, and may be more. We guarantee the interest, as well as principal, on money placed in the Fixed Account. Like all deferred annuities, the Contract has two phases: the "accumulation" period and the "payout" period. During the accumulation period, you can allocate money to any combination of investment alternatives. Any earnings on your investments accumulate tax-deferred until they are withdrawn. The payout period begins once you start receiving regular income payments from the Contract. The money you can accumulate during the accumulation period will directly determine the dollar amount of any income payments you receive. This Contract cannot be offered in any state where it is not lawful to make such offer. HOW TO INVEST You may obtain a Contract application from your American Family agent who is also a registered representative. You may purchase the Contract with a single payment of $750 or more. We will not issue a Contract if the Annuitant is older than age 80 on the issue date. You can pay additional premium of $50 or more if you authorize Us to draw on an account by check or electronic debit at any time before the Annuity Commencement Date. You must send all premium payments after the initial premium payment to Our Money Processing Center at P.O. Box 7430, Madison, Wisconsin 53777. We may limit the total premium(s) paid to Us during any Contract year. 7 CANCELLATION -- THE 10 DAY FREE-LOOK PERIOD You may return your Contract to Us for a refund within ten days after you receive it. In some jurisdictions, this period may be longer than ten days. Upon receipt, We will refund an amount equal to the Accumulation Value, without deduction for any Surrender Charge normally assessed. Or, if greater, and required by the law of your state, We will refund your premium payments. We will pay the refund within seven calendar days after We receive the Contract. The Contract will then be deemed void. INVESTMENT OPTIONS You may invest your money in any of 9 portfolios by directing it into the corresponding Subaccount. The portfolios now available to you under the Contract are: FEDERATED INSURANCE SERIES SEI INSURANCE PRODUCTS TRUST - Federated Quality Bond Fund II - SEI VP Prime Obligation Fund - Federated International Equity STRONG VARIABLE INSURANCE FUNDS, INC. Fund II - Strong MidCap Growth Fund II FIDELITY VARIABLE INSURANCE PRODUCTS FUND STRONG OPPORTUNITY FUND II, INC. - Fidelity VIP Growth Portfolio - Strong Opportunity Fund II - Fidelity VIP Equity-Income Portfolio FIDELITY VARIABLE INSURANCE PRODUCTS FUND II - Fidelity VIP II ContraFund-Registered Trademark- Portfolio FIDELITY VARIABLE INSURANCE PRODUCTS FUND III - Fidelity VIP III Growth and Income Portfolio Each Subaccount invests exclusively in shares of one portfolio of a fund. Each portfolio's assets are held separately from the other portfolios and each portfolio has separate investment objectives and policies. The portfolios are described in their own prospectuses that accompany this prospectus. The value of your investment in the Subaccounts will fluctuate daily based on the investment results of the portfolios in which you invest, and on the fees and charges We deduct. DEPENDING ON MARKET CONDITIONS, YOU CAN GAIN OR LOSE MONEY IN ANY OF THE SUBACCOUNTS. WE RESERVE THE RIGHT TO OFFER OTHER INVESTMENT CHOICES IN THE FUTURE. You may also direct your money to the Fixed Account and receive a guaranteed rate of return. Money you place in the Fixed Account will earn interest during the Contract year at a fixed rate that We guarantee to be not less than 3.0%. TRANSFERS You have the flexibility to transfer assets within your Contract. At any time during the accumulation period and after the first 20 days following the date We issue the Contract, you may transfer amounts among the Subaccounts and between the Fixed Account and the Subaccounts. Certain restrictions apply. - Transfers from one or more Subaccounts to the Fixed Account, from the Fixed Account to one or more Subaccounts or among the Subaccounts must be at least $250 or the total Accumulation Value in the Subaccount(s) or Fixed Account, if less. - Only one transfer may be made from the Fixed Account each Contract year. 8 - You may not transfer more than 25% of the Accumulation Value in the Fixed Account as of the date of transfer. If such transfer causes the Accumulation Value in the Fixed Account to fall below $1,000, We will transfer the full Accumulation Value. You may make 12 free transfers each Contract year. We impose a $25 charge per transfer on each transfer after the twelfth during a Contract year. Transfers made under the asset reallocation and dollar cost averaging programs do NOT count toward the 12 free transfers. AUTOMATIC ASSET REALLOCATION PROGRAM Under the automatic asset reallocation program, We will automatically transfer amounts monthly, quarterly, semi-annually or annually to maintain a particular percentage allocation among the Subaccounts. Automatic asset reallocation is available only during the accumulation period. You cannot choose the Automatic Asset Reallocation Program if you are participating in the Dollar Cost Averaging Program. DOLLAR COST AVERAGING PROGRAM The dollar cost averaging program permits you to systematically transfer (on a monthly, quarterly, semi-annual or annual basis) a set dollar amount from the Money Market Subaccount to the other Subaccounts. Dollar cost averaging is available only during the accumulation period. The minimum transfer amount is $250. You cannot choose the Dollar Cost Averaging Program if you are participating in the Automatic Asset Reallocation Program. ACCESS TO YOUR MONEY During the accumulation period, you may request a partial surrender of part of your Accumulation Value or you may also fully surrender the Contract and receive its Surrender Value. Partial surrenders are subject to the following conditions: - the minimum amount you can withdraw is $250; and - you may not make a partial surrender if the withdrawal plus the surrender charge, and the partial surrender processing fee would cause the Accumulation Value to fall below $1,000. Surrenders and partial surrenders may be subject to a surrender charge. In any Contract year, you may withdraw a portion of your Accumulation Value, called the free withdrawal amount, without incurring a surrender charge. You may have to pay Federal income taxes and a penalty tax on any money you fully or partially surrender from the Contract. DEATH BENEFIT WE WILL PAY A DEATH BENEFIT ON THE DEATH OF THE ANNUITANT OR OWNER BEFORE THE ANNUITY COMMENCEMENT DATE. The death benefit is equal to the greater of: - THE ACCUMULATION VALUE on the later of the date that We receive due proof of death and the date when We receive the Beneficiary's instructions on payment method (We must receive payment instructions within 60 days of the date of death); or 9 - THE MINIMUM DEATH BENEFIT. The minimum death benefit equals the sum of all premium payments, minus reductions for partial surrenders. If the Annuitant or Owner is Attained Age 80 or older at the time of death, the death benefit is the Accumulation Value as determined above. FEES AND CHARGES MORTALITY AND EXPENSE RISK CHARGE. We will deduct a daily mortality and expense risk charge from your Accumulation Value in the Subaccounts at an annual rate of 1.00%. ASSET-BASED ADMINISTRATIVE CHARGE. We will deduct a daily administrative charge from your Accumulation Value in each Subaccount at an annual rate of 0.15%. ANNUAL CONTRACT FEE. We deduct an annual contract fee of $30 from your Accumulation Value on the last Business Day of each Contract year during the accumulation period, on the date when the Contract is surrendered, and on the Annuity Commencement Date. We guarantee this charge will not exceed $50. We currently waive deduction of the charge for Contracts whose Accumulation Value is $20,000 or more on the date of assessment. TRANSFER FEE. You may make 12 free transfers each Contract year. We impose a $25 charge per transfer on each transfer after the twelfth during a Contract year before the Annuity Commencement Date. PARTIAL SURRENDER PROCESSING FEE. For each partial surrender, We deduct a processing fee of 2% of the amount surrendered up to $25, from the remaining Accumulation Value. SURRENDER CHARGE. During the accumulation period, you may withdraw all or part of your Surrender Value before the Annuitant's death. Certain withdrawals may be taken without payment of any surrender charge. Other withdrawals are subject to surrender charges. We calculate the surrender charge from the date you made the premium payment(s) being withdrawn. The surrender charge applies during the entire nine year period following each premium payment, and will vary depending on the number of years since you made the premium payment(s) being withdrawn.
NUMBER OF COMPLETE YEARS FROM DATE OF PREMIUM PAYMENT: 0 1 2 3 4 5 6 7 8 9 10+ ------------------------------------------------------------------------------------------- SURRENDER CHARGE: 8% 8% 7% 6% 5% 4% 3% 2% 1% 1% 0
In determining surrender charges, We will treat your premium payments as being withdrawn in the order in which We received them -- that is on a first-in, first-out basis. We also treat premium payments as being withdrawn before earnings. We do not assess a surrender charge on: 10 - the death benefit; - on the withdrawal of premium payments you paid Us more than nine years ago; - on proceeds applied to a settlement option with a fixed payout period of at least five years; - on proceeds applied to a settlement option with a life contingency; or - on the free withdrawal amount. Each Contract year, after the first Contract year, you may withdraw the FREE WITHDRAWAL AMOUNT which is an amount equal to 10% of total premium payments minus any prior partial surrenders. For information concerning compensation paid for the sale of the Contracts, see "Distribution of the Contracts." PREMIUM TAXES. We will deduct state premium taxes, which currently range from 0% up to 3.5%, if your state requires Us to pay the tax. If applicable, We will make the deduction either: (a) from premium payments as We receive them, (b) from your Surrender Value upon surrender or partial surrender, (c) on the Annuity Commencement Date, or (d) upon payment of a death benefit. PORTFOLIO MANAGEMENT FEES AND CHARGES. Each portfolio deducts portfolio management fees and charges from the amounts you have invested in the portfolios. In addition, four portfolios deduct 12b-1 fees. See the Fee Table in this prospectus and the prospectuses for the portfolios. SETTLEMENT OPTIONS The Contract allows you to receive income payments under one of six fixed settlement options beginning on the Annuity Commencement Date you select. The latest Annuity Commencement Date you may select is the Contract anniversary when the oldest Annuitant is age 95. You may receive income payments for a specific period of time, or for life with or without a guaranteed number of payments. We will use your Accumulation Value (less any applicable premium taxes) on the Annuity Commencement Date to fund your income payments under the settlement option you choose. FEDERAL TAX STATUS Generally, a Contract's earnings are not taxed until you take them out. For Federal tax purposes, if you take money out during the accumulation period, including a surrender or partial surrender payment, earnings come out first and are taxed as ordinary income. If you are younger than 59 1/2 when you take money out, you also may be charged a 10% Federal penalty tax on earnings. The income payments you receive during the payout period are considered partly a return of your original investment so that part of each payment is not taxable as income until the "investment in the contract" has been fully recovered. Death benefits are taxable and generally are included in the income of the recipient as follows: if received under a settlement option, death benefits are taxed in the same manner as income payments; if not received under a settlement option (for instance, if paid out in a lump sum), death benefits are taxed in the same manner as a full surrender or partial surrender. Different tax consequences may apply for a qualified Contract. For a further discussion of the Federal tax status of variable annuity contracts, see "Federal Tax Status." 11 INQUIRIES If you need additional information, please contact Us at: THE ADMINISTRATIVE SERVICE CENTER P.O. Box 1296 Greenville, SC 29602 1-888-428-5433 (toll free) 12 FEE TABLE ================================================================================ The purpose of the Fee Table is to help you understand the various costs and expenses that you will pay directly and indirectly by investing in the Subaccounts and/or the Fixed Account. The Fee Table shows the current expenses for the Variable Account as well as the actual charges and expenses for each portfolio for the fiscal year ended December 31, 2000, except as stated in the footnotes. YOUR TRANSACTION EXPENSES Sales Charge Imposed on Premium Payments.........................None Partial Surrender Processing Fee .....2% of amount withdrawn up to $25 Maximum Surrender Charge (as a percentage of your premium payment)(1)......................8.0% Transfer Fee..........................No fee for the first 12 transfers in a Contract year, then $25 per additional transfer MAXIMUM ANNUAL CONTRACT FEE(2)..........$50 (current annual contract fee is $30) VARIABLE ACCOUNT ANNUAL EXPENSES (as a percentage of average daily net assets in the Subaccounts) Mortality and Expense Risk Charge.................................1.00% Administrative Expenses...........................................0.15% ----- Total Variable Account Annual Expenses............................1.15% ANNUAL PORTFOLIO EXPENSES (as a percentage of average daily net assets in the portfolios after fee waivers and expense reimbursements)
TOTAL ANNUAL EXPENSES (AFTER MANAGEMENT OTHER EXPENSES FEE WAIVERS FEES 12b-1 (AFTER AND NAME OF PORTFOLIO (AFTER FEE WAIVERS) FEES REIMBURSEMENTS) REIMBURSEMENTS) - ----------------- ------------------- ---- --------------- --------------- FEDERATED INSURANCE SERIES Federated Quality Bond Fund II(3) 0.28% 0.42% 0.70% Federated International Equity Fund II(3) 0.98% 0.30% 1.28% FIDELITY VARIABLE INSURANCE PRODUCTS FUND Fidelity VIP Growth Portfolio Service Class 2(4) 0.57% 0.25% 0.09% 0.91% Fidelity VIP Equity-Income Portfolio Service 0.48% 0.25% 0.10% 0.83% Class 2(4) FIDELITY VARIABLE INSURANCE PRODUCTS FUND II Fidelity VIP II ContraFund-Registered Trademark- Portfolio Service Class 2(4) 0.57% 0.25% 0.10% 0.92% FIDELITY VARIABLE INSURANCE PRODUCTS FUND III Fidelity VIP III Growth & Income Portfolio Service Class 2(4) 0.48% 0.25% 0.12% 0.85% SEI INSURANCE PRODUCTS TRUST SEI VP Prime Obligation Fund(5) 0.075% 0.615% 0.69%
13
STRONG VARIABLE INSURANCE FUNDS, INC. Strong MidCap Growth Fund II(6) 1.00% 0.15% 1.15% STRONG OPPORTUNITY FUND II, INC. Strong Opportunity Fund II(6) 1.00% 0.11% 1.11%
(1) We do not assess a surrender charge on death benefit payments or the free withdrawal amount. We do assess a surrender charge if you surrender your Contract, partially surrender its Surrender Value, or, annuitize under the Contract in certain cases. (2) We will also deduct a pro rata portion of this fee on the Annuity Commencement Date or the date you surrender your Contract. We currently waive deduction of the charge for Contracts whose Accumulation Value is $20,000 or more on the date of assessment. (3) The adviser has voluntarily agreed to reimburse Federated Quality Bond Fund II and Federated International Equity Fund II to the extent Total Annual Expenses for Federated Quality Bond Fund II exceeds 0.70% of average net assets and Total Annual Expenses for Federated International Equity Fund II exceeds 1.28% of average net assets. Absent reimbursements, the Total Annual Expenses during 2000 would have been 1.52% for Federated Quality Bond Fund II and 1.55% for Federated International Equity Fund II. Although the Federated Quality Bond Fund II has adopted a distribution plan pursuant to Rule 12b-1 under the Investment Company Act of 1940, the Federated Quality Bond Fund II did not pay or accrue a distribution (12b-1) fee during the fiscal year ended December 31, 2000. The Federated Quality Bond Fund II has no present intention of paying or accruing the distribution (12b-1) fee during the fiscal year ending December 31, 2001. (4) Actual annual operating expenses for the portfolios were lower than the expenses set forth in the Annual Portfolio Expense table because a portion of the brokerage commissions that each portfolio paid was used to reduce the portfolio's expenses, and/or because through arrangements with the portfolio's custodian, credits realized as a result of uninvested cash balances were used to reduce a portion of the fund's custodian expenses. See the prospectuses for the portfolios for details. (5) The adviser and administrator for the SEI VP Prime Obligation Fund have each voluntarily agreed to waive a portion of its fee to ensure Total Annual Expenses do not exceed 0.69% of average net assets. Absent reimbursement, the Total Annual Expenses during 2000 would have been 1.39% for the SEI VP Prime Obligation Fund. (6) The adviser has voluntarily agreed to reimburse Strong MidCap Growth Fund II and Strong Opportunity Fund II to the extent Total Annual Expenses for the Strong MidCap Growth Fund II exceeds 1.15% of average net assets and Total Annual Expenses for the Strong Opportunity Fund II exceeds 1.11% of average net assets. Absent reimbursement, the Total Annual Expenses during 2000 would have been 1.16% for Strong MidCap Growth Fund II and 1.18% for Strong Opportunity Fund II. EXAMPLES The purpose of the following Examples is to assist you in understanding the expenses that you would pay over time. The Examples are based on the actual charges and expenses for the Variable Account and for each portfolio for the fiscal year ended December 31, 2000, as stated in the Fee Table. EXAMPLE 1 Example 1 below shows the dollar amount of expenses that you would bear directly or indirectly if you: - invested $1,000 in a Subaccount; 14 - earned a 5% annual return on your investment; - fully surrendered your Contract with applicable surrender charges deducted.
ASSUMES YOU SURRENDER THE CONTRACT EXAMPLE 1 ------------------------------------------------------ ----------------------------- SUBACCOUNT 1 YEAR 3 YEARS ------------------------------------------------------ -------------- -------------- FEDERATED INSURANCE SERIES ------------------------------------------------------ -------------- -------------- Federated Quality Bond $121 $200 ------------------------------------------------------ -------------- -------------- Federated International Equity $126 $216 ------------------------------------------------------ -------------- -------------- FIDELITY VARIABLE INSURANCE PRODUCTS FUND ------------------------------------------------------ -------------- -------------- Fidelity VIP Growth Portfolio $123 $206 ------------------------------------------------------ -------------- -------------- Fidelity VIP Equity-Income Portfolio $122 $204 ------------------------------------------------------ -------------- -------------- FIDELITY VARIABLE INSURANCE PRODUCTS FUND II ------------------------------------------------------ -------------- -------------- Fidelity VIP II ContraFund-Registered Trademark- $123 $206 ------------------------------------------------------ -------------- -------------- FIDELITY VARIABLE INSURANCE PRODUCTS FUND III ------------------------------------------------------ -------------- -------------- Fidelity VIP III Growth and Income $122 $204 ------------------------------------------------------ -------------- -------------- SEI INSURANCE PRODUCTS TRUST ------------------------------------------------------ -------------- -------------- SEI VP Prime Obligation Fund $121 $200 ------------------------------------------------------ -------------- -------------- STRONG VARIABLE INSURANCE FUNDS, INC. ------------------------------------------------------ -------------- -------------- Strong MidCap Growth Fund II $125 $213 ------------------------------------------------------ -------------- -------------- STRONG OPPORTUNITIES FUNDS, INC. ------------------------------------------------------ -------------- -------------- Strong Opportunity Fund II $125 $212 ------------------------------------------------------ -------------- --------------
EXAMPLE 2 Example 2 has the same assumptions as Example 1, except that you decided not to surrender your Contract. Surrender charges are not deducted.
ASSUMES YOU DO NOT SURRENDER EXAMPLE 2 ------------------------------------------------------ ----------------------------- SUBACCOUNT 1 YEAR 3 YEARS ------------------------------------------------------ -------------- -------------- FEDERATED INSURANCE SERIES ------------------------------------------------------ -------------- -------------- Federated Quality Bond $49 $146 ------------------------------------------------------ -------------- -------------- Federated International Equity $55 $163 ------------------------------------------------------ -------------- -------------- FIDELITY VARIABLE INSURANCE PRODUCTS FUND ------------------------------------------------------ -------------- -------------- Fidelity VIP Growth Portfolio $51 $152 ------------------------------------------------------ -------------- -------------- Fidelity VIP Equity-Income Portfolio $50 $150 ------------------------------------------------------ -------------- -------------- FIDELITY VARIABLE INSURANCE PRODUCTS FUND II ------------------------------------------------------ -------------- -------------- Fidelity VIP II ContraFund-Registered Trademark- $51 $153 ------------------------------------------------------ -------------- -------------- FIDELITY VARIABLE INSURANCE PRODUCTS FUND III ------------------------------------------------------ -------------- -------------- Fidelity VIP III Growth and Income $50 $150 ------------------------------------------------------ -------------- -------------- SEI INSURANCE PRODUCTS TRUST ------------------------------------------------------ -------------- -------------- SEI VP Prime Obligation Fund $49 $146 ------------------------------------------------------ -------------- -------------- STRONG VARIABLE INSURANCE FUNDS, INC. ------------------------------------------------------ -------------- -------------- Strong MidCap Growth Fund II $53 $159 ------------------------------------------------------ -------------- -------------- STRONG OPPORTUNITIES FUNDS, INC. ------------------------------------------------------ -------------- -------------- Strong Opportunity Fund II $53 $158 ------------------------------------------------------ -------------- --------------
The examples assume that you made no transfers. The examples also do not take into account any premium taxes. The examples reflect the annual contract fee of $30 as an annual charge of .46% which We calculated by dividing the total annual contract fee of $30 by an assumed average investment of $6,500 in the Contract. The examples assume that any fee waiver or expense reimbursement will continue for the periods shown in the example. 15 PLEASE REMEMBER THAT THE EXAMPLES ARE SIMPLY ILLUSTRATIONS AND DO NOT REPRESENT PAST OR FUTURE EXPENSES. Your actual expenses may be higher or lower than those shown in the examples. Similarly your rate of return may be more or less than the 5% assumed in the examples. There is no assurance that any such fee waiver or expense reimbursement will continue for the period shown. CONDENSED FINANCIAL INFORMATION ================================================================================ Because the Variable Account had not commenced operations as of December 31, 2000, no condensed financial information is included in this prospectus. ABOUT AMERICAN FAMILY LIFE INSURANCE COMPANY AND THE VARIABLE ACCOUNT ================================================================================ AMERICAN FAMILY LIFE INSURANCE COMPANY We are a stock life insurance company. We were incorporated under Wisconsin law in 1957. We are subject to regulation by the Office of the Commissioner of Insurance of the state of Wisconsin, as well as by the insurance departments of all other states in which We do business. We established the Variable Account to support the investment options under the Contract and under other variable annuity contracts We may issue. Our General Account supports the Fixed Account option under the Contract. We are a wholly owned subsidiary of Am Fam, Inc. Am Fam, Inc. is a downstream holding company and a wholly owned subsidiary of American Family Mutual Insurance Company ("American Family Mutual"). American Family Mutual is one of the leading property/casualty insurance companies in the United States with operations in fifteen states located primarily in the Midwest. American Family Mutual offers a broad line of insurance coverage to individuals and businesses, including automobile, accident and health, homeowners, farm owners, mobile homeowners, inland marine, burglary, commercial, personal and fire coverage. THE VARIABLE ACCOUNT We established American Family Variable Account II as a separate investment account under Wisconsin law. We own the assets in the Variable Account and We are obligated to pay all benefits under the Contracts. We may use the Variable Account to support other variable annuity contracts We issue. The Variable Account is registered with the Securities and Exchange Commission as a unit investment trust under the Investment Company Act of 1940 and qualifies as a "separate account" within the meaning of the Federal securities laws. This registration does not involve supervision of the management or investment practices or policies of the Variable Account by the Securities and Exchange Commission. We have divided the Variable Account into Subaccounts, each of which invests in shares of one portfolio of the following funds: - Federated Insurance Series - Fidelity Variable Insurance Products Fund - Fidelity Variable Insurance Products Fund II - Fidelity Variable Insurance Products Fund III - SEI Insurance Products Trust - Strong Variable Insurance Funds, Inc. - Strong Opportunity Fund II, Inc. 16 The Subaccounts buy and sell portfolio shares at net asset value. Any dividends and distributions from a portfolio are reinvested at net asset value in shares of that portfolio. Income, gains, and losses, whether or not realized, from assets allocated to the Variable Account will be credited to or charged against the Variable Account without regard to Our other income, gains, or losses. Income, gains, and losses credited to, or charged against, a Subaccount reflect the Subaccount's own investment performance and not the investment performance of Our other assets. The Variable Account assets are held separate from Our other assets and are not part of Our General Account. We may not use the Variable Account's assets to pay any of Our liabilities other than those arising from the Contracts. If the Variable Account's assets exceed the required reserves and other liabilities, We may transfer the excess to Our General Account. The Variable Account may include other Subaccounts that are not available under the Contracts and are not discussed in this prospectus. - If investment in the funds or a particular portfolio is no longer possible or in Our judgment becomes inappropriate for the purposes of the Variable Account, We may substitute another fund or portfolio without your consent. The substituted fund or portfolio may have different fees and expenses. Substitution may be made with respect to existing investments or the investment of future premiums, or both. However, no such substitution will be made without any necessary approval of the SEC. Furthermore, We may close Subaccounts to allocations of premiums or Accumulation Value, or both, at any time in Our sole discretion. The funds, which sell their shares to the Subaccounts pursuant to participation agreements, also may terminate these agreements and discontinue offering their shares to the Subaccounts. In addition, We reserve the right to make other structural and operational changes affecting the Variable Account. See "Additional Information -- Changes to the Variable Account." THE PORTFOLIOS ================================================================================ - The Variable Account invests in shares of certain portfolios. Each portfolio is part of a mutual fund that is registered with the Securities and Exchange Commission as an open-end management investment company. This registration does not involve supervision of the management or investment practices or policies of the portfolios or mutual funds by the Securities and Exchange Commission. - Each portfolio's assets are held separate from the assets of the other portfolios, and each portfolio has investment objectives and policies that are different from those of the other portfolios. Thus, each portfolio operates as a separate investment fund, and the income or losses of one portfolio generally have no effect on the investment performance of any other portfolio. - The following table summarizes each portfolio's investment objective(s) and identifies its investment adviser (and subadviser, if applicable). THERE IS NO ASSURANCE THAT ANY OF THE PORTFOLIOS WILL ACHIEVE ITS STATED OBJECTIVE(S). You can find more detailed information about the portfolios, including a description of risks and expenses, in the prospectuses for the portfolios that accompany this prospectus. You should read these prospectuses carefully. 17 PORTFOLIO INVESTMENT OBJECTIVE AND INVESTMENT ADVISER --------- ------------------------------------------- FEDERATED QUALITY BOND - INVESTMENT OBJECTIVE: Seeks to provide current FUND II income by investing in a diversified portfolio of investment grade securities, which are rated in one of the four highest categories by a nationally recognized statistical rating organization. INVESTMENT ADVISER: Federated Investment Management Company. FEDERATED INTERNATIONAL - INVESTMENT OBJECTIVE: Seeks total return on EQUITY FUND II assets through a diversified portfolio consisting primarily of non-U.S. stocks. INVESTMENT ADVISER: Federated Global Investment Management Corp. FIDELITY VIP GROWTH - INVESTMENT OBJECTIVE: Seeks to achieve capital appreciation by investing in the common stock of companies that the adviser believes have above-average growth potential. INVESTMENT ADVISER: Fidelity Management & Research Company. FIDELITY VIP - INVESTMENT OBJECTIVE: Seeks reasonable income by EQUITY-INCOME investing primarily in income-producing equity securities. In choosing these securities, the adviser will also consider the potential for capital appreciation. INVESTMENT ADVISER: Fidelity Management & Research Company. FIDELITY VIP II - INVESTMENT OBJECTIVE: Seeks long-term capital CONTRAFUND-Registered appreciation by investing in the Trademark- securities of companies whose value the adviser believes is not fully recognized by the public. INVESTMENT ADVISER: Fidelity Management & Research Company. 18 PORTFOLIO INVESTMENT OBJECTIVE AND INVESTMENT ADVISER --------- ------------------------------------------- FIDELITY VIP III - INVESTMENT OBJECTIVE: Seeks high total return GROWTH & INCOME through a combination of current income and capital appreciation. INVESTMENT ADVISER: Fidelity Management & Research Company. SEI VP PRIME - INVESTMENT OBJECTIVE: Preserving principal OBLIGATION FUND and maintaining liquidity while providing current income. INVESTMENT ADVISER: SEI Investments Management Corporation. STRONG MIDCAP GROWTH - INVESTMENT OBJECTIVE: Seeks capital appreciation. FUND II The Fund invests primarily in securities that the adviser believes have accelerating growth prospects. INVESTMENT ADVISER: Strong Capital Management, Inc. STRONG OPPORTUNITY - INVESTMENT OBJECTIVE: Seeks capital growth. It FUND II currently emphasizes medium-sized companies that the adviser believes are under-priced and have attractive growth prospects. INVESTMENT ADVISER: Strong Capital Management, Inc. THESE PORTFOLIOS ARE NOT AVAILABLE FOR PURCHASE DIRECTLY BY THE GENERAL PUBLIC, AND ARE NOT THE SAME AS OTHER MUTUAL FUND PORTFOLIOS WITH VERY SIMILAR OR NEARLY IDENTICAL NAMES THAT ARE SOLD DIRECTLY TO THE PUBLIC. However, the investment objectives and policies of certain portfolios available under the Contract are very similar to the investment objectives and policies of other portfolios that are or may be managed by the same investment adviser or manager. Nevertheless, the investment performance of the portfolios available under the Contract may be lower or higher than the investment performance of these other (publicly available) portfolios. THERE CAN BE NO ASSURANCE, AND WE MAKE NO REPRESENTATION, THAT THE INVESTMENT PERFORMANCE OF ANY OF THE PORTFOLIOS AVAILABLE UNDER THE CONTRACT WILL BE COMPARABLE TO THE INVESTMENT PERFORMANCE OF ANY OTHER PORTFOLIO, EVEN IF THE OTHER PORTFOLIO HAS THE SAME INVESTMENT ADVISER OR MANAGER, THE SAME INVESTMENT OBJECTIVES AND POLICIES, AND A VERY SIMILAR NAME. PORTFOLIO MANAGEMENT FEES AND CHARGES Each portfolio deducts portfolio management fees and charges from the amounts you have invested in the portfolios. In addition, four portfolios deduct 12b-1 fees. See the Fee Table in this prospectus and the prospectuses for the portfolios. 19 We receive compensation from certain investment advisers and/or administrators (and/or an affiliate thereof) of the portfolios in connection with administrative services and cost savings experienced by the investment advisers, administrators or affiliates. Such compensation may range up to 0.25% and is based on a percentage of assets of the particular portfolios attributable to the Contract. Some advisers, administrators, or portfolios may pay Us more than others. American Family Securities, LLC, our wholly owned subsidiary broker-dealer, also receives a portion of the 12b-1 fees deducted from certain funds' portfolio assets as reimbursement for providing certain services permitted under the 12b-1 plans of those funds. PLEASE READ THE PORTFOLIO PROSPECTUSES TO OBTAIN MORE COMPLETE INFORMATION REGARDING THE PORTFOLIOS. KEEP THESE PROSPECTUSES FOR FUTURE REFERENCE. THIRD PARTY ADMINISTRATOR While American Family has overall responsibility for the administration of the Contracts, it has retained the services of Alliance-One Services, Inc. (the Administrative Service Center), pursuant to a Third Party Administration Agreement. Such administrative services include issuance of the Contracts and maintenance of Owner records. The Company compensates the Administrative Service Center for all fees and charges it incurs. THE ACCUMULATION PERIOD ================================================================================ The accumulation period begins when We issue your Contract and continues until the Annuity Commencement Date. The accumulation period will also end if you surrender your Contract, or a death benefit is payable, before the payout period. PURCHASING A CONTRACT You may purchase a Contract with a premium payment of $750 or more. The first premium payment is the only one We require you to make. To purchase a Contract, you must complete an application and send it with your premium to Us through one of Our authorized agents who is also a registered representative. Contracts may be sold to or in connection with retirement plans that qualify for special tax treatment. If you are purchasing the Contract through a tax favored arrangement, including IRAs, Roth IRAs, and SIMPLE IRAs, you should carefully consider the costs and benefits of the Contract (including annuity income benefits) before purchasing the Contract, since the tax favored arrangement itself provides for tax sheltered growth. We will not issue you a Contract if the Annuitant is older than age 80 on the issue date. CANCELLATION -- THE 10 DAY FREE-LOOK PERIOD You have the right to cancel the Contract for any reason within 10 days after you receive it. In some jurisdictions, this period may be longer than 10 days. To cancel the Contract, you must provide written notice of cancellation and return the Contract to Us or to the agent who sold it before the end of the Free-Look Period. We deem the Free-Look Period to begin 10 days after We deliver you the Contract. Upon exercise of your free-look right, We will refund an amount equal to the Accumulation Value, without deduction for any surrender charge normally assessed. Or, if greater, and required by the law of your state, We will refund your premium payments. We will pay the refund within seven calendar days after We receive the Contract. The Contract will then be deemed void. 20 DESIGNATING YOUR INVESTMENT OPTIONS When you complete your application, you will give Us instructions on how to allocate your first premium payment among the nine Subaccounts and the Fixed Account. The amount you direct to a particular Subaccount and/or to the Fixed Account must be in whole percentages from 10% to 100% of the premium payment. If your application is complete and your premium payment has been received at Our Home Office, We will issue your Contract within two business days of its receipt, and credit your initial premium payment to your Contract. If your application is incomplete, We will contact you and seek to complete it within five business days. If We cannot complete your application within five business days after We receive it, We will return your premium payment, unless you expressly permit Us to keep it. We will credit the payment as soon as We receive all necessary application information. The date We credit your initial premium payment to your Contract is the issue date. We allocate your initial premium payment among the Subaccounts and the Fixed Account according to your instructions. We may reject any application or premium payment for any reason permitted by law. ADDITIONAL PREMIUM PAYMENTS There are no requirements on how many premium payments to make. You determine the amount and timing of each additional premium payment, except that the premium payment must be at least $50. You may make premium payments at any time until the earliest of: (a) the Annuity Commencement Date; (b) the date you surrender the Contract; or (c) the date you reach age 70 1/2 for qualified Contracts (other than Roth IRAs and rollovers and transfers). We reserve the right not to accept an initial premium payment or total premium payments of $1,000,000 or more. The Tax Code may also limit the amount of premium payments you may make. We will credit any additional premium payments you make to your Contract at the accumulation unit value next computed at the end of the Business Day on which We receive them at Our Money Processing Center at P.O. Box 7430, Madison, Wisconsin 53777. Our Business Day closes at 4:00 p.m. Eastern Time (1:00 p.m. Pacific Time). If We receive your premium payments after the close of a Business Day, We will calculate and credit them as of the end of the next Business Day. We will direct your premium payment to the Subaccounts and/or the Fixed Account according to your written instructions in effect at the time We receive it at Our Money Processing Center. You may change your instructions at any time by sending Us a written request or by telephone authorization. Changing your allocation instructions will not change the way existing Accumulation Value is apportioned among the Subaccounts or the Fixed Account. PLANNED PREMIUM PAYMENTS You may elect to participate in Our planned premium payment program. Under this program, you will provide Us with a schedule showing the amount and frequency of any additional premium payments you intend to make under the Contract. Your minimum planned premium payment must be at least $50. We will forward to you an annual, semiannual or quarterly premium payment reminder notice. You are under no obligation to make premium payments in accordance with the schedule. We reserve the right to limit the number and amount of any planned premiums payments. 21 THE ACCUMULATION VALUE IN A SUBACCOUNT WILL VARY WITH THE INVESTMENT PERFORMANCE OF THAT SUBACCOUNT. YOU BEAR THE ENTIRE INVESTMENT RISK FOR AMOUNTS YOU ALLOCATE TO THE SUBACCOUNTS. YOU SHOULD PERIODICALLY REVIEW YOUR PREMIUM PAYMENT ALLOCATION INSTRUCTIONS IN LIGHT OF MARKET CONDITIONS AND YOUR OVERALL FINANCIAL OBJECTIVES. YOUR ACCUMULATION VALUE ================================================================================ ACCUMULATION VALUE The Accumulation Value serves as the starting point for calculating values under a Contract. ACCUMULATION VALUE: - Equals the sum of all values in the Fixed Account, and in each Subaccount; - Is determined first on the Issue Date and then on each Business Day; and - Has no guaranteed minimum amount and may be more or less than premiums paid. SURRENDER VALUE The Surrender Value is the amount We pay to you when you surrender your Contract. We determine the Surrender Value at the end of the valuation period when We receive your written surrender request. SURRENDER VALUE AT THE END OF - the Accumulation Value on the surrender ANY BUSINESS DAY EQUALS: date; MINUS - any surrender charge; MINUS - any state premium tax due; MINUS - any portion of the annual contract fee due. SUBACCOUNT ACCUMULATION VALUE At the end of any valuation period, the Accumulation Value in a Subaccount is equal to the number of units in the Subaccount multiplied by the Accumulation Unit Value of that Subaccount. THE NUMBER OF UNITS IN ANY - the initial units purchased at the SUBACCOUNT AT THE END OF ANY Accumulation Unit Value on the Issue BUSINESS DAY EQUALS: Date; PLUS - units purchased with additional premium payments; PLUS - units purchased via transfers from another Subaccount or the Fixed Account; MINUS - units redeemed to pay for the annual policy fee; MINUS - units redeemed to pay for partial surrenders; MINUS - units redeemed as part of a transfer to another Subaccount or the Fixed Account. Every time you allocate or transfer money to or from a Subaccount, We convert that dollar amount into units. We determine the number of units We credit to, or subtract from, your Contract by dividing the dollar amount of the transaction by the unit value for that Subaccount at the end of the valuation period. ACCUMULATION UNIT VALUE 22 We determine the Accumulation Unit Value for each Subaccount to reflect how investment performance affects the Accumulation Value. The Accumulation Unit Value for each Subaccount was arbitrarily set at $10 when the Subaccount began operations. Thereafter, the Accumulation Unit Value at the end of every valuation period is the Accumulation Unit Value at the end of the previous valuation period times the net investment factor, as described below. The net investment factor is an index applied to measure the investment performance of a Subaccount from one valuation period to the next. Each Subaccount has a net investment factor for each valuation period which may be greater or less than one. Therefore, Accumulation Unit Value may increase or decrease. The net investment factor for any Subaccount for any valuation period equals: - the Accumulation Unit Value, determined at the end of the current valuation period; PLUS OR MINUS - the amount of any dividend or capital gains distributions; PLUS OR MINUS - the per share amount of any dividend or capital gain distributions; PLUS OR MINUS - the per share charge or credit for any taxes attributable to the operation of the Subaccount; DIVIDED BY - the Accumulation Unit Value for the immediately preceding valuation period; MINUS - a daily charge for the mortality and expense risk and asset-based administrative charges. The net investment factor may be greater or less than one. FIXED ACCOUNT ACCUMULATION VALUE On the issue date, the Fixed Account Accumulation Value is equal to the net premiums allocated to the Fixed Account. THE FIXED ACCOUNT - the net premium(s) allocated ACCUMULATION VALUE AT THE END to the Fixed Account; PLUS OF ANY BUSINESS DAY IS EQUAL - any amounts transferred to the Fixed TO: - Account; PLUS - interest credited to the Fixed Account; MINUS - amounts deducted to pay for the annual policy fee; MINUS - amounts withdrawn from the Fixed Account; MINUS - amounts transferred from the Fixed Account to a Subaccount. Interest will be credited to the Fixed Account on each Business Day as follows: - For amounts in the Fixed Account for the entire Contract year interest will be credited from the beginning to the end of the Contract year - For amounts allocated to the Fixed Account during the Contract year interest will be credited from the date the net premium payment is allocated to the end of the Contract year - For amounts transferred to the Fixed Account during the Contract year interest will be credited from the date of the transfer to the end of the Contract year - For amounts deducted or withdrawn from the Fixed Account during the prior Contract year interest will be credited from the beginning of the prior Contract year to the date of deduction or withdrawal. 23 TRANSFERS BETWEEN INVESTMENT OPTIONS ================================================================================ You may make transfers between and among the Subaccounts and the Fixed Account. We will determine the amount you have available for transfers at the end of the valuation period when We receive your written request. The following features apply to transfers under the Contract: - You may request a transfer of up to 100% of the Accumulation Value from one Subaccount to another Subaccount or to the Fixed Account in writing or by phone (as states permit). - For transfers to the Fixed Account, you must transfer at least $250 or the total Accumulation Value in the Subaccount(s), if less than $250. - You may transfer amounts among the Subaccounts, an unlimited number of times in a Contract year. For transfers among the Subaccounts you must transfer at least $250 or the total accumulation value in the Subaccount(s) if less than $250. - We impose a $25 charge per transfer on each transfer after the twelfth during a Contract year before the Annuity Commencement Date. Transfers due to dollar cost averaging, automatic asset reallocation, or the initial allocation of Accumulation Value from the Money Market Subaccount do NOT count as transfers for the purpose of assessing the transfer fee. See "Transfers Between Investment Options -- Dollar Cost Averaging" and "Transfers Between Investment Options -- Automatic Asset Reallocation." - We consider each telephone or written request to be a single transfer, regardless of the number of Subaccounts (or Fixed Account) involved. - We process transfers based on unit values determined at the end of the Business Day when We receive your transfer request. - Transfers from the Fixed Account: - You may make only one transfer per year from the Fixed Account to the Subaccounts. - You may not transfer more than 25% of the Accumulation Value in the Fixed Account as of the date of transfer. If such transfer causes the Accumulation Value in the Fixed Account to fall below $1,000, We will transfer the full Accumulation Value. - We reserve the right to revoke or modify the transfer privilege at any time. DOLLAR COST AVERAGING You may elect to participate in a dollar cost averaging program in the application or by completing an election form that We receive by the beginning of the month. Dollar cost averaging is an investment strategy designed to reduce the investment risks associated with market fluctuations. The strategy spreads the allocation of your premium into the Subaccounts over a period of time by systematically and automatically transferring, on a monthly, quarterly, semi-annual or annual basis, specified dollar amounts from the Money Market Subaccount into any other Subaccount(s). This allows you to potentially reduce the risk of investing most of your premium payment into the Subaccounts at a time when prices are high. We do not assure the success of this strategy, and success depends on market trends. We cannot guarantee that dollar cost averaging will result in a profit or protect against loss. You should carefully consider your financial ability to continue the program over a long enough period of time to purchase units when their value is low as well as when it is high. On each dollar cost averaging transfer day, We will automatically transfer equal amounts (minimum $250) from the Money Market Subaccount to your designated "destination accounts" in the percentages 24 selected. You may have multiple destination accounts. To participate in dollar cost averaging, you must elect a period of time and place at least $1,000 in the Money Market Subaccount. If you have elected dollar cost averaging, the program will start on the first Business Day after the later of: - the Contract Date; or - when the Accumulation Value of the Money Market Subaccount equals or exceeds the greater of: (a) the minimum amount stated above; or (b) the amount of the first transfer. DOLLAR COST AVERAGING WILL END IF: - We receive your written request to cancel your participation; - the Accumulation Value in the Money Market Subaccount is depleted; or - the specified number of transfers has been completed. You will receive written notice confirming each transfer and when the program has ended. You are responsible for reviewing the confirmation to verify that the transfers are being made as requested. There is no additional charge for dollar cost averaging. A transfer under this program is NOT considered a transfer for purposes of assessing the transfer fee. We may modify, suspend, or discontinue the dollar cost averaging program at any time. You cannot choose dollar cost averaging if you are participating in the automatic asset reallocation program. 25 AUTOMATIC ASSET REALLOCATION We also offer an automatic asset reallocation program under which We will automatically transfer amounts monthly, quarterly, semi-annually or annually to maintain a particular percentage allocation among the Subaccounts. Accumulation Value allocated to each Subaccount will grow or decline in value at different rates. Over time, this method of investing may help you buy low. The automatic asset reallocation program does not guarantee gains, nor does it assure that you will not have losses. The Fixed Account does not participate in this program. TO PARTICIPATE IN THE - you must elect this feature in the AUTOMATIC ASSET Application or after issue by REALLOCATION PROGRAM: submitting an automatic asset reallocation request form to Our Administrative Service Center. There is no additional charge for the automatic asset reallocation program. Any reallocation which occurs under the automatic asset reallocation program will NOT be counted towards the 12 "free" transfers allowed during each Contract year. You can end this program at any time. AUTOMATIC ASSET REALLOCATION WILL END IF: - We receive your written request to terminate the program. We may modify, suspend, or discontinue the automatic asset reallocation program at any time. You cannot choose automatic asset reallocation if you are participating in the dollar cost averaging program. EXCESSIVE TRADING LIMITS We reserve the right to limit transfers in any Contract year, or to refuse any transfer request for an Owner if: - We believe, in Our sole discretion, that excessive trading by the Owner, or a specific transfer request, or a group of transfer requests, may have a detrimental effect on the unit values of any Subaccount or the share prices of any portfolio or would be detrimental to other Owners; or - We are informed by one or more portfolios that they intend to restrict the purchase of portfolio shares because of excessive trading or because they believe that a specific transfer or group of transfers would have a detrimental effect on the price of portfolio shares. We may apply the restrictions in any manner reasonably designed to prevent transfers that We consider disadvantageous to other Owners. TELEPHONE TRANSFERS You must notify Us on your application or otherwise in writing in a form acceptable to Us that you want the ability to make transfers by telephone. You may use your telephone to authorize a transfer from one Subaccount or the Fixed Account to another Subaccount or the Fixed Account, to change the allocation instructions for future investments, and/or to change automatic asset reallocation and dollar cost averaging programs. 26 We will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. If We follow such procedures We will not be liable for any losses due to unauthorized or fraudulent instructions. We may be liable for such losses if We do not follow those reasonable procedures. The procedures that We may follow for telephone transfers include: - providing you with a written confirmation of all transfers made according to telephone instructions; - requiring a form of personal identification prior to acting on instructions received by telephone; and - tape recording instructions received by telephone. We reserve the right to modify, restrict, suspend or eliminate the transfer privileges (including the telephone transfer facility) at any time, for any class of Contracts, for any reason. TRANSFER FEE We will impose a transfer fee of $25 for the thirteenth and each subsequent transfer request you make per Contract year. Transfers you make pursuant to the automatic asset reallocation and dollar cost averaging programs do not count toward your 12 free transfers. See "Fees and Charges - Transfer Fee." ACCESS TO YOUR MONEY ================================================================================ SURRENDERS At any time before the Annuity Commencement Date, you may surrender your Contract for its Surrender Value. The SURRENDER VALUE is equal to : - the Accumulation Value on the surrender date; MINUS - any applicable surrender charge; MINUS - any premium taxes not previously deducted; MINUS - any portion of the annual policy fee unless waived. The Surrender Value will be determined at the unit value next determined as of the close of business on the Business Day We receive your written request for surrender at Our Administrative Service Center, unless you specify a later date in your request. If We receive your written request after the close of Our Business Day, usually 4:00 p.m. Eastern Time, We will determine the Surrender Value as of the next Business Day. The Surrender Value will be paid in a lump sum unless you request payment under a settlement option. A SURRENDER MAY HAVE ADVERSE FEDERAL INCOME TAX CONSEQUENCES, INCLUDING A PENALTY TAX. SEE "FEDERAL TAX MATTERS." 27 PARTIAL SURRENDERS Before the Annuity Commencement Date, you may request a partial surrender of part of your Surrender Value. Partial surrenders are subject to the following conditions: - the minimum amount you can withdraw is $250; and - you may not make a partial surrender if the withdrawal plus the surrender charge, partial surrender processing fee and any applicable premium tax charge would cause the Accumulation Value to fall below $1,000. We will withdraw the amount you request from the Surrender Value as of the Business Day on which you request a partial surrender from Our Administrative Service Center, provided We receive your request before the close of Our Business Day, usually 4:00 p.m. Eastern Time. If We receive your request after the close of Our Business Day, We will make the withdrawal as of the next Business Day. We will then reduce your Accumulation Value by any applicable surrender charge, the partial surrender processing fee, any applicable premium tax charge plus the dollar amount We sent to you. If the amount of the partial surrender is $5,000 or more, your request must be in writing. You may specify how much you wish to withdraw from each Subaccount and/or the Fixed Account. If you do not specify, or if you do not have sufficient assets in the Subaccounts or Fixed Account you specified to comply with your request, We will make the partial surrender on a pro rata basis from the Fixed Account and those Subaccounts in which you are invested. We will base the pro rata reduction on the ratio that the Accumulation Value in each Subaccount and the Fixed Account has to the entire Accumulation Value before the partial surrender. Remember, any partial surrender you take will reduce your Accumulation Value, and may reduce the death benefit by the amount of the partial surrender plus any charges. See "Death Benefit." INCOME TAXES, TAX PENALTIES AND CERTAIN RESTRICTIONS MAY APPLY TO ANY PARTIAL SURRENDER YOU MAKE. Your right to surrender and make partial surrenders is also subject to any restrictions imposed by applicable law or employee benefit plan. See "Fees and Charges -- Surrender Charge" for an explanation of the surrender charges that may apply. SYSTEMATIC WITHDRAWAL PLAN You can elect to receive regular payments from your Accumulation Value during the accumulation period by instructing Us to withdraw selected amounts from the Fixed Account or any of the Subaccounts. We will specify the terms of the withdrawal plan on your Application or make these withdrawals on a monthly, quarterly, semi-annual or annual basis as you direct. You must complete an enrollment form and send it to Our Administrative Service Center. You may terminate the systematic withdrawal plan at any time. There are some limitations to the systematic withdrawal plan: - withdrawals must be at least $100; - you must have a minimum balance at least equal to the amount you want to withdraw; and - We will deduct a surrender charge from any amount you withdraw in excess of your free withdrawal amount. 28 INCOME TAXES AND TAX PENALTIES MAY APPLY TO THE AMOUNT WITHDRAWN. We may suspend or modify the systematic withdrawal plan at any time. DEATH BENEFIT ================================================================================ DEATH BENEFIT BEFORE THE ANNUITY COMMENCEMENT DATE We will pay a death benefit if the Annuitant dies before the Annuity Commencement Date. Assuming you are an Annuitant and you die (and there is no joint owner), your Beneficiary will receive the death benefit unless the Beneficiary is your surviving spouse and elects to continue the Contract. The death benefit is calculated at the close of the Business Day on which We receive written notice and due proof of death as well as properly completed required claim forms, at Our Administrative Service Center. If the Beneficiary elects to delay receipt of the death benefit, the amount of the death benefit payable in the future may be affected. If the deceased Annuitant was not an Owner (and all the Owners are individuals), the proceeds may be received in a lump sum or applied to any of the settlement options within one year of death. If the deceased Annuitant was an Owner, then death proceeds must be distributed in accordance with the Death of Owner (or if any Owner is not an individual), provisions below. If We do not receive a request to apply the death benefit proceeds to a settlement option, We will make a lump sum distribution. We will generally pay lump sum death benefit payments within seven days after Our Administrative Service Center has received sufficient information to make the payment. DEATH BENEFIT PAYABLE The death benefit equals the greater of: - the ACCUMULATION VALUE on the later of the date that We receive due proof of death and the date when We receive the Beneficiary's instructions on payment method at Our Administrative Service Center; or - the MINIMUM DEATH BENEFIT. The minimum death benefit equals the sum of all premium payments, minus reductions for partial surrender. Upon payment of the death benefit, the Contract will terminate. If the Annuitant or Owner is Attained Age 80 or older at the time of death, the death benefit is the Accumulation Value as determined above. DEATH OF THE ANNUITANT 1. If the Annuitant dies prior to the Annuity Commencement Date, We will pay the death benefit as provided above. 2. If the Annuitant dies after the Annuity Commencement Date but before all of the proceeds payable under the Contract have distributed, We will pay the remaining proceeds to the Beneficiary(ies) under the method of payment in effect at the time of the Annuitant's death, unless the Beneficiary elects to receive the discounted Value of any remaining payments in a lump sum. DEATH OF OWNER If any Owner of the Contract dies before the Annuity Commencement Date, the following applies: - If the new Owner is the deceased Owner's spouse, the Contract will continue, treating the spouse as the new Owner and, if the deceased Owner was also the Annuitant, the deceased Owner's spouse will also be the Annuitant. 29 - If the new Owner is someone other than the deceased Owner's spouse, the entire interest in the Contract must be distributed to the new Owner: - within five years of the deceased Owner's death or - over the life of the new Owner or over a period not extending beyond the life or the life expectancy of the new Owner, as long as payments begin within one year of the deceased Owner's death. If the deceased Owner was the Annuitant, the new Owner will be the joint Owner, if any, or if there is no joint Owner, the Beneficiary. If the deceased Owner was not the Annuitant, the new Owner will be the joint Owner, if any, or if there is no joint Owner, the Annuitant. If the new Owner dies after the deceased Owner but before the entire interest has been distributed, any remaining distributions will be to the new Owner's estate. If any Owner dies on or after the Annuity Commencement Date, but before all proceeds payable under this Contract have been distributed, the Company will continue payments to the Annuitant (or, if the deceased Owner was the Annuitant, to the Beneficiary) under the payment method in effect at the time of the deceased Owner's death. If any Owner of this Contract is not an individual, the death of any Annuitant shall be treated as the death of an Owner. In all events, death benefit distributions will be made from the Contract in accordance with Section 72(s) of the Internal Revenue Code of 1986, as amended. FEES AND CHARGES ================================================================================ We make certain charges and deductions under the Contract. These charges and deductions compensate Us for: (1) services and benefits We provide; (2) costs and expenses We incur; and (3) risks We assume. SERVICES AND BENEFITS WE PROVIDE: - - the death benefit under the Contract - - investment options, including premium payment allocations - - administration of elective options - - the distribution of reports to Owners COSTS AND EXPENSES WE INCUR: - - costs associated with processing applications, and with issuing and administering the Contract - - overhead and other expenses for providing services and benefits, and sales and marketing expenses, including compensation paid in connection with the sale of the Contracts - - other costs of doing business, such as collecting premium payments, maintaining records, effecting transactions, and paying Federal, state and local premium and other taxes and fees RISK WE ASSUME: - - that the cost of insurance charges We may deduct are insufficient to meet Our actual claims because Insureds die sooner than We estimate - - that the costs of providing the services and benefits under the Contracts exceed the charges We deduct MORTALITY AND EXPENSE RISK CHARGE As compensation for assuming mortality and expense risks, We deduct a daily mortality and expense risk charge from your assets in the Subaccounts. The charge is equal, on an annual basis, to 1.00% of the average daily net assets you have invested in the Subaccounts. The mortality risk We assume is that Annuitants may live for a longer period of time than estimated. The mortality risk that We assume also includes a guarantee to pay a death benefit if the Owner dies before the Annuity Commencement Date. The expense risk that We assume is the risk that the administrative fees and transfer fees (if imposed) may be insufficient to cover actual future expenses. We may use any profits from the mortality and expense risk charge to pay the costs of distributing the Contracts. ASSET-BASED ADMINISTRATION CHARGE We deduct a daily asset-based administration charge from each Subaccount to help reimburse Us for Our administrative costs, such as Owner inquiries, changes in allocations, Owner reports, Contract maintenance costs and data processing costs. This charge is equal, on an annual basis, to 0.15% of your average daily net assets in 30 the Subaccounts. This charge is designed to help compensate Us for the cost of administering the Contracts and the Variable Account. PARTIAL SURRENDER PROCESSING FEE For each partial surrender, We deduct a processing fee of 2% of the amount withdrawn up to $25, from the remaining Accumulation Value to help reimburse Us for the administrative costs of processing partial surrenders. TRANSFER FEE A transfer fee of $25 will be imposed for the thirteenth and each subsequent transfer during a Contract year. Any unused free transfers do not carry over to the next Contract year. Each written or telephone request would be considered to be one transfer, regardless of the number of Subaccounts affected by the transfer. Transfers you make through Our automatic asset reallocation and dollar cost averaging programs do NOT count toward your twelve free transfers. We deduct the transfer fee from the amount transferred. SURRENDER CHARGE We do not deduct a charge for sales expenses from premium payments at the time premium payments are paid to Us. However, We will deduct a surrender charge, if applicable, if you surrender your Contract or partially surrender Accumulation Value before the Annuity Commencement Date. We do not assess a surrender charge on withdrawals made if the Contract terminates due to your death or the death of the last surviving Annuitant. As a general rule, the surrender charge equals a percentage of the premium payments withdrawn that: (a) We have held for less than nine years; and (b) are not eligible for a free withdrawal. The surrender charge applies during the entire nine year period following each premium payment. The applicable percentage depends on the number of years since you made the premium payment being withdrawn, as shown on this chart:
NUMBER OF COMPLETED YEARS FROM THE DATE OF SURRENDER CHARGE PREMIUM PAYMENT PERCENTAGE ------------------------------ ------------------- 0.............................. 8% 1.............................. 8% 2.............................. 7% 3.............................. 6% 4.............................. 5% 5.............................. 4% 6.............................. 3% 7 ............................. 2% 8.............................. 1% 9.............................. 1% 10 and later .................. 0%
In determining surrender charges, We will deem premium payments to be surrendered in the order in which they were received -- that is, on a first-in, first-out basis. We also treat premium payments as being withdrawn before earnings. Because surrender charges are based on the date each premium payment is made, you may be subject to a surrender charge, even though the Contract may have been issued many years earlier. 31 When you request a partial surrender, you will be sent a check in the amount you requested, less applicable tax withholding. If a surrender charge applies, your Accumulation Value will be reduced by the dollar amount We send you, plus the surrender charge, the partial surrender processing fee and any applicable premium tax charge. The deductions will be made pro rata from all Subaccounts and the Fixed Account in which the Contract is invested based on the remaining Accumulation Value in each Subaccount and the Fixed Account, unless you request otherwise. FREE WITHDRAWAL AMOUNT Each Contract year, after the first Contract year, you may withdraw a portion of your Accumulation Value without incurring a surrender charge. This amount is called the free withdrawal amount. The FREE WITHDRAWAL AMOUNT is an amount equal to 10% of total premium payments minus any prior partial surrenders. We do not assess a surrender charge on proceeds applied to a settlement option with a fixed pay-out period of at least five years or on a settlement option with a life contingency. You may also withdraw, free of surrender charge, any premium payment that has been held by Us for more than nine years. We will pay the Surrender Value to you in a lump sum within seven days after We receive your completed, signed surrender form absent other arrangements, unless the payment is from the Fixed Account. We may defer payment from the Fixed Account for the time allowed by law but not more than six months. ANNUAL CONTRACT FEE At the end of each Contract year before the Annuity Commencement Date, We will deduct an annual policy fee of $30 from your Accumulation Value as partial reimbursement for Our administrative expenses relating to the Contract. We will deduct the fee from each Subaccount and the Fixed Account based on the proportion that the Accumulation Value in each Subaccount and the Fixed Account bears to the total Accumulation Value. We will also deduct a pro rata portion of this charge on the Annuity Commencement Date, or the date you surrender the Contract. We guarantee this charge will not exceed $50. We will not deduct this fee after income payments have begun. We also currently waive deduction of the charge for Contracts whose Accumulation Value is more than $20,000 on the date of assessment. PORTFOLIO MANAGEMENT FEES AND CHARGES Each portfolio deducts portfolio management fees and charges from the amounts you have invested in the portfolios. In addition, four portfolios deduct 12b-1 fees. See the Fee Table in this prospectus and the prospectuses for the portfolios. We receive compensation from certain investment advisers and/or administrators (and/or an affiliate thereof) of the portfolios in connection with administrative or other services and cost savings experienced by the investment advisers, administrators or affiliates. Such compensation may range up to .25% and is based on a percentage of assets of the particular portfolios attributable to the Contract. Some advisers, administrators, or portfolios may pay Us more than others. American Family Securities, LLC, our wholly owned subsidiary broker-dealer also receives a portion of the 12b-1 fees deducted from certain funds' portfolio assets as reimbursement for providing certain services permitted under the 12b-1 plans of those funds. 32 PREMIUM TAXES Various states and other governmental entities charge a premium tax on annuity contracts issued by insurance companies. Premium tax rates currently range up to 3.5%, depending on the state. We are responsible for paying these taxes. If applicable, We will deduct the cost of such taxes from the Accumulation Value of your Contract either: - from premium payments as We receive them, - from Accumulation Value upon surrender or partial surrender, - on the Annuity Commencement Date, or - upon payment of a death benefit. OTHER TAXES Currently, no charge is made against the Variable Account for any Federal, state or local taxes (other than premium taxes) that We incur or that may be attributable to the Variable Account or the Contracts. We may, however, deduct such a charge in the future, if necessary. THE PAYOUT PERIOD ================================================================================ THE ANNUITY COMMENCEMENT DATE The Annuity Commencement Date is the day that the payout period begins under the settlement option you have selected. If you own a Contract that is not a qualified Contract, you must select the Annuity Commencement Date on which you will begin to receive income payments. The Annuity Commencement Date can be no earlier than the fifth Contract anniversary and can be no later than the Contract anniversary when the oldest Annuitant is age 95. In the case of an IRA that satisfies Tax Code section 408, the Annuity Commencement Date must be no later than April 1 of the calendar year following the year in which you reach age 70 1/2 and the payment must be made in a specified form or manner. Roth IRAs under section 408A of the Tax Code do not require distributions at any time prior to your death; the Annuity Commencement Date for Roth IRAs can be no later than age 95. SETTLEMENT OPTIONS You must choose a settlement option on or before the Annuity Commencement Date. The settlement option you select will affect the dollar amount of each income payment you receive. You may select or change your settlement option on or before the Annuity Commencement Date while the Annuitant is living by sending a written request signed by you and/or your Beneficiary, as appropriate, to Our Administrative Service Center. You may choose one of the settlement options described below or any other settlement option being offered by Us as of the Annuity Commencement Date. You may also choose a lump sum payment or payment under a Flexible Settlement Account. We pay interest on proceeds held in the Flexible Settlement Account as required by state law. The settlement options We currently offer provide for fixed income payments. You may elect to receive income payments on a monthly, quarterly, semi-annual or annual basis depending upon the settlement option you choose. If you do not specify the frequency of payment, We will pay you monthly. The first payment under any option will be made on the day of the month you request (subject to Our agreement) and will be based on the payment frequency you selected measured from the Annuity 33 Commencement Date. We will make subsequent payments on the same day of each subsequent period in accordance with the payment interval and settlement option you select. If you do not select a settlement option by the Annuity Commencement Date, We will apply the Accumulation Value under the Fixed Period and Life settlement option, with a ten year guaranteed period of payments, as described below. A Beneficiary may have the death benefit paid as an annuity under one of the settlement options. DETERMINING THE AMOUNT OF YOUR INCOME PAYMENT On the Annuity Commencement Date, We will use the Surrender Value to calculate your income payments under the settlement option you select. The Surrender Value is your Accumulation Value minus any applicable surrender charges, annual policy fee, and premium tax charge. For qualified Contracts, distributions must satisfy certain requirements specified in the Tax Code. FIXED INCOME PAYMENTS Fixed income payments are periodic payments that We make to the Annuitant. The amount of the fixed income payment is fixed and guaranteed by Us. The amount of each payment depends on: - the form and duration of the settlement option you choose; - the age of the Annuitant; - the gender of the Annuitant (if applicable); - the amount of your Surrender Value on the Annuity Commencement Date; and - the applicable guaranteed annuity tables in the Contract. The guaranteed annuity tables in the Contract are based on a minimum guaranteed interest rate of 3.5%. We may, in Our sole discretion, make income payments in an amount based on a higher interest rate. AVAILABLE SETTLEMENT OPTIONS: FIXED PERIOD. We will make equal periodic payments for a fixed period not less than five years and not longer than 30 years. If the payee dies before the period ends, the Beneficiary may elect one of the following options: payments for the remainder of the period, a single sum payment or another fixed settlement option with a lesser fixed period. FIXED PERIOD AND LIFE. We will make equal periodic payments for a guaranteed minimum period of not less than 10 years. If the payee lives longer than the minimum period, payments will continue for his or her life. The minimum period can be 10, 15, or 20 years. If the payee dies before the end of the guarantee period, the balance of the guaranteed payments will be paid to the Beneficiary. FIXED AMOUNT. We will make equal periodic payments of a definite amount. The amount of each payment must be at least $20 for a period of not less than 5 years and not longer than 30 years. Payments will continue until the Proceeds are exhausted. The last payment will equal the amount of any unpaid Proceeds. If the payee dies before the Proceeds are paid, the Beneficiary may elect one 34 of the following options: payments for the remainder of the period, a lump sum payment or another fixed settlement option with a lesser fixed period. JOINT AND SURVIVOR LIFETIME INCOME. We will make equal periodic payments to two payees for a guaranteed minimum of 10 years. Payments will continue as long as either payee is living. If both payees die before the end of the minimum period, the Beneficiary may elect one of the following options: payments for the remainder of the period, a lump sum payment or another fixed settlement option with a lesser fixed period. INSTALLMENT REFUND. Payments are guaranteed for the lifetime of the payee. Payments are guaranteed to total no less than the amount of the proceeds or death benefit applied. If the payee dies before the guaranteed payments have been made, the remaining payment will be paid to the Beneficiary. LIFETIME - NO REFUND. Payments are made for the lifetime of the payee. No minimum number of payments is guaranteed. Payments end at the death of the payee. THE FIXED ACCOUNT ================================================================================ You may allocate some or all of your premium payments and transfer some or all of your Accumulation Value to the Fixed Account. The Fixed Account is part of Our General Account. We own the assets in the General Account, and We use these assets to support Our insurance and annuity obligations other than those funded by Our separate accounts. These assets are subject to Our general liabilities from business operations. Subject to applicable law, We have sole discretion over investment of the Fixed Account's assets. We bear the full investment risk for all amounts allocated or transferred to the Fixed Account. We guarantee that the amounts allocated to the Fixed Account will be credited interest daily at a net effective annual interest rate of at least 3%. The principal, after charges and deductions, is also guaranteed. We will determine any interest rate credited in excess of the guaranteed rate at Our sole discretion. The Fixed Account value will not share in the investment performance of Our General Account. Our current practice is that each Contract year, We, in Our sole discretion, intend to establish a current interest rate that will be credited daily to amounts held in the Fixed Account for the duration of the Contract year. For each amount allocated or transferred to the Fixed Account, We apply the current interest rate to the end of the Contract year. At the end of the Contract year, We reserve the right to declare a new current interest rate on this amount and accrued interest thereon. You assume the risk that interest credited to amounts in the Fixed Account may not exceed the minimum 3% guaranteed rate. WE HAVE NOT REGISTERED THE FIXED ACCOUNT WITH THE SECURITIES AND EXCHANGE COMMISSION, AND THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION HAS NOT REVIEWED THE DISCLOSURE IN THIS PROSPECTUS RELATING TO THE FIXED ACCOUNT. FIXED ACCOUNT TRANSFERS GENERAL A transfer charge of $25 will be imposed for the 13th and each subsequent request you make to transfer Accumulation Value from one or more Subaccounts to the Fixed Account (or to one or more Subaccounts) during a single Contract year before the Annuity Commencement Date. 35 Before the Annuity Commencement Date, you may make ONE transfer each Contract year from the Fixed Account to one or more of the Subaccounts. PAYMENT DEFERRAL We have the right to defer payment of any surrender, partial surrender, or transfer from the Fixed Account for up to six months from the date We receive your written request at Our Administrative Service Center. During such deferral, We will continue to credit interest at the current guaranteed interest rate(s) for the Fixed Account. INVESTMENT PERFORMANCE OF THE SUBACCOUNTS ================================================================================ The Company periodically advertises performance of the Subaccounts and portfolios. We may disclose at least four different kinds of performance. First, We may disclose standard total return figures for the Subaccounts that reflect the deduction of all charges under the Contract, including the mortality and expense charge, the annual policy fee and the surrender charge. THESE FIGURES ARE BASED ON THE ACTUAL HISTORICAL PERFORMANCE OF THE SUBACCOUNTS SINCE THEIR INCEPTION. Second, We may disclose total return figures on a non-standard basis. This means that the data may be presented for different time periods and different dollar amounts. The data will not be reduced by the surrender charge assessed under the Contract. We will only disclose non-standard performance data if it is accompanied by standard total return data. Third, We may present historic performance data for the portfolios since their inception reduced by all fees and charges under the Contract, although We may not deduct the surrender charge in some cases. Such adjusted historic performance includes data that precedes the inception dates of the Subaccounts, but is designed to show the performance that would have resulted if the Contract had been available during that time. Fourth, We may include in Our advertising and sales materials, tax deferred compounding charts and other hypothetical illustrations, which may include comparisons of currently taxable and tax deferred investment programs, based on selected tax brackets. In advertising and sales literature (including illustrations), the performance of each Subaccount may be compared with the performance of other variable annuity issuers in general or to the performance of particular types of variable annuities investing in mutual funds, or portfolios of mutual funds with investment objectives similar to the Subaccount. Lipper Analytical Services, Inc. ("Lipper"), CDA Investment Technologies ("CDA"), Variable Annuity Research Data Service ("VARDS") and Morningstar, Inc. ("Morningstar") are independent services which monitor and rank the performance of variable annuity issuers in each of the major categories of investment objectives on an industry-wide basis. Lipper's and Morningstar's rankings include variable life insurance issuers as well as variable annuity issuers. VARDS rankings compare only variable annuity issuers. The performance analyses prepared by Lipper, CDA, VARDS and Morningstar rank or illustrate such issuers on the basis of total return, assuming reinvestment of distributions, but do not take sales charges, redemption fees, or certain expense deductions at the Variable Account level into consideration. In addition, VARDS prepares risk rankings, which consider the effects of market risk on total return performance. This type of ranking provides data as to which funds provide the highest total return within various categories of funds defined by the degree of risk inherent in their investment objectives. 36 Advertising and sales literature may also compare the performance of each Subaccount to the Standard & Poor's Index of 500 Common Stocks, a widely used measure of stock performance. This unmanaged index assumes the reinvestment of dividends but does not reflect any "deduction" for the expense of operating or managing an investment portfolio. Other independent ranking services and indices may also be used as a source of performance comparison. We may also report other information including the effect of systematic investments and tax-deferred compounding on a Subaccount's investment returns, or returns in general. We may illustrate this information by using tables, graphs, or charts. All income and capital gains derived from Subaccount investments are reinvested and can lead to substantial long-term accumulation of assets, provided that the Subaccount investment experience is positive. VOTING RIGHTS ================================================================================ We are the legal owner of the portfolio shares held in the Subaccounts. However, when a portfolio is required to solicit the votes of its shareholders through the use of proxies, We believe that current law requires Us to solicit you and other Contract Owners as to how We should vote the portfolio shares held in the Subaccounts. If We determine that We no longer are required to solicit your votes, We may vote the shares in Our own right. When We solicit your vote, the number of votes you have will be calculated separately for each Subaccount in which you have an investment. The number of your votes is based on the net asset value per share of the portfolio in which the Subaccount invests. It may include fractional shares. Before the Annuity Commencement Date, you hold a voting interest in each Subaccount to which the Accumulation Value is allocated. If you have a voting interest in a Subaccount, you will receive proxy materials and reports relating to any meeting of shareholders of the portfolio in which that Subaccount invests. If We do not receive timely voting instructions for portfolio shares, We will vote those shares in proportion to the voting instructions We receive. Instructions We receive to abstain on any item will reduce the total number of votes being cast on a matter. For further details as to how We determine the number of your votes, see the SAI. FEDERAL TAX MATTERS ================================================================================ The following discussion is general in nature and is not intended as tax advice. Each person concerned should consult a competent tax adviser. No attempt is made to consider any applicable state tax or other tax laws. We believe that Our Contracts will qualify as annuity contracts for Federal income tax purposes and the following discussion assumes that they will so qualify. Further information on the tax status of the Contract can be found in the SAI under the heading "Tax Status of the Contracts." When you invest in an annuity contract, you usually do not pay taxes on your investment gains until you withdraw the money -- generally for retirement purposes. In this way, annuity contracts have been recognized by the tax authorities as a legitimate means of DEFERRING tax on investment income. If you invest in a variable annuity as part of an IRA, Roth IRA or SIMPLE IRA program, your Contract is called a QUALIFIED CONTRACT. If your annuity is independent of any formal retirement or pension plan, it is called a NON-QUALIFIED CONTRACT. 37 We believe that if you are a natural person you will not be taxed on increases in the Contract Value of your Contract until a distribution occurs or until annuity payments begin. (The agreement to assign or pledge any portion of a Contract's accumulation value generally will be treated as a distribution.) When annuity payments begin, you will be taxed only on the investment gains you have earned and not on the payments you made to purchase the Contract. Generally, withdrawals from your annuity should only be made once the Annuitant reaches age 59 1/2, dies or is disabled; otherwise a tax penalty of ten percent of the amount treated as income could be applied against any amounts included in income, in addition to the tax otherwise imposed on such amount. TAXATION OF NON-QUALIFIED CONTRACTS NON-NATURAL PERSON If a non-natural person (such as a corporation or a trust) owns a non-qualified annuity contract, the owner generally must include in income any increase in the excess of the accumulation value over the investment in the contract (generally, the premiums or other consideration paid for the Contract, reduced by any amount previously distributed from the Contract that was not subject to tax) during the taxable year. There are some exceptions to this rule and a prospective owner that is not a natural person should discuss these with a tax adviser. The following discussion generally applies to Contracts owned by natural persons. WITHDRAWALS When a withdrawal (including Systematic Payments) from a Non-Qualified Contract occurs, the amount received will be treated as ordinary income subject to tax up to an amount equal to the excess (if any) of the accumulation value immediately before the distribution over the Owner's investment in the contract at that time. In the case of a surrender under a Non-Qualified Contract, the amount received generally will be taxable only to the extent it exceeds the Owner's investment in the contract. PENALTY TAX ON CERTAIN WITHDRAWALS In the case of a distribution from a Contract, there may be imposed a Federal tax penalty equal to ten percent of the amount treated as income. In general, however, there is no penalty on distributions: - made on or after the taxpayer reaches age 59 1/2; - made on or after the death of an Owner; - attributable to the taxpayer's becoming disabled; or - made as part of a series of substantially equal periodic payments for the life (or life expectancy) of the taxpayer. Other exceptions may apply under certain circumstances and special rules may apply in connection with the exceptions enumerated above. Additional exceptions apply to distributions from a Qualified Contract. You should consult a tax adviser with regard to exceptions from the penalty tax. INCOME PAYMENTS Although tax consequences may vary depending on the settlement option elected under an annuity contract, a portion of each income payment is generally not taxed and the remainder is taxed as ordinary income. The non-taxable portion of an income payment is generally determined in a manner that is designed to allow you to recover your investment in the contract ratably on a tax-free basis over the expected stream of annuity 38 payments, as determined when income payments start. Once your investment in the contract has been fully recovered, however, the full amount of each income payment is subject to tax as ordinary income. TAXATION OF DEATH BENEFIT PROCEEDS Amounts may be distributed from a Contract because of your death or the death of the Annuitant. Generally, such amounts are includible in the income of the recipient as follows: (i) if distributed in a lump sum, they are taxed in the same manner as a surrender of the Contract, or (ii) if distributed under a settlement option, they are taxed in the same way as income payments. TRANSFERS, ASSIGNMENTS OR EXCHANGES OF A CONTRACT A transfer or assignment of ownership of a Contract, the selection of certain Annuity Commencement Dates, or the exchange of a Contract may result in certain tax consequences to you that are not discussed herein. An Owner contemplating any such transfer, assignment or exchange, should consult a tax advisor as to the tax consequences. WITHHOLDING Annuity distributions are generally subject to withholding for the recipient's Federal income tax liability. Recipients can generally elect, however, not to have tax withheld from distributions. MULTIPLE CONTRACTS All non-qualified deferred annuity contracts that are issued by Us (or affiliates) to the same Owner during any calendar year are treated as one annuity contract for purposes of determining the amount includible in such Owner's income when a taxable distribution occurs. FURTHER INFORMATION We believe that the contracts will qualify as annuity contracts for Federal income tax purposes and the above discussion is based on that assumption. Further details can be found in the Statement of Additional Information under the heading "Tax Status of the Contracts." TAXATION OF QUALIFIED CONTRACTS The tax rules that apply to Qualified Contracts vary according to the type of retirement plan and the terms and conditions of the plan. Your rights under a Qualified Contract may be subject to the terms of the retirement plan itself, regardless of the terms of the Qualified Contract. Adverse tax consequences may result if you do not ensure that contributions, distributions and other transactions with respect to the Contract comply with the law. INDIVIDUAL RETIREMENT ANNUITIES (IRAs), as defined in Section 408 of the Tax Code, permit individuals to make annual contributions of up to the lesser of $2,000 or 100% of the compensation included in your income for the year. The contributions may be deductible in whole or in part, depending on the individual's income. Distributions from certain pension plans may be "rolled over" into an IRA on a tax-deferred basis without regard to these limits. Amounts in the IRA (other than nondeductible contributions) are taxed when distributed from the IRA. A 10% penalty tax generally applies to distributions made before age 59 1/2, unless certain exceptions apply. The Internal Revenue Service has reviewed the Contract and its traditional IRA and SIMPLE IRA riders and has issued an opinion letter approving the use of the Contract and the riders as a traditional IRA and a SIMPLE IRA. 39 SIMPLE IRAS permit certain small employers to establish SIMPLE plans as provided by Section 408(p) of the Tax Code, under which employees may elect to defer to a SIMPLE IRA a percentage of compensation up to $6,000 (as increased for cost of living adjustments). The sponsoring employer is required to make matching or non-elective contributions on behalf of the employees. Distributions from SIMPLE IRAs are subject to the same restrictions that apply to IRA distributions and are taxed as ordinary income. Subject to certain exceptions, premature distributions prior to age 59 1/2 are subject to a 10% penalty tax, which is increased to 25% if the distribution occurs within the first two years after the commencement of the employee's participation in the plan. ROTH IRAS, as described in Tax Code section 408A, permit certain eligible individuals to make non-deductible contributions to a Roth IRA in cash or as a rollover or transfer from another Roth IRA or other IRA. A rollover from or conversion of an IRA to a Roth IRA is generally subject to tax and other special rules apply. The Owner may wish to consult a tax adviser before combining any converted amounts with any other Roth IRA contributions, including any other conversion amounts from other tax years. Distributions from a Roth IRA generally are not taxed, except that, once aggregate distributions exceed contributions to the Roth IRA, income tax and a 10% penalty tax may apply to distributions made (1) before age 59 1/2 (subject to certain exceptions) or (2) during the five taxable years starting with the year in which the first contribution is made to any Roth IRA. A 10% penalty tax may apply to amounts attributable to a conversion from an IRA if they are distributed during the five taxable years beginning with the year in which the conversion was made. OTHER TAX ISSUES Qualified Contracts generally have minimum distribution rules that govern the timing and amount of distributions. Roth IRAs do not require distributions before death. You should consult a tax advisor for more information about these distribution rules. Distributions from Qualified Contracts generally are subject to withholding for the Owner's Federal income tax liability. The withholding rate varies according to the type of distribution and the Owner's tax status. The Owner will be provided the opportunity to elect to not have tax withheld from distributions. OUR INCOME TAXES At the present time, We make no charge for any Federal, state or local taxes (other than the charge for state and local premium taxes) that We incur that may be attributable to the investment divisions (that is, the Subaccounts) of the Variable Account or to the Contracts. We do have the right in the future to make additional charges for any such tax or other economic burden resulting from the application of the tax laws that We determine is attributable to the investment divisions of the Variable Account or the Contracts. Under current laws in several states, We may incur state and local taxes (in addition to premium taxes). These taxes are not now significant and We are not currently charging for them. If they increase, We may deduct charges for such taxes. POSSIBLE TAX LAW CHANGES Although the likelihood of legislative changes is uncertain, there is always the possibility that the tax treatment of the Contracts could change by legislation or otherwise. Consult a tax adviser with respect to legislative developments and their effect on the Contract. We have the right to modify the Contract in response to legislative changes that could otherwise diminish the favorable tax treatment that annuity contract owners currently receive. We make no guarantee regarding the tax status of any contract and do not intend the above discussion as tax advice. 40 OTHER INFORMATION ================================================================================ PAYMENTS WE MAKE We usually pay the amounts of any surrender, partial surrender, or death benefit within seven days after We receive all applicable written notices, permitted telephone requests, and/or due proofs of death. However, We can postpone these payments if: - the New York Stock Exchange is closed, other than customary weekend and holiday closing, or trading on the New York Stock Exchange is restricted as determined by the SEC; OR - the SEC permits, by an order, the postponement of any payment for the protection of Owners; OR - the SEC determines that an emergency exists that would make the disposal of securities held in the Variable Account or the determination of their value not reasonably practicable. We have the right to defer payment of amounts from the Fixed Account for up to six months after receipt of the written notice. We will pay interest on any payment deferred for 30 days or more at an annual rate of 3%. If you have submitted a check or draft to Our Administrative Service Center, We have the right to defer payment of surrenders, partial surrenders, death benefit, or payments under a settlement option until the check or draft has been honored. MODIFYING THE CONTRACT Any modification or waiver of Our rights or requirements under the Contract must be in writing and signed by Our President, one of Our Vice Presidents, Our Secretary or Our Assistant Secretary. No agent or other person may bind Us by waiving or changing any provision contained in the Contract. Upon notice to you, We may modify the Contract: - to conform the Contract, Our operations, or the Variable Account's operations to the requirements of any law (or regulation issued by a government agency) to which the Contract, Our Company, or the Variable Account is subject; - to assure continued qualification of the Contract under the Code or other Federal or state laws relating to retirement annuities or variable annuity contracts; - to reflect a change in the Variable Account's operation; or - provide additional investment options. 41 If We modify the Contract, We will make appropriate endorsements to the Contract. If any provision of the Contract conflicts with the laws of a jurisdiction that govern the Contract, We reserve the right to amend the provision to conform with these laws. DISTRIBUTION OF THE CONTRACTS We have entered into a distribution agreement with American Family Securities LLC for the distribution and sale of the Contracts. Pursuant to this agreement, American Family Securities LLC serves as principal underwriter for the Contracts. American Family Securities LLC is located at 6000 American Parkway, Madison, WI 53783-0001. American Family Securities LLC was organized under the laws of Wisconsin on July 13, 2000, as a limited liability company with a sole member that is a subsidiary of American Family Mutual Insurance Company, our parent. American Family Securities LLC is registered as a broker-dealer with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as well as with the securities commissions in the states in which it operates, and is a member of the National Association of Securities Dealers, Inc. American Family Securities offers the Contracts through its registered representatives who are registered with the NASD and with the states in which they do business. More information about American Family Securities LLC and its registered persons is available at http://www.nasdr.com or by calling 1-800-289-9999. You also can obtain an investor brochure from NASD Regulation describing its Public Disclosure Program. Registered representatives with American Family Securities LLC are also licensed as insurance agents in the states in which they do business and are appointed with Us. We pay sales commissions for the sale of the Contracts. Sales commissions may vary, but are expected not to exceed 3.75% of premium payments. This commission may be returned if the Contract is not continued through the first Contract year. The entire amount of the sales commissions is passed through American Family Securities LLC to the registered representative who sold the Contract. American Family Securities LLC does not retain any override as distributor for the Contracts. However, American Family Securities LLC's operating and other expenses are paid for by American Family Mutual. Also, American Family Securities LLC receives 12b-1 fees from Fidelity Variable Insurance Products Fund, Fidelity Variable Insurance Products Fund II, and Fidelity Variable Insurance Products Fund III. Because registered representatives of American Family Securities LLC are also Our agents, they are eligible for various cash benefits, such as bonuses, insurance benefits and financing arrangements, and non-cash compensation programs that We offer, such as conferences, trips, prizes and awards. LEGAL PROCEEDINGS Like other life insurance companies, We are involved in lawsuits. These actions are in various stages of discovery and development, and some seek punitive as well as compensatory damages. While it is not possible to predict the outcome of such matters with absolute certainty, We believe that the ultimate disposition of these proceedings should not have a material adverse effect on the financial position of American Family Life Insurance Company. In addition, We are, from time to time, involved as a party to various governmental and administrative proceedings. There are no pending or threatened lawsuits that will materially impact the Variable Account. REPORTS TO OWNERS We will mail a report to you at least annually at your last known address of record. The report will state the Accumulation Value (including the Accumulation Value in each Subaccount and the Fixed Account), the Surrender Value, any activity since the last report (e.g., premium payments, partial surrenders and interest credited to the Fixed Account) and any further information required by any applicable law or regulation. INQUIRIES Inquiries regarding your Contract may be made by calling or writing to Us at Our Administrative Service Center. FINANCIAL STATEMENTS Our audited balance sheets as of December 31, 2000 and 1999, and the related statements of income, comprehensive income, stockholder's equity, and cash flows for each of the three years in the period ended December 31, 2000, as well as the Independent Auditors' Report, are contained in the SAI. Our financial 42 statements should be considered only as bearing on Our ability to meet Our obligations under the Contracts. They should not be considered as bearing on the investment performance of the assets held in the Variable Account. There are no financial statements for the Variable Account, because it had not commenced operations as of December 31, 2000. 43 STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS The SAI contains additional information about the Contract and the Variable Account. You can obtain the SAI (at no cost) by writing to Us at the address shown on the front cover or by calling 1 (888) 428-5433. The following is the Table of Contents for the SAI. TABLE OF CONTENTS PAGE Additional Contract Provisions...............................................3 The Contract............................................................3 Assignment..............................................................3 Incontestability........................................................3 Incorrect Age or Gender.................................................3 Nonparticipation........................................................3 Tax Status of the Contracts.............................................3 Calculation of Subaccount and Adjusted Historic Portfolio Performance Data...4 Money Market Subaccount Yields..........................................4 Other Subaccount Yields.................................................6 Average Annual Total Returns for the Subaccounts........................6 Non-Standard Subaccount Total Returns...................................7 Adjusted Historic Portfolio Performance Data............................8 Effect of the Annual Contract Fee on Performance Data...................8 Historic Performance Data....................................................8 General Limitations.....................................................8 Time Periods Before the Date the Variable Account Commenced Operations..8 Addition, Deletion or Substitution of Investments............................8 Resolving Material Conflicts............................................8 Voting Rights................................................................9 Safekeeping of Variable Account Assets.......................................9 Distribution of the Contracts................................................9 Legal Matters...............................................................10 Experts.....................................................................10 Other Information...........................................................10 44 STATEMENT OF ADDITIONAL INFORMATION for the AMERICAN FAMILY VARIABLE ANNUITY CONTRACT FLEXIBLE PREMIUM VARIABLE ANNUITY CONTRACT ------------------------------------------ Issued Through AMERICAN FAMILY VARIABLE ACCOUNT II Offered by AMERICAN FAMILY LIFE INSURANCE COMPANY 6000 American Parkway Madison, Wisconsin 53783-0001 (888) 428-5433 ADMINISTRATIVE SERVICE CENTER: P.O. Box 1296 Greenville, SC 29602 1-888-428-5433 (toll free) This Statement of Additional Information expands upon subjects discussed in the current Prospectus for the American Family Variable Annuity Contract offered by American Family Life Insurance Company. You may obtain a copy of the Prospectus for the Contract dated March __, 2001 by calling 1-888-428-5433 or by writing to Our ADMINISTRATIVE SERVICE CENTER at P.O. Box 1296, Greenville, SC 29602. This Statement incorporates terms used in the current Prospectus for the Contract. - -------------------------------------------------------------------------------- THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ ONLY IN CONJUNCTION WITH THE PROSPECTUSES FOR YOUR CONTRACT AND THE FUNDS. The date of this Statement of Additional Information is March __, 2001. 1
TABLE OF CONTENTS PAGE ----- Additional Contract Provisions..........................................................3 The Contract.........................................................................3 Assignment...........................................................................3 Incontestability.....................................................................3 Incorrect Age or Gender..............................................................3 Nonparticipation.....................................................................3 Tax Status of the Contracts..........................................................3 Calculation of Subaccount and Adjusted Historic Portfolio Performance Data..............4 Money Market Subaccount Yields.......................................................4 Other Subaccount Yields..............................................................6 Average Annual Total Returns for the Subaccounts.....................................6 Non-Standard Subaccount Total Returns................................................7 Adjusted Historic Portfolio Performance Data.........................................8 Effect of the Annual Contract Fee on Performance Data................................8 Historic Performance Data...............................................................8 General Limitations..................................................................8 Time Periods Before the Date the Variable Account Commenced Operations...............8 Addition, Deletion or Substitution of Investments.......................................8 Resolving Material Conflicts.........................................................8 Voting Rights...........................................................................9 Safekeeping of Variable Account Assets..................................................9 Distribution of the Contracts...........................................................9 Legal Matters..........................................................................10 Experts................................................................................10 Other Information......................................................................10
2 ADDITIONAL CONTRACT PROVISIONS THE CONTRACT The entire contract consists of the Contract, the signed Application attached at issue, any attached amendments and supplements to the Application, and any attached riders and endorsements. In the absence of fraud, We consider all statements in the Application to be representations and not warranties. We will not use any statement to contest a claim unless that statement is in an attached Application or in an amendment or supplement to the Application attached to the Contract. ASSIGNMENT The rights of the Owner and any Beneficiary are subject to the rights of any assignee of this Contract unless the Beneficiary was effectively designated as an irrevocable Beneficiary before the assignment. No assignment is binding on Us until the original or a copy of it is filed at the Administrative Service Center and accepted by Us. We are not responsible for the validity of any assignment or its legal effect. INCONTESTABILITY We will not contest the Contract after the issue date. INCORRECT AGE OR GENDER If the age or gender (if applicable) of the Annuitant has been stated incorrectly, then We will determine the Annuity Commencement Date and the amount of the income payments by using the correct age and gender. After the Annuity Commencement Date, any adjustment for underpayment will be paid immediately. Any adjustment for overpayment will be deducted from future payments. We will make adjustments for overpayments or underpayments with interest at the rate then in use to determine the rate of payments. NONPARTICIPATION The Contract does not participate in Our surplus earnings or profits. We will not pay dividends on this Contract. TAX STATUS OF THE CONTRACTS Tax law imposes several requirements that variable annuities must satisfy in order to receive the tax treatment normally accorded to annuity contracts. DIVERSIFICATION REQUIREMENTS. The Tax Code requires that the investments of each Subaccount of the Variable Account underlying the Contracts be "adequately diversified" in order for the Contracts to be treated as annuity contracts for Federal income tax purposes. It is intended that each Subaccount, through the Portfolio in which it invests, will satisfy these diversification requirements. OWNER CONTROL. In certain circumstances, owners of variable annuity contracts have been considered for Federal income tax purposes to be the owners of the assets of the variable account supporting their contracts due to their ability to exercise investment control over those assets. When this is the case, the contract owners have been currently taxed on income and gains attributable to the variable account assets. There is little guidance in this area, and some features of Our Contracts, such as the flexibility of an owner to allocate premiums and transfer amounts among the Subaccounts of the Variable Account, have not been explicitly addressed in published rulings. While We believe that the Contracts do 3 not give Owners investment control over Variable Account assets, We reserve the right to modify the Contracts as necessary to prevent an Owner from being treated as the Owner of the Variable Account assets supporting the Contract. REQUIRED DISTRIBUTIONS. In order to be treated as an annuity contract for Federal income tax purposes, section 72(s) of the Tax Code requires any Non-Qualified Contract to contain certain provisions specifying how your interest in the Contract will be distributed in the event of the death of a holder of the Contract. Specifically, section 72(s) requires that (a) if any Owner dies on or after the Annuity Commencement Date, but prior to the time the entire interest in the Contract has been distributed, the entire interest in the Contract will be distributed at least as rapidly as under the method of distribution being used as of the date of such Owner's death; and (b) if any Owner dies prior to the annuity start date, the entire interest in the Contract will be distributed within five years after the date of such Owner's death. These requirements will be considered satisfied as to any portion of an Owner's interest which is payable to or for the benefit of a designated Beneficiary and which is distributed over the life of such designated Beneficiary or over a period not extending beyond the life expectancy of that Beneficiary, provided that such distributions begin within one year of the Owner's death. The designated Beneficiary refers to a natural person designated by the Owner as a Beneficiary and to whom ownership of the Contract passes by reason of death. However, if the designated Beneficiary is the surviving spouse of the deceased Owner, the Contract may be continued with the surviving spouse as the new Owner. The Non-Qualified Contracts contain provisions that are intended to comply with these Tax Code requirements, although no regulations interpreting these requirements have yet been issued. We intend to review such provisions and modify them if necessary to assure that they comply with the applicable requirements when such requirements are clarified by regulation or otherwise. Other rules may apply to Qualified Contracts. CALCULATION OF SUBACCOUNT AND ADJUSTED HISTORIC PORTFOLIO PERFORMANCE DATA We may advertise and disclose historic performance data for the Subaccounts, including yields, standard annual total returns, and non-standard measures of performance of the Subaccounts. Such performance data will be computed, or accompanied by performance data computed, in accordance with the SEC defined standards. MONEY MARKET SUBACCOUNT YIELDS Advertisements and sales literature may quote the current annualized yield of the Money Market Subaccount for a seven-day period in a manner that does not take into consideration any realized or unrealized gains or losses, or income other than investment income, on shares of the Money Market portfolio. We compute this current annualized yield by determining the net change (not including any realized gains and losses on the sale of securities, unrealized appreciation and depreciation, and income other than investment income) at the end of the seven-day period in the value of a hypothetical Subaccount under a Contract having a balance of one unit of the Money Market Subaccount at the beginning of the period. We divide that net change in Subaccount value by the value of the hypothetical Subaccount at the beginning of the period to determine the base period return. Then We annualize this quotient on a 365-day basis. The net change in account value reflects (i) net income from the Money Market portfolio in which the hypothetical Subaccount invests; and (ii) charges and deductions imposed under the Contract that are attributable to the hypothetical Subaccount. 4 These charges and deductions include the per unit charges for the annual policy fee, the mortality and expense risk charge and the asset-based administration charge. For purposes of calculating current yields for a Contract, We use an average per unit annual policy fee based on the $30 annual policy fee. We calculate the current yield by the following formula: Current Yield = ((NCS - ES)/UV) X (365/7) Where: NCS = the net change in the value of the Money Market portfolio (not including any realized gains or losses on the sale of securities, unrealized appreciation and depreciation, and income other than investment income) for the seven-day period attributable to a hypothetical Subaccount having a balance of one Subaccount unit. ES = per unit charges deducted from the hypothetical Subaccount for the seven-day period. UV = the unit value for the first day of the seven-day period. We may also disclose the effective yield of the Money Market Subaccount for the same seven-day period, determined on a compounded basis. We calculate the effective yield by compounding the unannualized base period return by adding one to the base return, raising the sum to a power equal to 365 divided by 7, and subtracting one from the result. 365/7 Effective Yield = (1 + ((NCS-ES)/UV)) - 1 Where: NCS = the net change in the value of the Money Market portfolio (not including any realized gains or losses on the sale of securities, unrealized appreciation and depreciation, and income other than investment income) for the seven-day period attributable to a hypothetical Subaccount having a balance of one Subaccount unit. ES = per unit charges deducted from the hypothetical Subaccount for the seven-day period. UV = the unit value for the first day of the seven-day period. The Money Market Subaccount yield is lower than the Money Market portfolio's yield because of the charges and deductions that the Contract imposes. The current and effective yields on amounts held in the Money Market Subaccount normally fluctuate on a daily basis. THEREFORE, THE DISCLOSED YIELD FOR ANY GIVEN PAST PERIOD IS NOT AN INDICATION OR REPRESENTATION OF FUTURE YIELDS OR RATES OF RETURN. The Money Market Subaccount's actual yield is affected by changes in interest rates on money market securities, average portfolio maturity of the Money Market portfolio, the types and quality of securities held by the Money Market portfolio and that portfolio's operating expenses. We may also present yields on amounts held in the Money Market Subaccount for periods other than a seven-day period. Yield calculations do not take into account the surrender charge that We assess on certain withdrawals of Accumulation Value. 5 OTHER SUBACCOUNT YIELDS Sales literature or advertisements may quote the current annualized yield of one or more of the Subaccounts (except the Money Market Subaccount) under the Contract for 30-day or one-month periods. The annualized yield of a Subaccount refers to income that the Subaccount generates during a 30-day or one-month period and is assumed to be generated during each period over a 12-month period. We compute the annualized 30-day yield by: * dividing the net investment income of the portfolio attributable to the Subaccount units, less Subaccount expenses attributable to the Contract for the period, by the maximum offering price per unit on the last day of the period; * multiplying the result by the daily average number of units outstanding for the period; * compounding that yield for a 6-month period; and * multiplying the result by 2. Expenses of the Subaccount include the annual policy fee, the asset-based administration charge and the mortality and expense risk charge. The yield calculation assumes that We deduct the annual policy fee at the end of each Contract year. For purposes of calculating the 30-day or one-month yield, We divide an average annual policy fee collected by the average Accumulation Value in the Subaccount to determine the amount of the charge attributable to the Subaccount for the 30-day or one-month period. We calculate the 30-day or one-month yield by the following formula: 6 Yield = 2 X (((NI - ES)/(U X UV)) + 1) - 1) Where: NI = net income of the portfolio for the 30-day or one-month period attributable to the Subaccount's units. ES = charges deducted from the Subaccount for the 30-day or one-month period. U = the average number of units outstanding. UV = the unit value at the close of the last day in the 30-day or one-month period. The yield for the Subaccount is lower than the yield for the corresponding portfolio because of the charges and deductions that the Contract imposes. The yield on the amounts held in the Subaccounts normally fluctuates over time. THEREFORE, THE DISCLOSED YIELD FOR ANY GIVEN PAST PERIOD IS NOT AN INDICATION OR REPRESENTATION OF FUTURE YIELDS OR RATES OF RETURN. The types and quality of securities that a portfolio holds and its operating expenses affect the corresponding Subaccount's actual yield. Yield calculations do not take into account the surrender charge that We assess on certain withdrawals of Accumulation Value. AVERAGE ANNUAL TOTAL RETURNS FOR THE SUBACCOUNTS Sales literature or advertisements may quote average annual total returns for one or more of the Subaccounts for various periods of time. If We advertise total return for the Money Market Subaccount, 6 then those advertisements and sales literature will include a statement that yield more closely reflects current earnings than total return. When a Subaccount has been in operation for one, five, and ten years, respectively, We will provide the average annual total return for these periods. We may also disclose average annual total returns for other periods of time. Standard average annual total returns represent the average annual compounded rates of return that would equate an initial investment of $1,000 under a Contract to the redemption value of that investment as of the last day of each of the periods. Each period's ending date for which We provide total return quotations will be for the most recent calendar quarter-end practicable, considering the type of the communication and the media through which it is communicated. We calculate the standard average annual total returns using Subaccount unit values that We calculate on each Business Day based on the performance of the Subaccount's underlying portfolio, the deductions for the mortality and expense risk charge, the asset-based administration charge and the annual policy fee. The calculation assumes that We deduct an annual policy fee of $30.00 at the end of each Contract year. For purposes of calculating average annual total return, We use an average per-dollar per-day annual policy fee attributable to the hypothetical Subaccount for the period. The calculation also assumes total surrender of the Contract at the end of the period for the return quotation and will take into account the surrender charge applicable to the Contract that We assess on surrenders of Accumulation Value. We calculate the standard total return by the following formula: 1/N TR = ((ERV/P) ) - 1 Where: TR = the average annual total return net of Subaccount recurring charges. ERV = the ending redeemable value (minus any applicable surrender charge) of the hypothetical Subaccount at the end of the period. P = a hypothetical initial payment of $1,000. N = the number of years in the period. NON-STANDARD SUBACCOUNT TOTAL RETURNS Sales literature or advertisements may quote average annual total returns for the Subaccounts that do not reflect any surrender charges. We calculate such non-standard total returns in exactly the same way as the average annual total returns described above, except that We replace the ending redeemable value of the hypothetical Subaccount for the period with an ending value for the period that does not take into account any surrender charges. We may disclose cumulative total returns in conjunction with the standard formats described above. We calculate the cumulative total returns using the following formula: CTR = (ERV/P) - 1 Where: CTR = the cumulative total return net of Subaccount recurring charges for the period. ERV = the ending redeemable value of the hypothetical investment at the end of the period. 7 P = a hypothetical single payment of $1,000. ADJUSTED HISTORIC PORTFOLIO PERFORMANCE DATA Sales literature or advertisements may quote adjusted yields and total returns for the portfolios since their inception reduced by some or all of the fees and charges under the Contract. Such adjusted historic portfolio performance may include data that precedes the inception dates of the Subaccounts. This data is designed to show the performance that would have resulted if the Contract had been in existence during that time. We will disclose nonstandard performance data only if We disclose the standard performance data for the required periods. EFFECT OF THE ANNUAL CONTRACT FEE ON PERFORMANCE DATA The Contract provides for the deduction of a $30.00 annual contract fee at the end of each Contract year from the Fixed Account and the Subaccounts. We will waive this charge if your Accumulation Value is more than $20,000 on the date the charge is assessed. We base it on the proportion that the value of each such account bears to the total Accumulation Value. For purposes of reflecting the annual contract fee in yield and total return quotations, We convert the annual contract fee into a per-dollar per-day charge based on the average Accumulation Value in the Subaccount for all Contracts on the last day of the period for which quotations are provided. Then, We adjust the per-dollar per-day average charge to reflect the basis upon which We calculate the particular quotation. HISTORIC PERFORMANCE DATA GENERAL LIMITATIONS The funds provide the portfolios' performance data. We derive Subaccount performance data from the data that the funds provide and rely on the funds' data. TIME PERIODS BEFORE THE DATE THE VARIABLE ACCOUNT COMMENCED OPERATIONS The Variable Account may disclose non-standardized total return for time periods before the Variable Account commenced operations. Such performance data would be based on the actual performance of the portfolios since their inception, adjusted to reflect the effect of the current level of charges that apply to the Subaccounts under the Contract. ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS In the event of any substitution or change, We may (by appropriate endorsement, if necessary) change the Contract to reflect the substitution or change. If We consider it to be in the best interest of Owners and Annuitants, and subject to any approvals that may be required under applicable law, the Variable Account may be operated as a management investment company under the 1940 Act, it may be deregistered under that Act if registration is no longer required, it may be combined with other of Our variable accounts, or the assets may be transferred to another variable account. In addition, We may, when permitted by law, restrict or eliminate any voting rights you have under the Contracts. RESOLVING MATERIAL CONFLICTS The funds currently sell shares to registered separate accounts of insurance companies other than Us to support other variable annuity contracts and variable life insurance contracts. In addition, Our other 8 separate accounts and separate accounts of other affiliated life insurance companies may purchase some of the funds to support other variable annuity or variable life insurance contracts. Moreover, qualified retirement plans may purchase shares of some of the funds. As a result, there is a possibility that an irreconcilable material conflict may arise between your interests as a Contract Owner and the interests of persons owning other contracts investing in the same funds. There is also the possibility that a material conflict may arise between the interests of owners generally, or certain classes of owners, and participating qualified retirement plans or participants in such retirement plans. We currently do not foresee any disadvantages to you that would arise from the sale of fund shares to support variable life insurance contracts or variable annuity contracts of other companies or to qualified retirement plans. However, the management of each fund will monitor events related to its fund in order to identify any material irreconcilable conflicts that might possibly arise as a result of such fund offering its shares to support both variable life insurance contracts and variable annuity contracts, or support the variable life insurance contracts and/or variable annuity contracts issued by various affiliated and unaffiliated insurance companies. In addition, the management of the funds will monitor the funds in order to identify any material irreconcilable conflicts that might possibly arise as a result of the sale of its shares to qualified retirement plans, if applicable. In the event of such a conflict, the management of the appropriate fund would determine what action, if any, should be taken in response to the conflict. In addition, if We believe that the response of the funds to any such conflict does not sufficiently protect you, then We will take Our own appropriate action, including withdrawing the Variable Account's investment in such funds, as appropriate. VOTING RIGHTS We determine the number of votes you may cast by dividing your Accumulation Value in a Subaccount by the net asset value per share of the portfolio in which that Subaccount invests. We determine the number of votes available to you as of the same date that the fund establishes for determining shareholders eligible to vote at the relevant meeting of the portfolio's shareholders. We will solicit voting instructions by sending you written materials before the fund's meeting in accordance with the fund's procedures. SAFEKEEPING OF VARIABLE ACCOUNT ASSETS We hold the Variable Account's assets physically segregated and apart from the general account. We maintain records of all purchases and sales of portfolio shares by each of the Subaccounts. A Fidelity bond in the amount of $10 million per occurrence and $20 million in the aggregate covering Our officers and employees has been issued by Travelers Casualty and Surety Company of America. DISTRIBUTION OF THE CONTRACTS We have entered into a distribution agreement with American Family Securities LLC for the distribution and sale of the Contracts. Pursuant to this agreement, American Family Securities LLC serves as principal underwriter for the Contracts. American Family Securities LLC is located at 6000 American Parkway, Madison, WI 53783-0001. American Family Securities LLC was organized under the laws of Wisconsin on July 13, 2000, as a limited liability company with a sole member that is a subsidiary of American Family Mutual Insurance Company, our parent. American Family Securities LLC is registered as a broker-dealer with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as well as with the securities commissions in the states in which it operates, and is a member of the National Association of Securities Dealers, Inc. We pay sales commissions for the sale of the Contracts. Sales commissions may vary, but are expected not to exceed 3.75% of premium payments. This commission may be returned if the Contract is not continued through the first Contract year. The entire amount of the sales commissions is passed through American Family Securities LLC to the registered representative who sold the Contract. American Family Securities LLC does not retain any override as distributor for the Contracts. However, American Family Securities LLC's operating and other expenses are paid for by American Family Mutual. Also, American Family Securities LLC receives 12b-1 fees from Fidelity Variable Insurance Products Fund, Fidelity Variable Insurance Products Fund II, and Fidelity Variable Insurance Products Fund III. Because registered representatives of American Family Securities LLC are also Our agents, they are eligible for various cash benefits, such as bonuses, insurance benefits and financing arrangements, and non-cash compensation programs that We offer, such as conferences, trips, prizes and awards. We offer the Contracts to the public on a continuous basis. We anticipate continuing to offer the Contracts, but We reserve the right to discontinue the offering. 9 LEGAL MATTERS James F. Eldridge, General Counsel, American Family Life Insurance Company, has passed upon all matters relating to Wisconsin law pertaining to the Contracts, including the validity of the Contracts and the Company's authority to issue the Contracts. Sutherland Asbill & Brennan LLP of Washington, D.C. has provided advice on certain matters relating to the Federal securities laws. EXPERTS PricewaterhouseCoopers LLP, 203 N. LaSalle, Chicago, IL 60601, independent auditors, have audited the balance sheets of American Family Life Insurance Company as of December 31, 2000 and 1999 and the related statements of income, changes in stockholder's equity, and cash flows for each of the three years in the period ended December 31, 2000, appearing in this Statement of Additional Information and Registration Statement. These are set forth in their reports thereon appearing elsewhere herein, and are included in reliance upon such reports given upon the authority of such firm as experts in accounting and auditing. There are no financial statements available for the Variable Account, because the Variable Account has not commenced operations as of the date of this prospectus. OTHER INFORMATION We have filed a registration statement with the SEC under the Securities Act of 1933, as amended, with respect to the Contracts discussed in this Statement of Additional Information. The Statement of Additional Information does not include all of the information set forth in the registration statement, amendments and exhibits. Statements contained in this Statement of Additional Information concerning the content of the Contracts and other legal instruments are intended to be summaries. For a complete statement of the terms of these documents, you should refer to the instruments filed with the SEC. 10 AMERICAN FAMILY LIFE INSURANCE COMPANY REPORT ON AUDITS OF FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 AMERICAN FAMILY LIFE INSURANCE COMPANY TABLE OF CONTENTS - -------------------------------------------------------------------------------
PAGE(S) Report of Independent Accountants 1 Financial Statements: Balance Sheets 2 Statements of Income 3 Statements of Changes in Stockholder's Equity 4 Statements of Cash Flows 5 Notes to Financial Statements 6-16
REPORT OF INDEPENDENT ACCOUNTANTS Board of Directors American Family Life Insurance Company Madison, Wisconsin In our opinion, the accompanying balance sheets and the related statements of income, changes in stockholder' equity and cash flows present fairly, in all material respects, the financial position of American Family Life Insurance Company (herein referred to as the "Company") at December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. February 16, 2001 AMERICAN FAMILY LIFE INSURANCE COMPANY BALANCE SHEETS DECEMBER 31, 2000 AND 1999 (IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS) - -------------------------------------------------------------------------------
2000 1999 ---- ---- ASSETS Cash and investments Bonds, available for sale $2,038,899 $1,920,102 Mortgage loans on real estate 174,804 145,306 Policy loans 149,659 139,718 Cash 735 8,625 Short-term investments 31,565 8,819 Other invested assets 10,171 6,889 ---------- ---------- Total cash and invested assets 2,405,833 2,229,459 Investment income receivable 31,794 29,359 Accounts receivable - affiliates 2,152 1,764 Deferred policy acquisition costs 429,308 431,521 Deferred tax asset 10,287 30,479 Other assets 9,568 9,989 ---------- ---------- Total assets $2,888,942 $2,732,571 ========== ========== LIABILITIES Liabilities for life policies and contracts $2,175,735 $2,019,160 Policy and contract claims 10,484 10,912 Policyholders' dividends payable 26,944 40,401 Premium deposits 6,172 6,591 Accrued expenses 31,333 25,143 Taxes payable to affiliates 10,211 14,330 Other liabilities 30,600 70,869 ---------- ---------- Total liabilities 2,291,479 2,187,406 STOCKHOLDER'S EQUITY Common stock, $250 par value at December 31, 2000 and 1999; 10,000 shares authorized, issued and outstanding at December 31, 2000 and 1999 2,500 2,500 Additional paid-in capital 1,000 1,000 Retained earnings 589,343 559,070 Accumulated other comprehensive income (loss) 4,620 (17,405) ---------- ---------- Total stockholder's equity 597,463 545,165 ---------- ---------- Total liabilities and stockholder's equity $2,888,942 $2,732,571 ========== ==========
The accompanying notes are an integral part of these financial statements. -2- AMERICAN FAMILY LIFE INSURANCE COMPANY STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (IN THOUSANDS) - -------------------------------------------------------------------------------
2000 1999 1998 ---- ---- ---- Revenues: Premiums, fees and annuity considerations $280,834 $265,940 $253,922 Consideration for supplemental contracts and dividend accumulations 17,303 15,102 14,922 Net investment income 162,663 153,292 147,347 Net realized investment gains (losses) (658) (744) 1,658 Other income 2,560 1,365 663 -------- -------- -------- Total revenues 462,702 434,955 418,512 -------- -------- -------- Benefits and expenses: Policy and contract claims and other benefits 135,541 114,093 111,611 Dividends to policyholders 38,163 39,579 46,617 Change in future policy benefits 183,146 150,917 147,505 Commissions 22,384 7,432 17,657 Other expenses 33,030 62,808 120,772 -------- -------- -------- Total benefits and expenses 412,264 374,829 444,162 -------- -------- -------- Income (loss) before income taxes 50,438 60,126 (25,650) -------- -------- -------- Income taxes: Current 11,833 16,991 (24,945) Deferred 8,332 3,490 15,618 -------- -------- -------- Total income tax expense (benefit) 20,165 20,481 (9,327) -------- -------- -------- Net income (loss) $ 30,273 $ 39,645 $(16,323) ======== ======== ========
The accompanying notes are an integral part of these financial statements. -3- AMERICAN FAMILY LIFE INSURANCE COMPANY STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (IN THOUSANDS) - -------------------------------------------------------------------------------
2000 1999 1998 ---- ---- ---- Common stock: Balance, beginning of year $ 2,500 $ 1,000 $ 1,000 Stock dividend - 1,500 - -------- -------- -------- Balance, end of year 2,500 2,500 1,000 -------- -------- -------- Additional paid-in-capital: Balance at beginning and end of year 1,000 1,000 1,000 -------- -------- -------- Retained earnings: Balance at beginning of year 559,070 520,925 537,248 Stock dividend - (1,500) - Net income $30,273 30,273 $ 39,645 39,645 $(16,323) (16,323) -------- -------- -------- Balance at end of year 589,343 559,070 520,925 -------- -------- -------- Accumulated other comprehensive income: Balance at beginning of year (17,405) 36,703 24,105 Change in unrealized gains/losses on bonds (net of tax of $11,453, ($28,544) and $7,439 and DAC fair value adjustment of $22,600, $(54,738) and $11,345 in 2000, 1999 and 1998, respectively) 21,270 21,270 (53,010) (53,010) 13,815 13,815 Less: reclassification adjustment for (losses) gains included in net income (net of tax of ($407) $591 and $658) (755) (755) 1,098 1,098 1,217 1,217 -------- -------- -------- Balance at end of year 4,620 (17,405) 36,703 ------- -------- -------- -------- -------- -------- Comprehensive income (loss) $52,298 $(14,463) $ (3,725) ======= ======== ======== Total stockholder's equity $597,463 $545,165 $559,628 ======== ======== ========
The accompanying notes are an integral part of these financial statements. -4- AMERICAN FAMILY LIFE INSURANCE COMPANY STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (IN THOUSANDS) - -------------------------------------------------------------------------------
2000 1999 1998 ---- ---- ---- Cash flows from operating activities: Net income $ 30,273 $ 39,645 $ (16,323) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Insurance liabilities 151,512 124,944 120,902 Interest credited to insurance liabilities 25,797 25,019 24,912 Fees charged to insurance liabilities (24,859) (23,318) (22,549) Amortization of investment income (1,327) (1,210) (1,321) Deferred acquisition costs (12,516) (63,214) (27,298) Net realized investment (gains) losses 658 744 (2,321) Other (67,711) 3,327 40,278 --------- --------- --------- Net cash provided by (used in) operating activities 101,827 105,937 116,280 --------- --------- --------- Cash flows from investing activities: Proceeds from sales of bonds 44,007 45,254 86,310 Proceeds from maturities of bonds 177,575 213,947 140,747 Proceeds from sales of other investments 16,265 17,064 12,465 Purchases of bonds (283,164) (368,816) (332,854) Purchases of other investments (45,762) (37,924) (31,144) Net purchases and sales of short-term investments (22,747) 25,092 8,861 --------- --------- --------- Net cash provided by (used in) investing activities (113,826) (105,383) (115,615) --------- --------- --------- Cash flows from financing activities: Deposits to insurance liabilities 57,295 54,259 51,700 Withdrawals from insurance liabilities (53,186) (48,308) (52,638) --------- --------- --------- Net cash provided by (used in) financing activities 4,109 5,951 (938) --------- --------- --------- Net change in cash (7,890) 6,505 (273) Cash, beginning of year 8,625 2,120 2,393 --------- --------- --------- Cash, end of year $ 735 $ 8,625 $ 2,120 ========= ========= =========
The accompanying notes are an integral part of these financial statements. -5- AMERICAN FAMILY LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES American Family Life Insurance Company (the "Company") is a wholly-owned subsidiary of AmFam, Inc., which is wholly-owned by American Family Mutual Insurance Company ("AFMIC"). The Company operates in the life insurance industry. It markets whole life, term life, universal life and annuity products to provide financial protection for qualified individuals, families and business enterprises. It sells these products through a multi-line, exclusive agency force in fourteen states. The Company also writes a small amount of credit insurance, group life insurance and structured settlements business primarily as a service to its affiliates. The accompanying financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company utilizes significant estimates and assumptions in the calculation of deferred acquisition costs, deferred taxes, and insurance liabilities. Actual results could differ from those estimates. The significant accounting policies are as follows: a. INVESTMENTS The Company may dispose of bonds prior to their scheduled maturity due to changes in interest rates, prepayments, tax and credit considerations, liquidity or regulatory capital requirements, or other similar factors. As a result, the Company considers all of its bonds as available-for-sale. Available-for-sale investments are reported at fair value, with unrealized gains and losses, net of applicable deferred income taxes, reported as a component of accumulated other comprehensive income until realized. Fair values for issues traded on public exchanges are based on the market prices in such exchanges at year end. For issues that are not traded on public exchanges, fair values are estimated based on market comparables or internal analysis. If there is a decline in an investment's net realizable value that is other than temporary, it is recorded as a realized loss and the cost of the investment is reduced to its estimated fair value. Short-term investments are recorded at amortized cost, which approximates fair value. Mortgage loans on real estate are generally carried at their aggregate unpaid principal balances. Policy loans are stated at the aggregate of unpaid loan balances. Investment income is recorded when earned. Realized investment gains and losses on sale of investments are determined on a specific identification basis and are recorded in the accompanying statements of income. -6- AMERICAN FAMILY LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS, CONTINUED - ------------------------------------------------------------------------------- b. DEFERRED POLICY ACQUISITION COSTS Costs which vary with and are primarily related to the acquisition of new business are deferred to the extent that such costs are deemed recoverable. These costs include commissions, certain costs of policy issuance and underwriting and certain agency expenses. For non-participatory traditional life contracts, deferred costs are amortized with interest in relation to future anticipated premium revenue using the same assumptions that are used in calculating the insurance liabilities. For participatory traditional life contracts, deferred costs are amortized in relation to the present value of expected gross margins, discounted using the interest rate earned on the underlying assets. For universal life-type and investment-type contracts, deferred costs are amortized in relation to the present value of expected gross profits from these contracts, discounted using the interest rate credited to the policy. Recoverability of the unamortized balance of deferred policy acquisition costs is evaluated regularly. For participatory traditional life insurance contracts, the accumulated amortization is adjusted (whether an increase or a decrease) whenever there is a material change in the estimated gross margins expected over the life of a block of business in order to maintain a constant relationship between the cumulative amortization and the present value (discounted at the rate of interest earned on the underlying assets) of expected gross profits. For non-participatory traditional and most other contracts, the unamortized asset balance is reduced by a charge to income only when the sum of the present value of discounted future cash flows and the policy liabilities are not sufficient to cover such asset balance. For universal life-type contracts and investment-type contracts, the accumulated amortization is adjusted (whether an increase or a decrease) whenever there is a material change in the estimated gross profits expected over the life of a block of business in order to maintain a constant relationship between the cumulative amortization and the present value (discounted at the rate of interest that accrues to the policies) of expected gross profits. Deferred policy acquisition costs are also adjusted when bonds are recorded at fair value for participating traditional life products, universal life-type contracts, and investment-type contracts. This adjustment reflects the change in cumulative amortization that would have been recorded if these bonds had been sold at their fair values and the proceeds were reinvested at current yields. c. LIABILITIES FOR LIFE POLICIES AND CONTRACTS The liabilities for life policies and contracts are determined after deducting a proportional share of reinsurance placed with other life insurers. Reserve credits taken for reinsurance are not significant at December 31, 2000 and 1999, and have not been classified as reinsurance receivables in the balance sheet. For non-participating traditional and limited payment life insurance contracts, reserves are calculated using the net level premium method, based on assumptions as to investment yields, mortality, withdrawals, expenses and dividends. These assumptions are made at the time the contract is issued and are consistent with those that were developed in the process for pricing products. Assumptions are based on projections from past Company experience and are modified only as necessary to reflect loss recognition. In addition, an allowance is made for possible unfavorable deviation from selected assumptions. -7- AMERICAN FAMILY LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS, CONTINUED - ------------------------------------------------------------------------------- For universal life-type, deposit-type and investment-type insurance contracts, reserves are based on the contract account balance. Annuities in payout status use contract interest rates and the 1983 Immediate Annuity Mortality table. For participating policies, reserves are calculated based on the net level policy benefit reserve. Interest assumptions are consistent with the policy dividend formula and mortality assumptions are based on the 1980 CSO table. Interest rates on current issues are between 4.0% and 4.5% in both 2000 and 1999. Interest rates on all other issues are between 2.5% and 5.0% at both 2000 and 1999. The amount of dividends to be paid is determined annually. The portion of Company earnings allocated as dividends to participating policyholders is included in life insurance liabilities. The information below shows reserves by type of contract (in thousands):
DECEMBER 31, 2000 DECEMBER 31, 1999 ----------------- ----------------- Deposit-type liabilities: Universal life $ 338,023 15.6% $ 317,307 15.7% Deferred annuities 153,947 7.1% 169,615 8.4% Insurance-type liabilities: Participating traditional life 1,447,386 66.5% 1,316,739 65.2% Non-participating life 115,760 5.3% 98,829 4.9% Payout annuities 117,655 5.4% 114,178 5.8% Other insurance reserves 2,964 0.1% 2,492 0.0% ---------- ----- ---------- ----- Total liabilities for life policies and contracts $2,175,735 100.0% $2,019,160 100.0% ========== ===== ========== =====
d. INCOME TAXES The Company is included in the federal consolidated tax return of AFMIC. The consolidated AFMIC group is subject to a tax allocation agreement under which each member's tax liability equals or approximates separate return calculations with current credit for net losses and tax credits utilized by other members of the group. Deferred federal income taxes are established for the future tax effects of temporary differences between the tax and financial reporting bases of assets and liabilities using currently enacted tax rates. The effect on deferred income taxes for a change in tax rates is recognized in income in the period of enactment. Deferred income tax assets are valued based upon the expectation of future realization on a "more likely than not" basis. A valuation allowance is established for that portion of deferred income tax assets which cannot meet this realization standard. At December 31, 2000 and 1999, a valuation allowance was not established since the Company's analysis indicates that it is more likely than not that the deferred income tax assets will be realized in future periods. -8- AMERICAN FAMILY LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS, CONTINUED - ------------------------------------------------------------------------------- e. PREMIUM INCOME AND ANNUITY CONSIDERATIONS Premiums and annuity considerations are generally recognized as income when due. Benefits and expenses are recognized as a level percentage of earned premiums by providing for future policy benefits and by amortizing deferred policy acquisition costs. Uncollected premiums are recorded net of premiums due to reinsurers. For investment contracts without significant mortality risk and for contracts that permit either the Company or the insured to make changes in the contract terms, premium deposits and benefit payments are recorded as increases or decreases in a liability account, rather than as revenue and expense. Revenue is recognized for any amounts charged against the liability account for the cost of insurance, policy administration, and surrender penalties. Expense is recorded for any interest credited to the liability account and any benefit payments which exceed the contract liability account balance. f. INTERCOMPANY EXPENSE ALLOCATION The Company shares certain administrative, occupancy and marketing expenses with AFMIC and other affiliated companies. Such expenses are allocated to the Company at cost in proportion to the estimated utilization. Allocation methods are refined periodically in light of current operations and resources utilized by the Company. Allocated expenses amounted to approximately $43,950,000, $41,444,000 and $37,044,000 for 2000,1999 and 1998, respectively. g. REINSURANCE In the normal course of business, the Company seeks to limit its exposure to loss on any single insured and to recover a portion of the benefits paid over such limits. This is accomplished by cessions to reinsurers under excess of loss and coinsurance contracts. Estimated reinsurance receivables are recognized in a manner consistent with the liabilities related to the underlying reinsured contracts. The amounts included in the liabilities for life policies and contracts, premiums earned, and life insurance benefits incurred related to reinsurance ceded are not significant to the Company's financial statements as of and for the years ended December 31, 2000, 1999 and 1998. A contingent liability exists to the Company to the extent that any reinsurer might be unable to meet its obligations assumed under the various reinsurance contracts. h. STATEMENTS OF CASH FLOWS The Company paid income taxes of $15,099,000, $8,262,000 and $15,067,000 in 2000, 1999 and 1998, respectively. -9- AMERICAN FAMILY LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS, CONTINUED - ------------------------------------------------------------------------------- 2. FINANCIAL INSTRUMENTS a. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of financial instruments for which it is practicable to estimate that value: BONDS Fair values for issues traded on public exchanges are based on the last reported sales price at year end. For issues that are not traded in public exchanges, fair values were estimated based on market comparables or internal analysis. MORTGAGE LOANS ON REAL ESTATE The fair value of mortgage loans on real estate is estimated by discounting future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. POLICY LOANS Policy loans have no stated maturity dates and are an integral part of the related insurance contract. Accordingly, it is not practicable to estimate a fair value for them. The interest rate for policy loans on current issues was 8% in both 2000 and 1999. SUPPLEMENTAL CONTRACTS, STRUCTURED SETTLEMENTS AND IMMEDIATE ANNUITIES Fair values for supplemental contracts, structured settlements and immediate annuities are based on the present value of expected payments using current crediting interest rates. The estimated fair values of the Company's financial instruments that are not disclosed on the face of the balance sheet or elsewhere in the notes, are as follows (in thousands):
DECEMBER 31, 2000 DECEMBER 31, 1999 --------------------- --------------------- ESTIMATED ESTIMATED CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- --------- -------- --------- Financial assets: Mortgage loans on real estate $174,804 $181,785 $145,306 $143,179 Financial liabilities: Supplemental contracts without life contingencies 9,219 9,196 9,012 8,983 Structured settlements 79,159 87,680 76,451 85,317 Immediate annuities 20,887 21,699 20,882 21,604
-10- AMERICAN FAMILY LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS, CONTINUED - ------------------------------------------------------------------------------- b. BONDS The amortized cost and estimated fair value of bonds, including short-term investments, at December 31, 2000 and 1999 are as follows (in thousands):
DECEMBER 31, 2000 ------------------------------------------------ GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAIN LOSS VALUE ------------------------------------------------ U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 79,767 $ 1,376 $ (612) $ 80,531 Obligations of state and political subdivisions 21,450 259 (110) 21,599 Public utilities 123,401 3,720 (120) 127,001 Industrial and other corporate 1,244,173 21,255 (28,306) 1,237,122 Mortgage-backed securities 283,517 7,278 (491) 290,304 Asset-backed securities 307,930 7,069 (1,092) 313,907 ---------- ------- -------- ---------- Total $2,060,238 $40,957 $(30,731) $2,070,464 ========== ======= ======== ==========
DECEMBER 31, 1999 ------------------------------------------------ GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED FAIR COST GAIN LOSS VALUE ------------------------------------------------ U.S. Treasury securities and obligations of U.S. Government corporations and agencies $ 81,700 $ 953 $ (3,056) $ 79,597 Obligations of state and political subdivisions 32,475 60 (480) 32,055 Public utilities 128,066 1,274 (1,290) 128,050 Industrial and other corporate 1,154,995 7,045 (35,773) 1,126,267 Mortgage-backed securities 270,449 1,146 (6,151) 265,444 Asset-backed securities 307,555 66 (10,113) 297,508 ---------- ------- -------- ---------- Total $1,975,240 $10,544 $(56,863) $1,928,921 ========== ======= ======== ==========
-11- AMERICAN FAMILY LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS, CONTINUED - ------------------------------------------------------------------------------- The amortized cost and estimated fair value of bonds, including short-term investments, by contractual maturity, at December 31, 2000 are shown below (in thousands). Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.
DECEMBER 31, 2000 ----------------------- ESTIMATED AMORTIZED FAIR COST VALUE ----------------------- Due in one year or less $ 128,327 $ 128,693 Due after one year through five years 592,144 590,889 Due after five years through ten years 618,248 616,055 Due after ten years 130,072 130,616 ---------- ---------- Subtotal 1,468,791 1,466,253 Mortgage-backed securities 283,517 290,304 Asset-backed securities 307,930 313,907 ---------- ---------- Total $2,060,238 $2,070,464 ========== ==========
Proceeds from sales of long-term bonds during 2000, 1999 and 1998 were $44,007,000, $45,254,000 and $86,310,000, respectively. Gross gains of $682,000, $297,000 and 1,669,000 and gross losses of $1,092,000, $922,000 and $0 were realized on those sales for 2000, 1999 and 1998, respectively. At December 31, 2000 and 1999, bonds carried at approximately $1,932,000 and $1,890,000, respectively, were on deposit with various regulatory authorities to comply with insurance laws. c. ACCUMULATED OTHER COMPREHENSIVE INCOME Accumulated other comprehensive income at December 31, 2000, 1999 and 1998 is comprised of the following investment-related components (in thousands):
2000 1999 1998 ---- ---- ---- Fair value adjustment of investments $10,226 $(46,319) $ 91,662 Adjustment of DAC relating to fair value adjustment (3,118) 19,542 (35,196) Deferred income taxes (2,488) 9,372 (19,763) ------- -------- -------- Accumulated other comprehensive income (loss) $ 4,620 $(17,405) $ 36,703 ======= ======== ========
-12- AMERICAN FAMILY LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS, CONTINUED - ------------------------------------------------------------------------------- d. MORTGAGE LOANS Significant concentrations of mortgage loans amounting to $130,039,000 and $103,414,000 were for properties located in the Midwest region, of which $34,857,000 and $33,079,000 were located in the State of Wisconsin at December 31, 2000 and 1999, respectively. Mortgage loans of the Company are invested primarily in office buildings and shopping centers. The minimum and maximum lending rates for mortgage loans issued during 2000 and 1999 ranged from 7.38% to 8.47% and 6.50% to 8.02%, respectively. Generally, the Company's mortgage loans are limited to 75% of the appraised value. Fire and extended coverage insurance is required on all properties. 3. DEFERRED POLICY ACQUISITION COSTS Policy acquisition costs deferred and the related amortization charged to income are as follows (in thousands):
2000 1999 ---- ---- Balance, beginning of year $431,521 $332,728 Costs deferred during year 39,989 40,078 Amortization related to operations during year (19,542) 3,977 Amounts related to change in fair value adjustment of available-for-sale bonds (22,660) 54,738 -------- -------- Balance, end of year $429,308 $431,521 ======== ========
4. EMPLOYEE BENEFIT PLANS The Company participates with AFMIC and its subsidiaries (herein referred to as the "Companies") in non-contributory defined benefit pension plans (herein referred to as the "Plans") covering substantially all employees. The benefits are based on years of credited service and highest average compensation (as defined in the Plans). The Companies' funding policy is based on the frozen entry age actuarial method as limited by the Pension Protection Act of 1987. Net pension expense of approximately $1,243,000, $1,658,000 and $1,229,000 was allocated to the Company for the years ended December 31, 2000, 1999 and 1998, respectively. The Companies participate in a qualified contributory Incentive and Thrift and 401(k) Plan (herein referred to as the "Plan"). All employees are eligible to enter into the Plan. Employee participation in the Plan is optional; participants contribute at least 1%, but no more than 15% of base compensation. The Companies are required to make annual contributions, as defined, to a trust fund. The Plan matches the first 3% of the eligible contributions made by employees. The amount of the match is based on the profits of the Companies, with a minimum contribution of 33 1/3% and a maximum of 300% of eligible contributions. The Plan expense allocated to the Company during 2000, 1999 and 1998 amounted to $180,000, $143,000 and $85,000, respectively. -13- AMERICAN FAMILY LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS, CONTINUED - ------------------------------------------------------------------------------- The Company participates with AFMIC and its subsidiaries in providing certain health care and life insurance benefits to retired agents and employees. The cost of these benefits to the Company is substantially reduced by contributions made by retired agents and employees. The remaining cost to the Company was not significant in 2000, 1999 and 1998. 5. FEDERAL INCOME TAXES The components of the net deferred income tax asset (liability) are as follows (in thousands):
2000 1999 ---- ---- Deferred tax assets: Life reserves $ 118,994 $ 108,348 Unrealized losses on securities - 9,372 Policyholder dividends 9,448 14,153 Accrued litigation 5,422 20,160 Deferred compensation items 4,369 3,545 Other 82 - --------- --------- Total deferred tax asset 138,315 155,578 Deferred tax liabilities: Deferred acquisition cost (121,409) (115,768) Unrealized gains on securities (2,488) - Asset basis differences (4,131) (9,171) Other - (160) --------- --------- Total deferred tax liability (128,028) (125,099) --------- --------- Net deferred tax asset (liability) $ 10,287 $ 30,479 ========= =========
The provisions for current and deferred income tax expense differ from the expected statutory rate as the result of permanent and other differences between pre-tax income and taxable income determined under existing tax regulations. The more significant differences, their effect on the statutory tax rate, and the resulting effective tax rates are summarized below:
2000 1999 1998 ---- ---- ---- Federal statutory rate 35% 35% 35% IRS audit adjustment 2 1 1 Other 3 (2) - --- --- --- Effective tax rate 40% 34% 36% === === ===
Under pre-1984 life insurance company income tax laws, a portion of a company's "gain from operations" was not subject to current income taxation but was accumulated for tax purposes, in a memorandum account designated as the "policyholders' surplus account." The amounts included in this account are added to taxable income of later years at rates then in effect if the life insurance company elects to distribute tax basis policyholders' surplus to stockholders as dividends or takes -14- AMERICAN FAMILY LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS, CONTINUED - ------------------------------------------------------------------------------- certain other actions. Any distributions are first made from another tax memorandum account known as the "stockholders' surplus account." The Company's undistributed tax stockholder's surplus account was $562,433,000 and $542,023,000 at December 31, 2000 and 1999, respectively. In addition, the Company's policyholders' surplus account was $5,149,000 at both December 31, 2000 and 1999. 6. COMMITMENTS AND CONTINGENCIES From time to time, mandatory assessments are levied on the Company by the life and health guaranty fund associations of states in which the Company is licensed. These assessments are to cover losses to policyholders of insolvent or rehabilitated insurance companies. Such estimates are subject to change as the associations determine more precisely the losses that have occurred and how such losses will be allocated to insurance companies. In 1998, AFLIC was a named defendant in several class lawsuits asserting various market conduct-type claims regarding the sale of whole life and universal life policies. AFLIC denied the allegations in each of these lawsuits, but it believed that resolution of all such issues would limit additional expense and burden upon its operations. A court approved settlement was reached in 1999. Policyholder settlement costs of $15,500,000 and $57,600,000 at December 31, 2000 and 1999, respectively, are recorded in other liabilities on the consolidated balance sheets. Policyholder settlement costs of $3,600,000 and $65,000,000 were included in other expenses in the consolidated statement of income for the years ended December 31, 1999 and 1998. 7. RELATED PARTIES The Company has agreed to lend up to a maximum of $20 million in short-term notes to its affiliate, AFFS, with interest at the same rate as paid by AFFS on its 30-day commercial paper on the date of the borrowing. No amounts were outstanding at December 31, 2000 and 1999. The Company issued certain annuities to AFMIC. The present value of all such annuities amounted to approximately $79,159,000 and $76,451,000 at December 31, 2000 and 1999, respectively. 8. STATUTORY FINANCIAL DATA The Company prepares financial statements in accordance with statutory accounting practices prescribed or permitted by applicable insurance regulatory authorities (STAT). Prescribed statutory accounting practices include state laws, regulations, and general administrative rules, as well as guidance provided in a variety of publications of the National Association of Insurance Commissioners (NAIC). The principal differences between prescribed statutory financial statements and financial statements prepared in accordance with generally accepted accounting principles (GAAP) are that statutory financial statements do not reflect deferred acquisition costs, deferred taxes, and bonds are generally carried at amortized cost. In addition, GAAP liabilities for life insurance reserves differ significantly from STAT. -15- AMERICAN FAMILY LIFE INSURANCE COMPANY NOTES TO FINANCIAL STATEMENTS, CONTINUED - ------------------------------------------------------------------------------- Permitted statutory accounting practices encompass all accounting practices that are not prescribed. The Company does not employ significant permitted statutory accounting practices in the preparation of its statutory financial statements. The Company is subject to regulation and supervision by the various state insurance regulatory authorities in which it conducts business. Such regulation is generally designed to protect policyholders and includes such matters as maintenance of minimum statutory capital and surplus, risk-based capital ratios, and restrictions on the payment of dividends. Generally, the Company's statutory surplus may be available for transfer to its stockholder. However, such distributions as dividends may be subject to prior regulatory approval. No dividends were paid in 2000, 1999 and 1998. In 1998, the NAIC adopted the Codification of Statutory Accounting Principles guidance, which replaces the current Accounting Practices and Procedures manual as the NAIC's primary guidance on statutory accounting as of January 1, 2001. The Codification provides guidance for areas where statutory accounting has been silent and changes current statutory accounting in some areas. The Wisconsin Insurance Department has adopted the Codification guidance, effective January 1, 2001. The effect of adoption on the Company's statutory surplus is not expected to be material. On December 13, 1999, the Company's Board of Directors approved a stock dividend of $1,500,000 and a simultaneous 1 for 2.5 stock split, both effective December 31, 1999. As a result, at December 31, 1999, the Company had 10,000 shares of common stock authorized, issued and outstanding, at a par value of $250 per share, for a total common stock balance of $2,500,000. The stock transactions were effected to enable the Company to meet a minimum paid-in capital requirement in the state of California. Statutory capital and surplus and net income for the Company, as reported to regulatory authorities were as follows (in thousands):
CAPITAL AND SURPLUS/EQUITY NET INCOME -------------------- -------------------------------- 2000 1999 2000 1999 1998 ---- ---- ---- ---- ---- Per statutory annual statements $190,430 $176,104 $ 15,205 $ 2,951 $(64,604) GAAP adjustments: Deferred acquisition costs 429,308 431,521 20,447 46,038 31,269 AVR/IMR 10,891 10,245 (331) (877) (514) Unrealized gains on bonds 10,226 (46,319) - - - Future policy benefits (87,334) (72,960) (14,947) (12,071) (9,131) Deferred taxes 10,287 30,479 (8,332) (3,490) 24,945 Computer software 3,358 1,815 983 168 - Other 30,297 14,280 17,248 6,926 1,712 -------- -------- -------- -------- -------- Per GAAP financial statements $597,463 $545,165 $ 30,273 $ 39,645 $(16,323) ======== ======== ======== ======== ========
-16- PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS (a) FINANCIAL STATEMENTS All required financial statements are included in Part B of this Registration Statement. (b) EXHIBITS (1) Certified resolution of the Board of Directors of American Family Life Insurance Company (the "Company") authorizing establishment of American Family Variable Account II (the "Variable Account").(1) ---- (2) Not applicable. (3) (a) Form of Distribution Agreement. (b) Form of Registered Representative Agreement. (4) Form of Contract for the Individual Flexible Premium Variable Annuity.(1) ---- (5) Form of Application for the Individual Flexible Premium Variable Annuity.(1) ---- (6) (a) Articles of Incorporation of American Family Life Insurance Company.(1) ---- (b) By-Laws of American Family Life Insurance Company.(1) ---- (7) Not Applicable. (8) (a) Form of Participation Agreement among Variable Insurance Products Fund, Variable Insurance Products Fund II, Variable Insurance Products Fund III and American Family Life Insurance Company. (b) Form of Participation Agreement between Federated Insurance Series and American Family Life Insurance Company. (c) Form of Participation Agreement between SEI Insurance Products Trust and American Family Life Insurance Company. (d) Form of Participation Agreement among Strong Variable Insurance Funds, Inc., Strong Opportunity Fund II, Inc. and American Family Life Insurance Company. (9) Opinion and Consent of James F. Eldridge, Esq. (10) (a) Consent of Sutherland Asbill & Brennan LLP. (b) Consent of Auditors. (c) Consent of James F. Eldridge, Esq. (11) No financial statements will be omitted from Item 23. (12) Not applicable. (13) Not applicable. (14) Not applicable. (15) Powers of Attorney.(1) ----
(1) Incorporated by Reference to American Family Variable ---- Account II Registration Statement on Form N-4, Registration No. 333-45592 filed September 12, 2000. C-1
ITEM 25. DIRECTORS AND OFFICERS OF AMERICAN FAMILY LIFE INSURANCE COMPANY NAME AND PRINCIPAL BUSINESS ADDRESS POSITION AND OFFICE WITH DEPOSITOR ----------------------------------- ---------------------------------- Harvey Randall Pierce Chairman of the Board and C.E.O. David Ralph Anderson Director, President C.O.O. James Francis Eldridge Director, Executive Vice President, Secretary John Brent Johnson Director, Executive Vice President, Treasurer Joseph William Tisserand Director, Vice President Daniel Raymond DeSalvo Director Daniel Robert Schultz Vice President, Controller Thomas Syme King Vice President William Joseph Smith Assistant Treasurer James Walter Behrens Assistant Secretary
Principal business address is: 6000 American Parkway, Madison, Wisconsin 53783. C-2
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR REGISTRANT AMERICAN FAMILY INSURANCE GROUP ----------------------- AFMIC ----------------------- ---------------------- ----------------------- ---------------------- AFS AMFAM AFBI ---------------------- ----------------------- ---------------------- ----------- ----------- ---------- ----------- ----------- ---------- ----------- ----------- ---------- - ------------------------- ---------------------- ----------------------- ---------------------- ---------------------- AFLIC ASICW AFFS AFIC ASICO - ------------------------- ---------------------- ----------------------- ---------------------- ----------------------
100% of all outstanding voting securities of each subsidiary corporation is directly owned by its parent. AFMIC - AMERICAN FAMILY MUTUAL INSURANCE COMPANY Wisconsin mutual insurance corporation Incorporated 1927. AFS - AMERICAN FAMILY SECURITIES, LLC Wisconsin limited liability company Organized and acquired 2000. AMFAM - AMFAM, INC. (downstream holding company) Wisconsin business corporation Incorporated and acquired 1981. AFBI - AMERICAN FAMILY BROKERAGE, INC. Wisconsin business corporation Incorporated and acquired 1985. AFLIC - AMERICAN FAMILY LIFE INSURANCE COMPANY Wisconsin stock insurance corporation Incorporated and acquired 1957. ASICW - AMERICAN STANDARD INSURANCE COMPANY OF WISCONSIN Wisconsin stock insurance corporation Incorporated and acquired 1961. AFIC - AMERICAN FAMILY INSURANCE COMPANY Ohio stock insurance corporation Incorporated and acquired 1995. ASICO - AMERICAN STANDARD INSURANCE COMPANY OF OHIO Ohio stock insurance corporation Incorporated and acquired 1995. AFFS - AMERICAN FAMILY FINANCIAL SERVICES, INC. Wisconsin business corporation Incorporated and acquired 1969. Address of all affiliates: 6000 American Parkway Madison, WI 53783-0001
C-3 ITEM 27. NUMBER OF CONTRACT OWNERS As of the date hereof, there are no Contract Owners. ITEM 28. INDEMNIFICATION Under its By-laws, American Family, to the full extent permitted by the Wisconsin Business Corporation Law, will indemnify any person who was or is a party to any proceeding by reason of the fact that he or she is or was a director, officer or employee of American Family, as provided below. BY-LAWS OF AMERICAN FAMILY LIFE INSURANCE COMPANY (AS AMENDED NOVEMBER 11, 1987) Article VII of American Family Life Insurance Company's By-Laws provides, in part: INDEMNIFICATION OF DIRECTORS AND OFFICERS To the extent permitted by law, the Corporation shall indemnify each Director and Officer of the Corporation, and his heirs, executors and administrators against all expenses and liability reasonably incurred by him in connection with or arising out of any action, suite or proceeding in which he may be involved by reason of his being or having been a Director or Officer of the Corporation, whether or not he continues to be a Director or Officer at the time of incurring such expenses and liabilities; such expenses and liabilities to include, but not limited to judgments, court costs, and attorneys' fees and the cost of settlements. The Corporation shall not, however, indemnify such Director or Officer with respect to matters as to which he shall be finally adjudged in any such action, suit, or proceeding to have been liable for willful misconduct in the performance of his duties as such Director or Officer. In the event a settlement or compromise is effected, indemnification may be had only if the Board of Directors shall have been furnished with an opinion of counsel for the Corporation to the effect that such settlement or compromise is in the best interests of the Corporation and that such Director or Officer is not liable for willful misconduct in the performance of his duties with respect to such matters, and, if the Board shall have adopted a resolution approving such settlement or compromise. The foregoing right of indemnification shall not be exclusive of other rights to which any Director or Officer may be entitled as a matter of law. Insofar as indemnification or liability arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the registrant pursuant to the foregoing provision, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that any 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 securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. C-4 ITEM 29. PRINCIPAL UNDERWRITER (a) American Family Securities, LLC is the registrant's principal underwriter. It is also the principal underwriter for American Family Variable Account I. (b) Officers and Directors of American Family Securities, LLC, and their addresses, are as follows:
NAME AND PRINCIPAL BUSINESS ADDRESS* POSITIONS AND OFFICES WITH THE UNDERWRITER ------------------------------------ ------------------------------------------ James F. Eldridge Director Dan DeSalvo Director and President J. Brent Johnson Director Dan Schultz Treasurer & Vice President, Operations Christopher Spencer Chief Compliance Officer & Vice President, Compliance James W. Behrens Secretary Al Meyer Vice President, Marketing Joe Tisserand Vice President, Product Don Alferman Vice President, Sales Ralph Kaye Vice President, Sales Dave Krueger Vice President, Sales Russ Lemmons Vice President, Sales Pete Walton Vice President, Sales
* All of the persons listed above have as their principal business address: 6000 American Parkway, Madison, Wisconsin 53783. (c)(1) (2) (3) (4) (5) Name of Net Underwriting Principal Discounts and Compensation Brokerage UNDERWRITER COMMISSIONS on REDEMPTION COMMISSIONS COMPENSATION - ----------- ----------- ------------- ----------- ------------ NOT APPLICABLE. ITEM 30. LOCATION OF BOOKS AND RECORDS All of the accounts, books, records or other documents required to be kept by Section 31(a) of the Investment Company Act of 1940 and rules thereunder, are maintained by American Family Life Insurance Company at 6000 American Parkway, Madison, Wisconsin 53783-0001 and by Navisys Incorporated at 9735 Landmark Parkway Dr., St. Louis, Missouri 63127. ITEM 31. MANAGEMENT SERVICES All management contracts are discussed in Part A or Part B of this registration statement. C-5 ITEM 32. UNDERTAKINGS AND REPRESENTATIONS. (a) The registrant undertakes that it will file a post-effective amendment to this registration statement as frequently as is necessary to ensure that the audited financial statements in the registration statement are never more than 16 months old for as long as premium payments under the contracts offered herein are being accepted. (b) The registrant undertakes that it will include either (1) as part of any application to purchase a contract offered by the prospectus, a space that an applicant can check to request a statement of additional information, or (2) a post card or similar written communication affixed to or included in the prospectus that the applicant can remove and send to American Family Life Insurance Company for a statement of additional information. (c) The registrant undertakes to deliver any statement of additional information and any financial statements required to be made available under this Form N-4 promptly upon written or oral request to the Company at the address or phone number listed in the prospectus. (d) American Family Life Insurance Company hereby represents that the fees and charges deducted under the Contracts, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the Company. C-6 As required by the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant, American Family Variable Account II, has caused this registration statement to be signed on its behalf, in the City of Madison, and the State of Wisconsin, on this 19th day of February, 2001. AMERICAN FAMILY VARIABLE ACCOUNT II (Registrant)
Attest: /s/ ROSALIE BECK DETMER By: /s/ HARVEY RANDALL PIERCE* ----------------------------------- --------------------------- Rosalie Beck Detmer Harvey Randall Pierce Assistant General Counsel Chairman of the Board and C.E.O. American Family Life American Family Life Insurance Company Insurance Company By: AMERICAN FAMILY LIFE INSURANCE COMPANY (Depositor) American Family Life American Family Life Insurance Company Insurance Company Attest: /s/ ROSALIE BECK DETMER By: /s/ HARVEY RANDALL PIERCE* ----------------------------------- --------------------------- Rosalie Beck Detmer Harvey Randall Pierce Assistant General Counsel Chairman of the Board and C.E.O. American Family Life American Family Life Insurance Company Insurance Company
As required by the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /S/ HARVEY RANDALL PIERCE * - ------------------------------- Harvey Randall Pierce Chairman of the Board and C.E.O. 2/19/2001 /S/ DAVID RALPH ANDERSON * - ------------------------------- David Ralph Anderson Director, President and C.O.O. 2/19/2001 /S/ JOHN BRENT JOHNSON * Director, Executive Vice President, Treasurer - ------------------------------- John Brent Johnson 2/19/2001 /S/ DANIEL ROBERT SCHULTZ * Vice President, Controller - ------------------------------- Daniel Robert Schultz 2/19/2001 /S/ JAMES FRANCIS ELDRIDGE * Director, Executive Vice President, Secretary - ------------------------------- James Francis Eldridge 2/19/2001 /S/ JOSEPH WILLIAM TISSERAND * Director, Vice President 2/19/2001 - ------------------------------- Joseph William Tisserand /S/ DANIEL RAYMOND DESALVO * Director - ------------------------------- Daniel Raymond DeSalvo 2/19/2001 /S/ JAMES W. BEHRENS On February 19th, 2001, as Attorney-in-Fact - ------------------------------------ pursuant to powers of attorney filed herewith. * By: James W. BEHRENS
EXHIBIT INDEX (3) (a) Form of Distribution Agreement. (b) Form of Registered Representative Agreement. (8) (a) Form of Participation Agreement among Variable Insurance Products Fund, Variable Insurance Products Fund II, Variable Insurance Products Fund III and American Family Life Insurance Company. (b) Form of Participation Agreement between Federated Insurance Series and American Family Life Insurance Company. (c) Form of Participation Agreement between SEI Insurance Products Trust and American Family Life Insurance Company. (d) Form of Participation Agreement among Strong Variable Insurance Funds, Inc., Strong Opportunity Fund II, Inc. and American Family Life Insurance Company. (9) Opinion and Consent of James F. Eldridge, Esq. (10) (a) Consent of Sutherland Asbill & Brennan LLP. (b) Consent of Auditors. (c) Consent of James F. Eldridge, Esq.
EX-99.3(A) 2 a2039901zex-99_3a.txt EXHIBIT 99.3(A) DISTRIBUTION AGREEMENT AGREEMENT made this ___ day of ______, 2000 by and between American Family Life Insurance Company ("AFLIC"), a Wisconsin corporation, on its behalf and on behalf of each separate account identified in Schedule 1 hereto (the "Separate Accounts"), and American Family Securities, LLC ("Distributor"), a Wisconsin Limited Liability Company. WITNESSETH WHEREAS, Distributor is registered as a broker/dealer with the Securities and Exchange Commission (the "SEC") under the Securities Exchange Act of 1934 (the "1934 Act") and is a member of the National Association of Securities Dealers, Inc. (the "NASD"); WHEREAS, Distributor acts as retail distributor for certain variable insurance products (the "Variable Products") underwritten by and sold through Distributor's registered representatives (the "Representatives"), who are also appointed agents of American Family Life Insurance Company ("AFLIC"); WHEREAS, Distributor and AFLIC are affiliated companies under control of a common parent corporation; and WHEREAS, AFLIC desires to issue the Variable Products to the public through Distributor acting as principal underwriter and distributor. NOW, THEREFORE, in consideration of their mutual promises, and of other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, Distributor and AFLIC hereby agree as follows: 1. DEFINITIONS a. CONTRACTS. The class or classes of variable insurance products set forth on Schedule 2 to this Agreement as in effect at the time this Agreement is executed, and such other classes of variable insurance products that may be added to Schedule 2 from time to time in accordance with Section 10.b of this Agreement, and including any riders to such contracts and any other contracts offered in connection therewith. For this purpose and under this Agreement generally, a "class of Contracts" shall mean those Contracts issued by AFLIC on the same policy form or forms and covered by the same Registration Statement. b. REGISTRATION STATEMENT. At any time that this Agreement is in effect, each currently effective registration statement filed with the SEC under the 1933 Act on a prescribed form, or currently effective post-effective amendment thereto, as the case may be, relating to a class of Contracts, including financial statements included in, and all exhibits to, such registration statement or post-effective amendment. For purposes of Section 8 of this Agreement, the term "Registration Statement" means any document that is or at any time was a Registration Statement within the meaning of this Section 1.b. c. PROSPECTUS. The prospectus included within a Registration Statement, except that, if the most recently filed version of the prospectus (including any supplements thereto) filed pursuant to Rule 497 under the 1933 Act subsequent to the date on which a Registration Statement became effective differs from the prospectus included within such Registration Statement at the time it became effective, the term "Prospectus" shall refer to the most recently filed prospectus filed under Rule 497 under the 1933 Act, from and after the date on which it shall have been filed. For purposes of Section 8 of this Agreement, the term "any Prospectus" means any document that is or at any time was a Prospectus within the meaning of this Section 1.c. d. VARIABLE ACCOUNT. A separate account supporting a class or classes of Contracts and specified on Schedule 1 as in effect at the time this Agreement is executed, or as it may be amended from time to time in accordance with Section 10.b of this Agreement. e. 1933 ACT. The Securities Act of 1933, as amended. f. 1934 ACT. The Securities Exchange Act of 1934, as amended. g. 1940 ACT. The Investment Company Act of 1940, as amended. h. SEC. The Securities and Exchange Commission. i. NASD. The National Association of Securities Dealers, Inc. j. REPRESENTATIVE. An individual who is an associated person of Distributor, as that term is defined in the 1934 Act. k. APPLICATION. An application for a Contract. l. PREMIUM. A payment made under a Contract by an applicant or purchaser to purchase benefits under the Contract. 2. AUTHORIZATION AND APPOINTMENT a. SCOPE OF AUTHORITY. AFLIC hereby authorizes Distributor on an exclusive basis, and Distributor accepts such authority, subject to the registration requirements of the 1933 Act and the 1940 Act and the provisions of the 1934 Act and conditions herein, to be the distributor and principal underwriter for the sale of the Contracts to the public in each state and other jurisdiction in which the Contracts may lawfully be sold during the term of this Agreement. The Contracts shall be offered for sale and distribution at Premium rates set from time to time by AFLIC. 2 Distributor shall use its best efforts to market the Contracts actively subject to compliance with applicable law, including the rules of the NASD. However, Distributor shall not be obligated to sell any specific number or amount of Contracts. Completed Applications shall be transmitted directly to AFLIC for acceptance or rejection in accordance with the underwriting rules established by AFLIC. b. LIMITS ON AUTHORITY. Distributor shall act as an independent contractor and nothing herein contained shall constitute Distributor or its agents, officers or employees as agents, officers or employees of AFLIC solely by virtue of their activities in connection with the sale of the Contracts hereunder. Distributor and its Representatives shall not have authority, on behalf of AFLIC: to make, alter or discharge any Contract or other insurance policy or annuity entered into pursuant to a Contract; to waive any Contract forfeiture provision; to extend the time of paying any Premium; or to receive any monies or Premiums (except for the sole purpose of forwarding monies or Premiums to AFLIC). Distributor shall not expend, nor contract for the expenditure of, the funds of AFLIC. Distributor shall not possess or exercise any authority on behalf of AFLIC other than that expressly conferred on Distributor by this Agreement. 3. SOLICITATION ACTIVITIES a. REPRESENTATIVES. No Representative shall solicit the sale of a Contract unless at the time of such solicitation such individual is duly registered with the NASD and duly licensed with all applicable state insurance and securities regulatory authorities, and is duly appointed as an insurance agent of AFLIC. b. SOLICITATION ACTIVITIES. All solicitation and sales activities engaged in by Distributor and its Representatives with respect to the Contracts shall be in compliance with all applicable federal and state securities laws and regulations, as well as all applicable insurance laws and regulations, and compliance manuals provided by AFLIC. In particular, without limiting the generality of the foregoing: (1) Distributor, along with appropriate AFLIC registered principals, shall train, supervise and be solely responsible for the conduct of Representatives in their solicitation of Applications and Premiums and distribution of the Contracts under the federal securities laws and the rules of the NASD, and shall supervise their compliance with, applicable rules and regulations of any securities regulatory agencies that have jurisdiction over variable insurance product activities. (2) Neither Distributor nor any Representative shall offer, attempt to offer, or solicit Applications for, the Contracts or deliver the Contracts, in any state or other jurisdiction unless AFLIC has notified Distributor that such Contracts may lawfully be sold or offered for sale in such state, and has not subsequently revised such notice. 3 (3) Neither Distributor nor any Representative shall give any information or make any representation in regard to a class of Contracts in connection with the offer or sale of such class of Contracts that is not in accordance with the Prospectus for such class of Contracts, or in current advertising materials for such class of Contracts authorized by AFLIC. (4) All Premiums paid by check or money order that are collected by Distributor or any of its Representatives shall be remitted promptly, and in any event by noon of the next business day after receipt in full, together with any Applications, forms and any other required documentation, to AFLIC. Checks or money orders in payment of Premiums shall be drawn to the order of "American Family Life Insurance Company." If any Premium is held at any time by Distributor, Distributor shall hold such Premium in a fiduciary capacity and such Premium shall be remitted promptly, and in any event within two business days, to AFLIC. Distributor acknowledges that all such Premiums, whether by check, money order or wire, shall be the property of AFLIC. Distributor acknowledges that AFLIC shall have the unconditional right to reject, in whole or in part, any Application or Premium. c. SUITABILITY. AFLIC and Distributor wish to ensure that the Contracts sold by Distributor will be issued to purchasers for whom the Contracts are suitable. Distributor shall require that the Representatives have reasonable grounds to believe that a recommendation to an applicant to purchase a Contract is suitable for that applicant. Distributor shall review all applications for suitability in accordance with Rule 2310 of the NASD Conduct Rules and interpretations and guidance relating thereto. AFLIC will review all Applications under the suitability standards set forth in variable life insurance regulations adopted by states where the Contracts are sold, and standards adopted by AFLIC or as set forth in compliance and operational manuals. d. REPRESENTATIONS AND WARRANTIES OF DISTRIBUTOR. Distributor represents and warrants to AFLIC that Distributor is and during the term of this Agreement shall remain registered as a broker-dealer under the 1934 Act, admitted as a member with the NASD, and duly registered under applicable state securities laws, and that Distributor is and shall remain during the term of this Agreement in compliance with Section 9(a) of the 1940 Act. 4. MARKETING MATERIALS a. PREPARATION AND FILING. AFLIC and Distributor shall together design and develop all promotional, sales and advertising material (including any illustrations) relating to the Contracts and any other marketing-related documents for use in the sale of the Contracts, subject to review and approval by Distributor of such material and documents in accordance with Section 2210 of the NASD Conduct Rules. Distributor shall be responsible for filing such material with the 4 NASD and any state securities regulatory authorities requiring such filings. AFLIC shall be responsible for filing all promotional, sales or advertising material (including illustrations), as required, with any state insurance regulatory authorities. AFLIC shall be responsible for preparing the Contract forms and filing them with applicable state insurance regulatory authorities, and for preparing the Prospectuses and Registration Statements and filing them with the SEC and state regulatory authorities, to the extent required. The parties shall notify each other expeditiously of any comments provided by the SEC, NASD or any securities or insurance regulatory authority on such material, and will cooperate expeditiously in resolving and implementing any comments, as applicable. b. USE IN SOLICITATION ACTIVITIES. AFLIC shall be responsible for furnishing Distributor with such Applications, Prospectuses and other materials for use by Distributor and Representatives in their solicitation activities with respect to the Contracts. AFLIC shall notify Distributor of those states or jurisdictions that require delivery of a statement of additional information with a Prospectus to a prospective purchaser. Distributor or its Representatives shall not use any promotional, sales or advertising materials that have not been approved by AFLIC. 5. COMPENSATION AND EXPENSES a. PAYMASTER ARRANGEMENT. American Family Mutual Insurance Company ("AFMIC"), an affiliate of both Distributor and AFLIC, all of which are under control of a common parent company, will pay commissions payable to designated Representatives of Distributor as paying agent on behalf of Distributor and will maintain the books and records reflecting such payments in accordance with the requirements of the 1934 Act on behalf of Distributor. Such payments may include certain amounts to Representatives as an advance on commissions payable by Distributor. In accordance with the terms of a Paymaster Agreement dated the same date as this Agreement between AFMIC and Distributor, AFMIC has acknowledged and agreed that its services in this regard are purely ministerial and clerical in nature and shall not interfere with the control and supervision exercised by Distributor over its Representatives with regard to the Contracts. AFMIC has further acknowledged and agreed that Distributor shall not be liable to any party for commissions payable hereunder. AFMIC shall have no right to compensation for the performance of any activities described in this Section 5.a. Representatives of Distributor shall have no interest in this Agreement or right to any compensation to be paid by or on behalf of Distributor hereunder prior to their receipt thereof. b. EXPENSES. AFLIC shall pay all expenses, except for commissions to Representatives, in connection with the variable products including, but not limited to, the preparation and filing of the Contracts, Registration Statements, and promotional materials. 5 6. COMPLIANCE a. MAINTAINING REGISTRATION AND APPROVALS. AFLIC shall be responsible for maintaining the registration of the Contracts with the SEC and any state securities regulatory authority with which such registration is required, and for gaining and maintaining approval of the Contract forms where required under the insurance laws and regulations of each state or other jurisdiction in which the Contracts are to be offered. b. CONFIRMATIONS AND 1934 ACT COMPLIANCE. AFLIC, as agent for Distributor, shall confirm to each applicant for and purchaser of a Contract in accordance with Rule 10b-10 under the 1934 Act acceptance of Premiums and such other transactions as are required by Rule 10b-10 or administrative interpretations thereunder. AFLIC shall maintain and preserve books and records with respect to such confirmations in conformity with the requirements of Rules 17a-3 and 17a-4 under the 1934 Act to the extent such requirements apply. The books, accounts and records of AFLIC, the Variable Account and Distributor as to all transactions hereunder shall be maintained so as to disclose clearly and accurately the nature and details of the transactions. AFLIC shall maintain, as agent for Distributor, such books and records of Distributor pertaining to the offer and sale of the Contracts and required by the 1934 Act as may be mutually agreed upon by AFLIC and Distributor, including but not limited to maintaining a record of Representatives and of the payment of commissions and other payments or service fees to Representatives. In addition, AFLIC, as agent for Distributor, shall maintain and preserve such additional accounts, books and other records as are required of AFLIC and Distributor by the 1934 Act. AFLIC shall maintain all such books and records and hold such books and records on behalf of and as agent for Distributor whose property they are and shall remain, and acknowledges that such books and records are at all times subject to inspection by the SEC in accordance with Section 17(a) of the 1934 Act, the NASD, and all other regulatory bodies having jurisdiction. To the extent AFLIC employs electronic storage media in connection with books and records created, maintained and stored on behalf of Distributor, AFLIC agrees to comply with the requirements set forth in Rule 17a-4(f)(3)(vii) and 17a-4(i). With respect to any books and records maintained or preserved on behalf of Distributor, AFLIC hereby undertakes to permit examination of such books and records at any time or from time to time during business hours by representatives or designees of the SEC, and to promptly furnish to the SEC or its designee true, correct, complete and current hard copy of any or all of any part of such books and records. Subject to Distributor's approval, AFLIC reserves the right to delegate the duties set forth in this Section 6.b to a third party administrator mutually agreeable to both parties. c. REPORTS. Distributor shall cause AFLIC to be furnished with such reports as AFLIC may reasonably request for the purpose of meeting its reporting and record keeping requirements under the 1933 Act, the 1934 Act and the 1940 Act 6 and regulations thereunder as well as the insurance laws of the State of Wisconsin and any other applicable states or jurisdictions. d. ISSUANCE AND ADMINISTRATION OF CONTRACTS. AFLIC shall be responsible for issuing the Contracts and administering the Contracts and the Variable Account, provided, however, that Distributor shall have full responsibility for the securities activities of all persons employed by AFLIC, engaged directly or indirectly in the Contract operations, and for the training, supervision and control of such persons to the extent of such activities. Subject to Distributor's approval, AFLIC reserves the right to delegate the duties set forth in this Section 6.d to a third party administrator mutually agreeable to both parties. 7. INVESTIGATIONS AND PROCEEDINGS a. COOPERATION. Distributor and AFLIC shall cooperate fully in any securities or insurance regulatory investigation or proceeding or judicial proceeding arising in connection with the offering, sale or distribution of the Contracts distributed under this Agreement. Without limiting the foregoing, AFLIC and Distributor shall notify each other promptly of any customer complaint or notice of any regulatory investigation or proceeding or judicial proceeding received by either party with respect to the Contracts. b. CUSTOMER COMPLAINTS. AFLIC agrees that it will assist Distributor with complying with the reporting requirements imposed by Section 3070 of the NASD Rules of Conduct with regard to the sales of the Contracts. Without limiting the foregoing, AFLIC agrees to notify the Distributor if persons associated with AFLIC are the subject of any written customer complaint involving allegations of theft, forgery or misappropriation of funds or securities, or is the subject of any claim for damages by a customer, broker, or dealer which is settled for an amount exceeding $15,000. 8. INDEMNIFICATION a. BY AFLIC. AFLIC shall indemnify and hold harmless Distributor and any officer, director, or employee of Distributor against any and all losses, claims, damages or liabilities, joint or several (including any investigative, legal and other expenses reasonably incurred in connection with, and any amounts paid in settlement of, any action, suit or proceeding or any claim asserted), to which Distributor and/or any such person may become subject, under any statute or regulation, any NASD rule or interpretation, at common law or otherwise, insofar as such losses, claims, damages or liabilities: (1) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, in 7 light of the circumstances in which they were made, contained in any Registration Statement or in any Prospectus; provided that AFLIC shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of, or is based upon, an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon information furnished in writing to AFLIC by Distributor specifically for use in the preparation of any such Registration Statement or any amendment thereof or supplement thereto; (2) result from any breach by AFLIC of any provision of this Agreement. This indemnification agreement shall be in addition to any liability that AFLIC may otherwise have; provided, however, that no person shall be entitled to indemnification pursuant to this provision if such loss, claim, damage or liability is due to the willful misfeasance, bad faith, gross negligence or reckless disregard of duty by the person seeking indemnification. b. BY DISTRIBUTOR. Distributor shall indemnify and hold harmless AFLIC and any officer, director, or employee of AFLIC against any and all losses, claims, damages or liabilities, joint or several (including any investigative, legal and other expenses reasonably incurred in connection with, and any amounts paid in settlement of, any action, suit or proceeding or any claim asserted), to which AFLIC and/or any such person may become subject under any statute or regulation, any NASD rule or interpretation, at common law or otherwise, insofar as such losses, claims, damages or liabilities: (1) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading, in light of the circumstances in which they were made, contained in any Registration Statement or in any Prospectus; in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon information furnished in writing by Distributor to AFLIC specifically for use in the preparation of any such Registration Statement or any amendment thereof or supplement thereto; (2) result from any breach by Distributor of any provision of this Agreement; This indemnification shall be in addition to any liability that Distributor may otherwise have; provided, however, that no person shall be entitled to indemnification pursuant to this provision if such loss, claim, damage or liability is due to the willful misfeasance, bad faith, gross negligence or reckless disregard of duty by the person seeking indemnification. c. GENERAL. Promptly after receipt by a party entitled to indemnification ("indemnified person") under this Section 8 of notice of the commencement of any action as to which a claim will be made against any person obligated to 8 provide indemnification under this Section 8 ("indemnifying party"), such indemnified person shall notify the indemnifying party in writing of the commencement thereof as soon as practicable thereafter, but failure to so notify the indemnifying party shall not relieve the indemnifying party from any liability which it may have to the indemnified person otherwise than on account of this Section 8. The indemnifying party will be entitled to participate in the defense of the indemnified person but such participation will not relieve such indemnifying party of the obligation to reimburse the indemnified person for reasonable legal and other expenses incurred by such indemnified person in defending himself or itself. d. DURATION. The indemnification provisions contained in this Section 8 shall remain operative in full force and effect, regardless of any termination of this Agreement. A successor by law of Distributor or AFLIC, as the case may be, shall be entitled to the benefits of the indemnification provisions contained in this Section 8. 9. TERMINATION. This Agreement shall terminate automatically if it is assigned by the Distributor without the prior written consent of the other party. (The term "assigned" shall not include any transaction exempted from Section 15(b)(2) of the 1940 Act.) This Agreement may be terminated at any time for any reason by either party upon 60 days' written notice to the other party, without payment of any penalty. This Agreement may be terminated at the option of either party to this Agreement upon the other party's material breach of any provision of this Agreement or of any representation or warranty made in this Agreement, unless such breach has been cured within 10 days after receipt of notice of breach from the non-breaching party. Upon termination of this Agreement, all authorizations, rights and obligations shall cease except the following: (1) the obligation to settle accounts hereunder, including commissions on Premiums subsequently received for Contracts in effect at the time of termination or issued pursuant to Applications received by AFLIC prior to termination; (2) the provisions contained in Section 8 regarding indemnification; and (3) the provisions contained in Section 3(b)(4) regarding the remittance of premiums. In the event of any termination for any reason, all books and records and sales or marketing materials held by Distributor shall promptly be returned to AFLIC free from any claim or retention of rights by Distributor. 10. MISCELLANEOUS a. BINDING EFFECT. This Agreement shall be binding on and shall inure to the benefit of the respective successors and assigns of the parties hereto provided that neither party shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other party. 9 b. SCHEDULES. The parties to this Agreement may amend Schedules 1 and 2 to this Agreement from time to time to reflect additions of any class of Contracts and Variable Accounts. The provisions of this Agreement shall be equally applicable to each such class of Contracts and each Variable Account that may be added to the Schedule, unless the context otherwise requires. Any other change in the terms or provisions of this Agreement shall be by written agreement between AFLIC and Distributor. c. RIGHTS, REMEDIES, AND OBLIGATIONS ARE CUMULATIVE. The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, which the parties hereto are entitled to under state and federal laws. Failure of either party to insist upon strict compliance with any of the conditions of this Agreement shall not be construed as a waiver of any of the conditions, but the same shall remain in full force and effect. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provisions, whether or not similar, nor shall any waiver constitute a continuing waiver. d. NOTICES. All notices hereunder are to be made in writing and shall be given: if to AFLIC, to: Name Title Address with a copy to: Name Title Address if to Distributor, to: Name Title Address or such other address as such party may hereafter specify in writing. Each such notice to a party shall be either hand delivered or transmitted by registered or certified United States mail with return receipt requested, or by overnight mail by a nationally recognized courier, and shall be effective upon delivery. 10 e. INTERPRETATION; JURISDICTION. This Agreement constitutes the whole agreement between the parties hereto with respect to the subject matter hereof, and supersedes all prior oral or written understandings, agreements or negotiations between the parties with respect to such subject matter. No prior writings by or between the parties with respect to the subject matter hereof shall be used by either party in connection with the interpretation of any provision of this Agreement. This Agreement is made in the State of Wisconsin, and all questions concerning its validity, construction or otherwise shall be determined under the laws of Wisconsin without giving effect to principals of conflict of laws. f. SEVERABILITY. This is a severable Agreement. In the event that any provision of this Agreement would require a party to take action prohibited by applicable federal or state law or prohibit a party from taking action required by applicable federal or state law, then it is the intention of the parties hereto that such provision shall be enforced to the extent permitted under the law, and, in any event, that all other provisions of this Agreement shall remain valid and duly enforceable as if the provision at issue had never been a part hereof. g. SECTION AND OTHER HEADINGS. The headings in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. h. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which taken together shall constitute one and the same instrument. i. REGULATION. This Agreement shall be subject to the provisions of the 1933 Act, 1934 Act, and 1940 Act and the regulations thereunder and the rules and regulations of the NASD, from time to time in effect, including such exemptions from the 1940 Act as the SEC may grant, and the terms hereof shall be interpreted and construed in accordance therewith. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by such authorized officers on the date specified above. AMERICAN FAMILY LIFE INSURANCE COMPANY AFLIC By: _________________________________ Name: Title: 11 AMERICAN FAMILY SECURITIES, LLC Distributor By: _________________________________ Name: Title: 12 SCHEDULE 1 For purposes of the Distribution Agreement between AFLIC and Distributor entered into on the ____day of _________, 2000, the separate accounts are as follows: American Family Variable Account I American Family Variable Account II 13 SCHEDULE 2 For purposes of the Distribution Agreement between AFLIC and Distributor entered into on the ____day of _________, 2000, the variable products are as follows: American Family Flexible Premium Variable Annuity Contract American Family Flexible Premium Variable Universal Life Insurance Policy 14 EX-99.3(B) 3 a2039901zex-99_3b.txt EXHIBIT 99.3(B) AMERICAN FAMILY SECURITIES, LLC REGISTERED REPRESENTATIVE AGREEMENT THIS AGREEMENT, made this ____ day of __________________, 20___ (the "Effective Date"), is by and between American Family Securities, LLC, a Wisconsin limited liability company, ("the Company"), having its principal office at 6000 American Parkway, Madison, Wisconsin, 53783 and ____________________________________, (the "Representative"). RECITALS WHEREAS, the Company is engaged in the securities business as a broker/dealer registered with the Securities and Exchange Commission (the "SEC") and is a member of the National Association of Securities Dealers, Inc. (the "NASD"); and WHEREAS, the Company is an affiliate of American Family Life Insurance Company ("AFLIC"); WHEREAS, agents of AFLIC may be qualified for association with the Company as registered persons; WHEREAS, Representative is an agent of AFLIC; and WHEREAS, the Company desires to appoint Representative as a registered person of the Company, and Representative desires to serve as a registered person of the Company, for the purpose of engaging in the securities business on behalf of the Company; NOW, THEREFORE, in consideration of the covenants and promises herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. AUTHORIZATION AND APPOINTMENT The Company hereby authorizes Representative to solicit, promote, and conduct a securities business as a registered representative of the Company. Representative shall not be registered or licensed with any other securities broker/dealer during the term of this Agreement except with the Company's prior written consent. It is acknowledged that Representative is also appointed by AFLIC and American Family Mutual Insurance Company ("AFMIC") to solicit applications for non-variable insurance products issued by AFLIC and AFMIC. 2. RELATIONSHIP Representative's relationship with Company is that of an independent contractor. Nothing contained herein or elsewhere shall be construed as creating an employer/employee relationship. - 1 - Except as otherwise provided herein, Representative shall be responsible for all expenses and fees associated with his or her securities business. 3. COMPLIANCE WITH APPLICABLE LAW AND COMPANY POLICY 3.1 Representative acknowledges and agrees that the securities business is subject to extensive regulation, including, without limitation, laws administered and interpreted by the SEC, and the regulations promulgated thereunder, the rules and regulations of the NASD and other laws and regulations of the United States and of the various states (such laws, rules and regulations being collectively referred to as "Applicable Law"). Representative shall be familiar with and shall strictly comply with such Applicable Law, as well as with the Company's then-current Registered Representative Manual as it may be amended from time to time, and with any other such instructions and directions as may be issued by the Company from time to time (collectively, "Company Policy"). Representative understands that failure to comply with Applicable Law or with Company Policy may result in proceedings by governmental authorities, the SEC, the NASD, and private parties, that could have a significant adverse effect on Representative and the Company. 3.2 Representative understands and agrees that the Company has the right and obligation to establish and institute, implement and maintain a supervisory system and procedures reasonably designed to achieve compliance with Applicable Law, which includes the obligation to supervise Representative's activities in the securities business and Representative's compliance with Applicable Law and Company Policy. Representative understands and agrees that in the exercise of this supervisory responsibility the Company may, among other things: (i) reject any securities transaction submitted by Representative; (ii) take action, implement procedures, impose a fine or suspension, terminate this Agreement, or employ any other measure it in its sole discretion determines to be reasonably designed to achieve compliance with or to enforce its supervisory system; (iii) conduct such audits of Representative and Representative's financial, business, and personal records (including, but not limited to Representative's federal and state income tax returns) as may be required by Applicable Law or as otherwise determined by the Company; and (iv) require Representative to attend such compliance-related or other training as the Company may determine. 3.3 Representative shall keep correct accounts and records of all business transacted. Representative's accounts and records shall be open at all times to inspection and examination by the Company. 4. MAINTENANCE OF REGISTRATIONS AND LICENSES Representative shall be responsible for maintaining continuously such permits and licenses as may be required, and shall make such applications and effect such registrations as may from time to time be required for Representative's sales of securities and other activities in connection with the Company's business. Representative shall not engage in activities on behalf of the Company during any period during which Representative is not in compliance with applicable registration, licensing, examination, continuing education or other compliance requirements. Final determination of such compliance shall be made by the Company. - 2 - 5. STATE REGISTRATIONS Representative shall not offer or sell any securities product unless the Company has approved such product and Representative is duly licensed to sell such product in the particular jurisdiction. 6. USE OF PROSPECTUS AND SALES LITERATURE; COMMUNICATIONS WITH CUSTOMERS 6.1 The Company shall furnish Representative with all sales literature to be used in connection with the offer and sale of securities. Representative must not use any other sales literature relating directly or indirectly to the Company or securities of any kind without the Company's prior written approval. Representative shall not modify, alter or highlight the information contained in any sales literature or prospectus for prospective purchasers. 6.2 Representative shall not make any representation concerning any security that is inconsistent with those contained in the appropriate current offering document in the case of a newly issued security or disclosure filings made by the issuer of the security in the case of traded securities. Representative shall not solicit or sell any newly issued security unless the appropriate current prospectus or other offering document is furnished to the purchaser prior to the offer and sale. 6.3 Representative shall comply with Applicable Law and Company Policy regarding conduct and sales practices, including, without limitation, all requirements that communications with the public not contain an untrue statement of a material fact or otherwise be false and misleading. 7. COMPANY REVIEW OF ORDERS 7.1 Applications, orders and other subscriptions for the purchase or sale of securities solicited or taken by Representative shall be submitted by Representative and approved by the Company and/or the issuers thereof only on the terms that are set forth in (i) the then currently applicable prospectus (and/or statement of additional information, if any) or other offering document, if any, and (ii) Company Policy. Representative must promptly forward all applications, purchase payments and premiums for securities to the designated location when Representative receives them. 7.2 The Company reserves the right at any time to refuse to accept and approve any order or application for the purchase of securities obtained by Representative and to refund, without Representative's consent, all monies received in connection therewith. 8. CUSTOMER FUNDS All monies or other settlements received by Representative for or on behalf of the Company or a third party shall be received by Representative in a fiduciary capacity in trust for, and shall be immediately transmitted to, the Company or as otherwise directed by the Company. In no event shall Representative commingle such monies with other funds. - 3 - 9. COMMISSIONS 9.1 Subject to the provisions of this Agreement, the Company shall pay Representative commissions on all completed securities transactions. Such commissions shall be paid in accordance with the Company's commission schedule and procedures as they shall be amended from time to time. The records and determination of the Company shall be conclusive in the calculation of the commissions payable to Representative. 9.2 Commissions shall not be due or payable to Representative for the sale of securities until the Company has received the related broker/dealer concession or commission. Representative waives any right to receive commissions prior to such receipt, and agrees that the Company's liability for the commission payable is limited solely to the proceeds of the concession or commission received by the Company. In the event a concession or commission is charged back to the Company, the Company shall have the right to offset any commission payable to Representative in accordance with the terms of Section 17.1 of this Agreement. [COMMISSIONS SHALL BE PAID TO REPRESENTATIVE ONLY SO LONG AS THIS AGREEMENT IS IN FORCE] and may be withheld or forfeited in the Company's sole discretion if Representative fails to comply with applicable registration, licensing and examination obligations. The Company has the right at any time to change or cancel the kinds of commissions set forth in this Agreement. 9.3 Upon termination of this Agreement due to Representative's disability, death or retirement, the Company agrees to pay Representative (or, in the event of Representative's death, Representative's named beneficiary) all first year and trailer commissions due and owing under the terms of this Agreement, on any securities business written prior to the date of termination. Beneficiary designation (name): ___________________________ Relationship: ______________________ 9.4 This beneficiary designation may be changed from time to time by Representative upon notice in writing to the Company. 10. RESPONSIBILITY FOR SECURITIES BUSINESS; OUTSIDE BUSINESS ACTIVITIES 10.1 Representative shall be responsible for developing Representative's securities business. Representative shall not be required to spend any particular amount of time acting as a registered representative of the Company. Except as Representative and the Company may otherwise agree, in no event shall Representative be required to sell any specified quota of securities offered, issued, or sponsored by AFLIC, the Company, or their affiliates. Notwithstanding the foregoing, nothing herein shall prevent the Company from establishing production or sales criteria for Representative as the Company may from time to time determine. 10.2 Representative shall be free to engage in other businesses or occupations provided that Representative first notifies the Company and obtains advance approval in writing. Representative shall also comply with all Applicable Law and with Company Policy with respect to such other business or occupation, including, without limitation, disclosing to the Company such information about such business or occupation as the Company shall reasonably request. - 4 - 11. RELATIONSHIP WITH NON-REGISTERED PERSONS 11.1 Representative shall communicate Company Policy to any non-registered personnel that assists Representative with Representative's securities business, shall supervise such personnel with a view to compliance with such rules and regulations, and shall obtain their written agreement (in the form attached to this Agreement as EXHIBIT A) to abide by these rules and regulations when and as required by the Company. 11.2 Representative shall be solely responsible for salaries and other compensation of all Representative's employees or independent contractors and shall comply with any and all applicable federal, state, or local laws, rules, regulations and ordinances in dealing with such individuals. 12. INSURANCE COVERAGE Representative agrees to obtain and carry such face amount of insurance coverage as the Company may from time to time require. If so instructed, agent shall name the Company as an additional insured under such coverage. Representative agrees to provide the Company with evidence of such coverage as the Company may request from time to time. 13. CONFIDENTIAL INFORMATION AND RETURN OF MATERIALS Unless expressly authorized in writing by the Company, Representative agrees not to communicate or divulge, or use for the benefit of Representative or any other person or entity, any confidential information of the Company of any type or description, including, but not limited to any proprietary information, policies, forms, manuals, or reports of the Company, or information about the Company's finances, operations, or legal proceedings. Upon termination of this Agreement, Representative shall (i) promptly return to the Company any manuals, forms prospectuses, or other materials or supplies previously furnished to Representative by the Company, and (ii) provide the Company with such records in Representative's control (or copies thereof) that the Company may require to comply with Applicable Law. 14. LEGAL PROCEEDINGS AND INDEMNIFICATION Representative agrees to notify the Company immediately of the commencement of any and all inquiries from regulators, disciplinary actions, civil and criminal allegations and complaints, suits or arbitration proceedings brought against or involving Representative that are in any way related to Representative's securities business or Representative's association with the Company. Representative understands and agrees that Representative has no right or authority to commence any legal proceedings, or to incur any expenses or obligations, on the Company's behalf or in its name. The Company reserves the right to settle any such proceeding in its sole discretion, and Representative agrees to cooperate fully with the Company in effecting any such settlement. Representative agrees to indemnify and make the Company harmless from any and all expenses, liabilities, costs, causes of action, settlements, attorneys' fees, damages or other judgments resulting from Representative's acts, omissions or transactions that are related to Representative's - 5 - securities business, or Representative's violation of the terms of this Agreement or of Applicable Law. 15. ASSIGNMENT Neither this Agreement, nor any right to receive compensation hereunder, nor any other right or interest herein, may be assigned by Representative without the Company's express written consent. 16. TERM, TERMINATION AND AMENDMENT 16.1 This Agreement shall remain in effect until terminated as set forth below. 16.2 Either Representative or the Company may terminate this Agreement with or without cause upon giving 30 days' written notice to the other party. In addition, the Company may immediately terminate this Agreement upon written notice to Representative in the event of Representative's violation of Applicable Law, Company Policy or the terms of this Agreement. 16.3 Notwithstanding the foregoing, this Agreement shall automatically terminate without notice in the event of (i) the suspension, revocation, cancellation or other impairment of Representative's registration, license or authority to solicit, offer or sell securities at any time by the NASD or by any federal, state, district or other authority, (ii) the termination of Representative's association with the Company, (iii) the termination of Representative's contract with AFLIC, or (iii) Representative's death or incapacity. 16.4 In the event of termination of this Agreement by reason of the death or incapacity of Representative, any payments due Representative pursuant to Section 9 hereof shall be made to Representative's beneficiary as designated in accordance with the provisions of Sections 9.3 and 9.4 of this Agreement. 16.5 No amendment to this Agreement shall be effective unless it is in writing and signed by both parties. 17. RETURN OF COMPENSATION; CLAIMS ON EARNINGS 17.1 In the event any order for the purchase of securities is rejected by the Company or any payment received for the purchase of securities cannot be collected or otherwise proves insufficient or worthless, any compensation paid to Representative by the Company hereunder shall, promptly upon notice to Representative, be returned by Representative to the Company either in cash or as a charge against Representative's account with the Company, as the Company may elect. Representative hereby agrees that until the Company receives full reimbursement in cash, the amount of compensation due and owing the Company shall constitute a debt of Representative to the Company, which the Company may collect by any lawful means, with interest thereon at the maximum rate permitted by law. - 6 - 17.2 The Company shall have first claim on all of Representative's earnings hereunder. This means the Company, as and when it elects, may keep all or any part of Representative's earnings hereunder to reduce any debt Representative owes to the Company; and, for that purpose and to the extent permitted by law, Representative hereby assigns all such earnings to the Company. While the Company may release Representative's earnings while Representative owes a debt to the Company, this does not mean the Company has waived this right of first claim to Representative's earnings. The Company may make this claim whether Representative's earnings are due the Company, the Representative, the representative of Representative's estate, or Representative's heirs. The Company's claim also takes precedence over claims of Representative's creditors. All Representative's earnings kept by the Company shall be used to reduce the debt owed to the Company. 18. ARBITRATION Representative acknowledges and agrees that all disputes arising under this Agreement are to be settled and determined by arbitration. Such arbitration shall be conducted in accordance with the rules of the NASD. 19. PRIOR CONTRACTS This Agreement supercedes all other contracts or agreements, whether oral or written, between Representative and the Company. 20. NOTICE Any notice to be given to a party hereto pursuant to this Agreement shall be in writing, addressed to such party at the last known address of such party. Any notice delivered by the mails, postage fully prepaid, shall be deemed to have been given five (5) days after mailing or, if earlier, upon receipt. 21. WAIVER The Company may choose, form time to time, not to enforce a provision of this Agreement or an aspect of Company Policy. This does not mean the Company has waived the right to enforce it in the future. Also, it does not mean that the Company ratifies or consents to those actions of Representative that were not in accord with this Agreement or with Company Policy. 22. INVALID PROVISIONS; SURVIVAL The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provision were omitted. Any paragraph setting forth the rights and remedies of the Company or its affiliates against Representative for any breach hereunder, or for any debt, shall survive the termination of this Agreement. - 7 - 23. GOVERNING LAW This Agreement shall be construed in accordance with the laws of the State of Wisconsin. APPROVAL AND ACCEPTANCE OF APPOINTMENT AND THE TERMS OF THIS AGREEMENT BY REPRESENTATIVE. __________________________________ REPRESENTATIVE __________________________________ DATE APPROVAL AND ACCEPTANCE OF REPRESENTATIVE'S APPOINTMENT AND THE TERMS OF THIS AGREEMENT BY THE COMPANY. AMERICAN FAMILY SECURITIES, LLC BY: __________________________________ AUTHORIZED OFFICER __________________________________ DATE - 8 - EXHIBIT A ACKNOWLEDGMENT FORM FOR UNLICENSED EMPLOYEES In connection with my employment by [INSERT AGENT'S NAME], an American Family Securities ("AFS") registered representative (the "Registered Representative"), I hereby acknowledge that I have received, read, and understand [A COPY OF AFS'S RULES AND REGULATIONS (THE "RULES") CONCERNING ETHICAL MARKET CONDUCT] and agree to comply with the Rules as they may be amended from time to time. I understand that since I am not licensed or qualified to sell variable insurance products ("Variable Products"), I must be very careful not to perform any activities or provide any information to customers that could confuse a customer as to my role in the sale of Variable Products. I am aware that under federal and state securities laws, and under state insurance laws, only properly licensed, registered, and qualified persons may solicit customers or recommend or discuss Variable Products with a customer. In sum, this means that as an Unlicensed Employee, I may provide only "clerical" and "ministerial" services in support of the registered representative for whom I work. I understand that permissible activities for Unlicensed Employees are limited to: - referring prospective customers to a Registered Representative; - arranging an appointment with or taking a message for a Registered Representative if a Registered Representative is absent or unavailable; - referring telephone calls and other written and oral communications to a Registered Representative; and - referring all Variable Products-related questions to a Registered Representative. When engaging in any of the foregoing permissible activities, I shall limit my discussion of the Variable Products to statements advising customers of the availability of information about the Variable Products, and the referral of such customers to the Registered Representative. I shall not offer securities or insurance advice, make recommendations, discuss the features, merits, or suitability of any Variable Products, or handle any question that might require familiarity with the securities industry. I shall not hold or maintain customer funds in connection with securities transactions, or have any involvement in insurance transactions other than providing clerical or ministerial advice. I also understand that nothing in this Acknowledgment Form limits my ability to provide administrative or clerical services. If there is any doubt as to whether any activity is administrative or clerical, I shall consult with my Registered Representative before undertaking any such activity. ______________________________ ____________________________ [Registered Representative] [Unlicensed Employee] ______________________________ ____________________________ Date Date - 1 - EX-99.8(A) 4 a2039901zex-99_8a.txt EXHIBIT 99.8(A) PARTICIPATION AGREEMENT AMONG VARIABLE INSURANCE PRODUCTS FUNDS, FIDELITY DISTRIBUTORS CORPORATION AND AMERICAN FAMILY LIFE INSURANCE COMPANY THIS AGREEMENT, made and entered into as of the 1st day of March, 2001 by and among AMERICAN FAMILY LIFE INSURANCE COMPANY, (hereinafter the "Company"), a Wisconsin corporation, on its own behalf and on behalf of each segregated asset account of the Company set forth on Schedule A hereto as may be amended from time to time (each such account hereinafter referred to as the "Account"); and FIDELITY DISTRIBUTORS CORPORATION (hereinafter the "Underwriter"), a Massachusetts corporation; and each of VARIABLE INSURANCE PRODUCTS FUND, VARIABLE INSURANCE PRODUCTS FUND II and VARIABLE INSURANCE PRODUCTS FUND III, each an unincorporated business trust organized under the laws of the Commonwealth of Massachusetts (each referred to hereinafter as the "Fund"). RECITALS WHEREAS, each Fund engages in business as an open-end management investment company and is available to act as the investment vehicle for separate accounts established for variable life insurance policies and variable annuity contracts (collectively, the "Variable Insurance Products") to be offered by insurance companies which have entered into participation agreements with the Fund and the Underwriter (hereinafter "Participating Insurance Companies"); and WHEREAS, the beneficial interest in each Fund is divided into several series of shares, each representing the interest in a particular managed portfolio of securities and other assets, any one or more of which may be made available under this Agreement, as may be amended from time to time by mutual agreement of the parties hereto (each such series hereinafter referred to as a "Portfolio"); and WHEREAS, each Fund has obtained an order from the Securities and Exchange Commission, dated October 15, 1985 (File No. 812-6102) or September 17, 1986 (File No. 812-6422), 1 granting Participating Insurance Companies and variable annuity and variable life insurance separate accounts exemptions from the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15) thereunder, to the extent necessary to permit shares of the Fund to be sold to and held by variable annuity and variable life insurance separate accounts of both affiliated and unaffiliated life insurance companies (hereinafter the "Shared Funding Exemptive Order"); and WHEREAS, each Fund is registered as an open-end management investment company under the 1940 Act and its shares are registered under the Securities Act of 1933, as amended (hereinafter the "1933 Act"); and WHEREAS, Fidelity Management & Research Company (the "Adviser") is duly registered as an investment adviser under the federal Investment Advisers Act of 1940 and any applicable state securities law; and WHEREAS, the variable life insurance and/or variable annuity products identified on Schedule A hereto ("Contracts") have been or will be registered by the Company under the 1933 Act, unless such Contracts are exempt from registration thereunder; and WHEREAS, each Account is a duly organized, validly existing segregated asset account, established by resolution of the Board of Directors of the Company, on the date shown for such Account on Schedule A hereto, to set aside and invest assets attributable to the aforesaid Contracts; and WHEREAS, the Company has registered or will register each Account as a unit investment trust under the 1940 Act, unless such Account is exempt from registration thereunder; and WHEREAS, the Underwriter is registered as a broker dealer with the Securities and Exchange Commission ("SEC") under the Securities Exchange Act of 1934, as amended, (hereinafter the "1934 Act"), and is a member in good standing of the National Association of Securities Dealers, Inc. (hereinafter "NASD"); and WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Company intends to purchase shares in the Portfolios on behalf of each Account to fund certain of the aforesaid Contracts and the Underwriter is authorized to sell such shares to each Account at net asset value; 2 AGREEMENT NOW, THEREFORE, in consideration of their mutual promises, the Company, the Underwriter and each Fund agree as follows: ARTICLE A. FORM OF AGREEMENT Although the parties have executed this Agreement in the form of a Master Participation Agreement for administrative convenience, this Agreement shall create a separate participation agreement for each Fund, as though the Company and the Distributor had executed a separate, identical form of participation agreement with each Fund. No rights, responsibilities or liabilities of any Fund shall be attributed to any other Fund. ARTICLE I. SALE OF FUND SHARES 1.1. The Underwriter agrees to sell to the Company those shares of the Fund which each Account orders, executing such orders on a daily basis at the net asset value next computed after receipt by the Fund or its designee of the order for the shares of the Fund. For purposes of this Section 1.1, the Company shall be the designee of the Fund for receipt of such orders from each Account and receipt by such designee shall constitute receipt by the Fund; provided that the Fund receives notice of such order by 10:00 a.m. Boston time on the next following Business Day and provided that all orders for the purchase and redemption of Fund shares on behalf of the Accounts will be placed by the Company with the Fund or its transfer agent by electronic transmission. "Business Day" shall mean any day on which the New York Stock Exchange is open for trading and on which the Fund calculates its net asset value pursuant to the rules of the Securities and Exchange Commission. 1.2. The Fund agrees to make its shares available indefinitely for purchase at the applicable net asset value per share by the Company and its Accounts on those days on which the Fund calculates its net asset value pursuant to rules of the Securities and Exchange Commission and the Fund shall use reasonable efforts to calculate such net asset value on each day which the New York Stock Exchange is open for trading. Notwithstanding the foregoing, the Board of Trustees of the Fund (hereinafter the "Board") may refuse to sell shares of any Portfolio to any person, or suspend or terminate the offering of shares of any Portfolio if such action is required by law or by regulatory authorities having jurisdiction or is, in the sole discretion of the Board acting in good faith and in light of their fiduciary duties under federal and any applicable state laws, necessary in the best interests of the Contract Owners invested in such Portfolio. 1.3. The Fund and the Underwriter agree that shares of the Fund will be sold only to Participating Insurance Companies and their separate accounts. No shares of any Portfolio will be sold to the general public. 1.4. The Fund and the Underwriter will not sell Fund shares to any insurance company or separate account unless an agreement containing provisions substantially the same as 3 Articles I, III, V, VII and Section 2.5 of Article II of this Agreement is in effect to govern such sales. 1.5. The Fund agrees to redeem for cash, on the Company's request, any full or fractional shares of the Fund held by the Company, executing such requests on a daily basis at the net asset value next computed after receipt by the Fund or its designee of the request for redemption. For purposes of this Section 1.5, the Company shall be the designee of the Fund for receipt of requests for redemption from each Account and receipt by such designee shall constitute receipt by the Fund; provided that the Fund receives notice of such request for redemption on the next following Business Day in accordance with section 1.1, above. 1.6. The Company agrees that purchases and redemptions of Portfolio shares offered by the then current prospectus of the Fund shall be made in accordance with the provisions of such prospectus. The Company agrees that all net amounts available under the Contracts shall be invested in the Fund, in such other Funds advised by the Adviser as may be mutually agreed to in writing by the parties hereto, or in the Company's general account, provided that such amounts may also be invested in an investment company other than the Fund if (a) such other investment company, or series thereof, has investment objectives or policies that are substantially different from the investment objectives and policies of all the Portfolios of the Fund; or (b) the Company gives the Fund and the Underwriter 45 days written notice of its intention to make such other investment company available as a funding vehicle for the Contracts; or (c) such other investment company was available as a funding vehicle for the Contracts prior to the date of this Agreement and the Company so informs the Fund and Underwriter prior to their signing this Agreement (a list of such funds appearing on Schedule C to this Agreement); or (d) the Fund or Underwriter consents to the use of such other investment company. 1.7. The Company shall pay for Fund shares on the next Business Day after an order to purchase Fund shares is made in accordance with the provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire. For purposes of Sections 2.10 and 2.11, upon receipt by the Fund of the federal funds so wired, such funds shall cease to be the responsibility of the Company and shall become the responsibility of the Fund. 1.8. Issuance and transfer of the Fund's shares will be by book entry only. Stock certificates will not be issued to the Company or any Account. Shares ordered from the Fund will be recorded in an appropriate title for each Account or the appropriate subaccount of each Account. 1.9. The Fund shall furnish same day notice (by wire or telephone, followed by written confirmation) to the Company of any income, dividends or capital gain distributions payable on the Fund's shares. The Company hereby elects to receive all such income dividends and capital gain distributions as are payable on the Portfolio shares in additional shares of that Portfolio. The Company reserves the right to revoke this election and to receive all such income dividends and capital gain distributions in cash. The Fund shall notify the Company of the number of shares so issued as payment of such dividends and distributions. 4 1.10. The Fund shall make the net asset value per share for each Portfolio available to the Company on a daily basis as soon as reasonably practical after the net asset value per share is calculated (normally by 6:30 p.m. Boston time) and shall use its best efforts to make such net asset value per share available by 7 p.m. Boston time. If the Fund is unable to meet the 7:00 p.m. time stated herein, it shall provide reasonable additional time for the Company to place orders for the purchase and redemption of shares, so long as such additional time period does not prejudice shareholders generally. ARTICLE II. REPRESENTATIONS AND WARRANTIES 2.1. The Company represents and warrants that the Contracts are or will be registered under the 1933 Act or are exempt from registration thereunder; that the Contracts will be issued and sold in compliance in all material respects with all applicable Federal and State laws and that the sale of the Contracts shall comply in all material respects with state insurance suitability requirements. The Company further represents and warrants that it is an insurance company duly organized and in good standing under applicable law and that it has legally and validly established each Account prior to any issuance or sale thereof as a segregated asset account under the Wisconsin Insurance Code and that each Account is either registered or exempt from registration as a unit investment trust in accordance with the provisions of the 1940 Act to serve as a segregated investment account for the Contracts. 2.2. The Fund represents and warrants that Fund shares sold pursuant to this Agreement shall be registered under the 1933 Act, duly authorized for issuance and sold in compliance with the laws of the State of Wisconsin and all applicable federal and state securities laws and that the Fund is and shall remain registered under the 1940 Act. The Fund shall amend the Registration Statement for its shares under the 1933 Act and the 1940 Act from time to time as required in order to effect the continuous offering of its shares. The Fund shall register and qualify the shares for sale in accordance with the laws of the various states only if and to the extent deemed advisable by the Fund or the Underwriter. 2.3. The Fund represents that it is currently qualified as a Regulated Investment Company under Subchapter M of the Internal Revenue Code of 1986, as amended, (the "Code") and that it will make every effort to maintain such qualification (under Subchapter M or any successor or similar provision) and that it will notify the Company immediately upon having a reasonable basis for believing that it has ceased to so qualify or that it might not so qualify in the future. 2.4. Subject to the Fund's compliance with applicable diversification requirements under this Agreement, the Company represents that the Contracts are currently or will upon issuance be treated as endowment, life insurance or annuity insurance contracts, under applicable provisions of the Code and that it will make every effort to maintain such treatment and that it will notify the Fund and the Underwriter immediately upon having a reasonable basis for 5 believing that the Contracts have ceased to be so treated or that they might not be so treated in the future. 2.5. (a) With respect to Initial Class shares, the Fund 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 may make such payments in the future. The Fund has adopted a "no fee" or "defensive" Rule 12b-1 Plan under which it makes no payments for distribution expenses. To the extent that it decides to finance distribution expenses pursuant to Rule 12b-1, the Fund undertakes to have a board of trustees, a majority of whom are not interested persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance distribution expenses. (b) With respect to Service Class shares and Service Class 2 shares, the Fund has adopted Rule 12b-1 Plans under which it makes payments to finance distribution expenses. The Fund represents and warrants that it has a board of trustees, a majority of whom are not interested persons of the Fund, which has formulated and approved each of its Rule 12b-1 Plans to finance distribution expenses of the Fund and that any changes to the Fund's Rule 12b-1 Plans will be approved by a similarly constituted board of trustees. 2.6. The Fund makes no representation as to whether any aspect of its operations (including, but not limited to, fees and expenses and investment policies) complies with the insurance laws or regulations of the various states except that the Fund represents that the Fund's investment policies, fees and expenses are and shall at all times remain in compliance with the laws of the State of Wisconsin and the Fund and the Underwriter represent that their respective operations are and shall at all times remain in material compliance with the laws of the State of Wisconsin to the extent required to perform this Agreement. 2.7. The Underwriter represents and warrants that it is duly organized and in good standing under the laws of the Commonwealth of Massachusetts. The Underwriter represents and warrants that it is a member in good standing of the NASD and is registered as a broker-dealer with the SEC. The Underwriter further represents that it will sell and distribute the Fund shares in accordance with the laws of the Commonwealth of Massachusetts and all applicable state and federal securities laws, including without limitation the 1933 Act, the 1934 Act, and the 1940 Act. 2.8. The Fund represents that it is lawfully organized and validly existing under the laws of the Commonwealth of Massachusetts and that it does and will comply in all material respects with the 1940 Act. 2.9. The Underwriter represents and warrants that the Adviser is and shall remain duly registered in all material respects under all applicable federal and state securities laws and that the Adviser shall perform its obligations for the Fund in compliance in all material respects with the laws of the Commonwealth of Massachusetts and any applicable state and federal securities laws. 6 2.10. The Fund and Underwriter represent and warrant that all of their directors, officers, employees, investment advisers, and other individuals/entities dealing with the money and/or securities of the Fund are and shall continue to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Fund in an amount not less than the minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated from time to time. The aforesaid Bond shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. 2.11. The Company represents and warrants that all of its directors, officers, employees, investment advisers, and other individuals/entities dealing with the money and/or securities of the Fund are covered by a blanket fidelity bond or similar coverage for the benefit of the Fund, and that said bond is issued by a reputable bonding company, includes coverage for larceny and embezzlement, and is in an amount not less than $5 million. The Company agrees to make all reasonable efforts to see that this bond or another bond containing these provisions is always in effect, and agrees to notify the Fund and the Underwriter in the event that such coverage no longer applies. ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS; VOTING 3.1. The Underwriter shall provide the Company with as many printed copies of the Fund's current prospectus and Statement of Additional Information as the Company may reasonably request. If requested by the Company in lieu thereof, the Fund shall provide camera-ready film containing the Fund's prospectus and Statement of Additional Information, and such other assistance as is reasonably necessary in order for the Company once each year (or more frequently if the prospectus and/or Statement of Additional Information for the Fund is amended during the year) to have the prospectus, private offering memorandum or other disclosure document ("Disclosure Document") for the Contracts and the Fund's prospectus printed together in one document, and to have the Statement of Additional Information for the Fund and the Statement of Additional Information for the Contracts printed together in one document. Alternatively, the Company may print the Fund's prospectus and/or its Statement of Additional Information in combination with other fund companies' prospectuses and statements of additional information. Except as provided in the following three sentences, all expenses of printing and distributing Fund prospectuses and Statements of Additional Information shall be the expense of the Company. For prospectuses and Statements of Additional Information provided by the Company to its existing owners of Contracts in order to update disclosure annually as required by the 1933 Act and/or the 1940 Act, the cost of printing shall be borne by the Fund. If the Company chooses to receive camera-ready film in lieu of receiving printed copies of the Fund's prospectus, the Fund will reimburse the Company in an amount equal to the product of A and B where A is the number of such prospectuses distributed to owners of the Contracts, and B is the Fund's per unit cost of typesetting and printing the Fund's prospectus. The same procedures shall be followed with respect to the Fund's Statement of Additional Information. The Company agrees to provide the Fund or its designee with such information as may be reasonably requested by the Fund to assure that the Fund's expenses do not include the 7 cost of printing any prospectuses or Statements of Additional Information other than those actually distributed to existing owners of the Contracts. 3.2. The Fund's prospectus shall state that the Statement of Additional Information for the Fund is available from the Underwriter or the Company (or in the Fund's discretion, the Prospectus shall state that such Statement is available from the Fund). 3.3. The Fund, at its expense, shall provide the Company with copies of its proxy statements, reports to shareholders, and other communications (except for prospectuses and Statements of Additional Information, which are covered in Section 3.1) to shareholders in such quantity as the Company shall reasonably require for distributing to Contract owners. 3.4. If and to the extent required by law the Company shall: (i) solicit voting instructions from Contract owners; (ii) vote the Fund shares in accordance with instructions received from Contract owners; and (iii) vote Fund shares for which no instructions have been received in a particular separate account in the same proportion as Fund shares of such portfolio for which instructions have been received in that separate account, so long as and to the extent that the Securities and Exchange Commission continues to interpret the 1940 Act to require pass-through voting privileges for variable contract owners. The Company reserves the right to vote Fund shares held in any segregated asset account in its own right, to the extent permitted by law. Participating Insurance Companies shall be responsible for assuring that each of their separate accounts participating in the Fund calculates voting privileges in a manner consistent with the standards set forth on Schedule B attached hereto and incorporated herein by this reference, which standards will also be provided to the other Participating Insurance Companies. 3.5. The Fund will comply with all provisions of the 1940 Act requiring voting by shareholders, and in particular the Fund will either provide for annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund is not one of the trusts described in Section 16(c) of that Act) as well as with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in accordance with the Securities and Exchange Commission's interpretation of the requirements of Section 16(a) with respect to periodic elections of trustees and with whatever rules the Commission may promulgate with respect thereto. ARTICLE IV. SALES MATERIAL AND INFORMATION 4.1. The Company shall furnish, or shall cause to be furnished, to the Fund or its designee, each piece of sales literature or other promotional material in which the Fund or its investment adviser or the Underwriter is named, at least fifteen Business Days prior to its use. 8 No such material shall be used if the Fund or its designee reasonably objects to such use within fifteen Business Days after receipt of such material. Notwithstanding that the Fund or its designee did not initially object, the Fund, the Underwriter, or its designee reserves the right to reasonably object to the continued use of any such sales literature or other promotional material in which the Fund or the Advisor or the Underwriter is named, and no such material shall be used if the Fund, the Underwriter, or its designee so object. 4.2. The Company shall not give any information or make any representations or statements on behalf of the Fund or concerning the Fund in connection with the sale of the Contracts other than the information or representations contained in the registration statement or prospectus for the Fund shares, as such registration statement and prospectus may be amended or supplemented from time to time, or in reports or proxy statements for the Fund, or in sales literature or other promotional material approved by the Fund or its designee or by the Underwriter, except with the permission of the Fund or the Underwriter or the designee of either. 4.3. The Fund, Underwriter, or its designee shall furnish, or shall cause to be furnished, to the Company or its designee, each piece of sales literature or other promotional material in which the Company and/or its separate account(s), is named at least fifteen Business Days prior to its use. No such material shall be used if the Company or its designee reasonably objects to such use within fifteen Business Days after receipt of such material. Notwithstanding that the Company did not initially object, the Company reserves the right to object at any time thereafter to the continued use of any such sales literature or other promotional material in which the Company is named, and no such material shall be used thereafter if the Company so objects. 4.4. The Fund and the Underwriter shall not give any information or make any representations on behalf of the Company or concerning the Company, each Account, or the Contracts other than the information or representations contained in a registration statement or Disclosure Document for the Contracts, as such registration statement or Disclosure Document may be amended or supplemented from time to time, or in published reports for each Account which are in the public domain or approved by the Company for distribution to Contract owners, or in sales literature or other promotional material approved by the Company or its designee, except with the permission of the Company. 4.5. The Fund will provide to the Company at least one complete copy of all registration statements, prospectuses, Statements of Additional Information, reports, proxy statements, sales literature and other promotional materials, applications for exemptions, requests for no-action letters, and notices, orders or responses relating thereto and all supplements and amendments to any of the above, that relate to the Fund or its shares, contemporaneously with the filing of such document with, or issuance of such documents by, the Securities and Exchange Commission or the NASD. 4.6. The Company will provide to the Fund at least one complete copy of all registration statements, Disclosure Documents, Statements of Additional Information, reports, solicitations for voting instructions, sales literature and other promotional materials, applications for exemptions, requests for no action letters and notices, orders or responses relating thereto, 9 and all supplements and amendments to any of the above, that relate to the Contracts or each Account, contemporaneously with the filing of such document with, or issuance of such documents by, the SEC or the NASD or, if a Contract and its associated Account are exempt from registration, at the time such documents are first published. 4.7. For purposes of this Article IV, the phrase "sales literature or other promotional material" includes, but is not limited to, any of the following that refer to the Fund or any affiliate of the Fund: advertisements (such as material published, or designed for use in, a newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, telephone directories (other than routine listings), electronic or other public media), sales literature (I.E., any written communication distributed or made generally available to customers or the public, including brochures, circulars, research reports, market letters, performance reports or summaries, form letters, telemarketing scripts, seminar texts, reprints or excerpts of any other advertisement, sales literature, or published article), educational or training materials or other communications distributed or made generally available to some or all agents or employees, and registration statements, Disclosure Documents, Statements of Additional Information, shareholder reports, and proxy materials. ARTICLE V. FEES AND EXPENSES 5.1. The Fund and Underwriter shall pay no fee or other compensation to the Company under this agreement, except that if the Fund or any Portfolio adopts and implements a plan pursuant to Rule 12b-1 to finance distribution expenses, then the Underwriter may make payments to the underwriter for the Contracts if and in amounts agreed to by the Underwriter in writing and such payments will be made out of existing fees otherwise payable to the Underwriter, past profits of the Underwriter or other resources available to the Underwriter. No such payments shall be made directly by the Fund. 5.2. All expenses incident to performance by the Fund under this Agreement shall be paid by the Fund. The Fund shall be responsible for ensuring that all its shares are registered and authorized for issuance in accordance with applicable federal law and, if and to the extent deemed advisable by the Fund, in accordance with applicable state laws prior to their sale. The Fund shall bear the expenses for the cost of registration and qualification of the Fund's shares, preparation and filing of the Fund's prospectus and registration statement, proxy materials and reports, setting the prospectus in type, setting in type and printing the proxy materials and reports to shareholders (including the costs of printing a prospectus that constitutes an annual report), the preparation of all statements and notices required by any federal or state law, and all taxes on the issuance or transfer of the Fund's shares. 5.3. The Company shall bear the expenses of distributing the Fund's prospectus and reports to owners of Contracts issued by the Company. The Fund shall bear the costs of soliciting Fund proxies from Contract owners, including the costs of mailing proxy materials and tabulating proxy voting instructions, not to exceed the costs charged by any service provider engaged by the Fund for this purpose. The Fund and the Underwriter shall not be responsible for 10 the costs of any proxy solicitations of the Company, the Accounts, the Contracts or mutual funds other than the Fund. The Fund and the Underwriter shall not seek to hold the Company responsible for the costs of soliciting Fund proxies. ARTICLE VI. DIVERSIFICATION 6.1. The Fund will at all times invest money from the Contracts in such a manner as to ensure that the Contracts will be treated as variable contracts under the Code and the regulations issued thereunder. Without limiting the scope of the foregoing, the Fund will at all times comply with Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the diversification requirements for variable annuity, endowment, or life insurance contracts and any amendments or other modifications to such Section or Regulations. In the event of a breach of this Article VI by the Fund, it will take all reasonable steps (a) to notify Company of such breach and (b) to adequately diversify the Fund so as to achieve compliance within the grace period afforded by Regulation 1.817-5. ARTICLE VII. POTENTIAL CONFLICTS 7.1. The Board will monitor the Fund for the existence of any material irreconcilable conflict between the interests of the contract owners of all separate accounts investing in the Fund. An irreconcilable material conflict may arise for a variety of reasons, including: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretative letter, or any similar action by insurance, tax, or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Portfolio are being managed; (e) a difference in voting instructions given by variable annuity contract and variable life insurance contract owners; or (f) a decision by an insurer to disregard the voting instructions of contract owners. The Board shall promptly inform the Company if it determines that an irreconcilable material conflict exists and the implications thereof. 7.2. The Company will report any potential or existing conflicts of which it is aware to the Board. The Company will assist the Board in carrying out its responsibilities under the Shared Funding Exemptive Order, by providing the Board with all information reasonably necessary for the Board to consider any issues raised. This includes, but is not limited to, an obligation by the Company to inform the Board whenever contract owner voting instructions are disregarded. 7.3. If it is determined by a majority of the Board, or a majority of its disinterested trustees, that a material irreconcilable conflict exists, the Company and other Participating Insurance Companies shall, at their expense and to the extent reasonably practicable (as determined by a majority of the disinterested trustees), take whatever steps are necessary to remedy or eliminate the irreconcilable material conflict, up to and including: (1), withdrawing 11 the assets allocable to some or all of the separate accounts from the Fund or any Portfolio and reinvesting such assets in a different investment medium, including (but not limited to) another Portfolio of the Fund, or submitting the question whether such segregation should be implemented to a vote of all affected Contract owners and, as appropriate, segregating the assets of any appropriate group (I.E., annuity contract owners, life insurance contract owners, or variable contract owners of one or more Participating Insurance Companies) that votes in favor of such segregation, or offering to the affected contract owners the option of making such a change; and (2), establishing a new registered management investment company or managed separate account. 7.4. If a material irreconcilable conflict arises because of a decision by the Company to disregard contract owner voting instructions and that decision represents a minority position or would preclude a majority vote, the Company may be required, at the Fund's election, to withdraw the affected Account's investment in the Fund and terminate this Agreement with respect to such Account; provided, however that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested members of the Board. Any such withdrawal and termination must take place within six (6) months after the Fund gives written notice that this provision is being implemented, and until the end of that six month period the Underwriter and Fund shall continue to accept and implement orders by the Company for the purchase (and redemption) of shares of the Fund. 7.5. If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to the Company conflicts with the majority of other state regulators, then the Company will withdraw the affected Account's investment in the Fund and terminate this Agreement with respect to such Account within six months after the Board informs the Company in writing that it has determined that such decision has created an irreconcilable material conflict; provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested members of the Board. Until the end of the foregoing six month period, the Underwriter and Fund shall continue to accept and implement orders by the Company for the purchase (and redemption) of shares of the Fund. 7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority of the disinterested members of the Board shall determine whether any proposed action adequately remedies any irreconcilable material conflict, but in no event will the Fund be required to establish a new funding medium for the Contracts. The Company shall not be required by Section 7.3 to establish a new funding medium for the Contracts if an offer to do so has been declined by vote of a majority of Contract owners materially adversely affected by the irreconcilable material conflict. In the event that the Board determines that any proposed action does not adequately remedy any irreconcilable material conflict, then the Company will withdraw the Account's investment in the Fund and terminate this Agreement within six (6) months after the Board informs the Company in writing of the foregoing determination, provided, however, that such withdrawal and termination shall be limited to the extent required 12 by any such material irreconcilable conflict as determined by a majority of the disinterested members of the Board. 7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act or the rules promulgated thereunder with respect to mixed or shared funding (as defined in the Shared Funding Exemptive Order) on terms and conditions materially different from those contained in the Shared Funding Exemptive Order, then (a) the Fund and/or the Participating Insurance Companies, as appropriate, shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall continue in effect only to the extent that terms and conditions substantially identical to such Sections are contained in such Rule(s) as so amended or adopted. ARTICLE VIII. INDEMNIFICATION 8.1. INDEMNIFICATION BY THE COMPANY 8.1(a). The Company agrees to indemnify and hold harmless the Fund and each trustee of the Board and officers and each person, if any, who controls the Fund within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Company) or litigation (including legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of, or investment in, the Fund's shares or the Contracts and: (i) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in the Disclosure Documents for the Contracts or contained in the Contracts or advertisement or sales literature for the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Company by or on behalf of the Fund for use in any Disclosure Document relating to the Contracts or in the Contracts or advertisement or sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus or 13 sales literature of the Fund not supplied by the Company, or persons under its control) or wrongful conduct of the Company or persons under its control, with respect to the sale or distribution of the Contracts or Fund Shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a Registration Statement, prospectus, or advertisement or sales literature of the Fund or any amendment thereof or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such a statement or omission was made in reliance upon and in conformity with information furnished to the Fund by or on behalf of the Company; or (iv) arise as a result of any failure by the Company to provide the services and furnish the materials under the terms of this Agreement; or (v) arise out of or result from any material breach of any representation and/or warranty made by the Company in this Agreement or arise out of or result from any other material breach of this Agreement by the Company, as limited by and in accordance with the provisions of Sections 8.1(b) and 8.1(c) hereof. 8.1(b). The Company shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation incurred or assessed against an Indemnified Party as such may arise from such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement or to the Fund, whichever is applicable. 8.1(c). The Company shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Company in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Company of any such claim shall not relieve the Company from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Company shall be entitled to participate, at its own expense, in the defense of such action. The Company also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Company to such party of the Company's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Company will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 14 8.1(d). The Indemnified Parties will promptly notify the Company of the commencement of any litigation or proceedings against them in connection with the issuance or sale of the Fund Shares or the Contracts or the operation of the Fund. 8.2. INDEMNIFICATION BY THE UNDERWRITER 8.2(a). The Underwriter agrees to indemnify and hold harmless the Company and each of its directors and officers and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Underwriter) or litigation (including legal and other expenses) to which the Indemnified Parties may become subject under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements are related to the sale or acquisition of, or investment in, the Fund's shares or the Contracts and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement or prospectus or advertisement or sales literature of the Fund (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Underwriter or Fund by or on behalf of the Company for use in the registration statement or prospectus for the Fund or advertisement or in sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the Registration Statement, prospectus or sales literature for the Contracts not supplied by the Underwriter or persons under its control) or wrongful conduct of the Fund, Adviser or Underwriter or persons under their control, with respect to the sale or distribution of the Contracts or Fund shares; or (iii)arise out of any untrue statement or alleged untrue statement of a material fact contained in a Disclosure Document or advertisement or sales literature covering the Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made 15 in reliance upon and in conformity with information furnished to the Company by or on behalf of the Fund; or (iv) arise as a result of any failure by the Fund to provide the services and furnish the materials under the terms of this Agreement (including a failure to comply with the diversification requirements specified in Article VI of this Agreement, or to comply with Section 2.3 of this Agreement); or (v) arise out of or result from any material breach of any representation and/or warranty made by the Underwriter in this Agreement or arise out of or result from any other material breach of this Agreement by the Underwriter; as limited by and in accordance with the provisions of Sections 8.2(b) and 8.2(c) hereof. 8.2(b). The Underwriter shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to each Company or the Account, whichever is applicable. 8.2(c). The Underwriter shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Underwriter in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Underwriter of any such claim shall not relieve the Underwriter from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Underwriter will be entitled to participate, at its own expense, in the defense thereof. The Underwriter also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Underwriter to such party of the Underwriter's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Underwriter will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 8.2(d). The Company agrees promptly to notify the Underwriter of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of the Contracts or the operation of each Account. 8.3. INDEMNIFICATION BY THE FUND 16 8.3(a). The Fund agrees to indemnify and hold harmless the Company, and each of its directors and officers and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this Section 8.3) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Fund) or litigation (including legal and other expenses) to which the Indemnified Parties may become subject under any statute, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements result from the gross negligence, bad faith or willful misconduct of the Board or any member thereof, are related to the operations of the Fund and: (i) arise as a result of any failure by the Fund to provide the services and furnish the materials under the terms of this Agreement (including a failure to comply with the diversification requirements specified in Article VI of this Agreement);or (ii) arise out of or result from any material breach of any representation and/or warranty made by the Fund in this Agreement or arise out of or result from any other material breach of this Agreement by the Fund; as limited by and in accordance with the provisions of Sections 8.3(b) and 8.3(c) hereof. 8.3(b). The Fund shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation incurred or assessed against an Indemnified Party as such may arise from such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement or to the Company, the Fund, the Underwriter or each Account, whichever is applicable. 8.3(c). The Fund shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Fund in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Fund of any such claim shall not relieve the Fund from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Fund will be entitled to participate, at its own expense, in the defense thereof. The Fund also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Fund to such party of the Fund's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Fund will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 17 8.3(d). The Company and the Underwriter agree promptly to notify the Fund of the commencement of any litigation or proceedings against it or any of its respective officers or directors in connection with this Agreement, the issuance or sale of the Contracts, with respect to the operation of either Account, or the sale or acquisition of shares of the Fund. ARTICLE IX. APPLICABLE LAW 9.1. This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the Commonwealth of Massachusetts. 9.2. This Agreement shall be subject to the provisions of the 1933, 1934 and 1940 Acts, and the rules and regulations and rulings thereunder, including such exemptions from those statutes, rules and regulations as the Securities and Exchange Commission may grant (including, but not limited to, the Shared Funding Exemptive Order) and the terms hereof shall be interpreted and construed in accordance therewith. ARTICLE X. TERMINATION 10.1. This Agreement shall continue in full force and effect until the first to occur of: (a) termination by any party for any reason by sixty (60) days advance written notice delivered to the other parties; or (b) termination by the Company by written notice to the Fund and the Underwriter with respect to any Portfolio based upon the Company's determination that shares of such Portfolio are not reasonably available to meet the requirements of the Contracts; or (c) termination by the Company by written notice to the Fund and the Underwriter with respect to any Portfolio in the event any of the Portfolio's shares are not registered, issued or sold in accordance with applicable state and/or federal law or such law precludes the use of such shares as the underlying investment media of the Contracts issued or to be issued by the Company; or (d) termination by the Company by written notice to the Fund and the Underwriter with respect to any Portfolio in the event that such Portfolio ceases to qualify as a Regulated Investment Company under Subchapter M of the Code or under any successor or similar provision, or if the Company reasonably believes that the Fund may fail to so qualify; or 18 (e) termination by the Company by written notice to the Fund and the Underwriter with respect to any Portfolio in the event that such Portfolio fails to meet the diversification requirements specified in Article VI hereof; or (f) termination by either the Fund or the Underwriter by written notice to the Company, if either one or both of the Fund or the Underwriter respectively, shall determine, in their sole judgment exercised in good faith, that the Company and/or its affiliated companies has suffered a material adverse change in its business, operations, financial condition or prospects since the date of this Agreement or is the subject of material adverse publicity; or (g) termination by the Company by written notice to the Fund and the Underwriter, if the Company shall determine, in its sole judgment exercised in good faith, that either the Fund, the Adviser or the Underwriter has suffered a material adverse change in its business, operations, financial condition or prospects since the date of this Agreement or is the subject of material adverse publicity; or (h) termination by any party by written notice upon the institution of formal proceedings against the Company, the Fund, the Adviser or the Underwriter by the NASD, the SEC or other regulatory body; or (i) termination by any party by advance written notice upon the "assignment" of the Agreement (as defined under the 1940 Act) unless made with the written consent of each party to the Agreement; or (j) termination by any party in the event of a material breach of this Agreement by another party which breach remains uncured after thirty days following written notice thereof. 10.2. Notwithstanding any termination of this Agreement, the Fund and the Underwriter shall at the option of the Company, continue to make available additional shares of the Fund pursuant to the terms and conditions of this Agreement, for all Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as "Existing Contracts"). Specifically, without limitation, the owners of the Existing Contracts shall be permitted to reallocate investments in the Fund, redeem investments in the Fund and/or invest in the Fund upon the making of additional purchase payments under the Existing Contracts. The parties agree that this Section 10.2 shall not apply to any terminations under Article VII and the effect of such Article VII terminations shall be governed by Article VII of this Agreement. 10.3. The provisions of Articles II (Representations and Warranties), VIII (Indemnification), IX (Applicable Law) and XII (Miscellaneous) shall survive termination of this Agreement. In addition, all other applicable provisions of this Agreement shall survive termination as long as shares of the Fund are held on behalf of Contract owners in accordance 19 with section 10.2, except that the Fund and Underwriter shall have no further obligation to make Fund shares available in Contracts issued after termination. 10.4. The Company shall not redeem Fund shares attributable to the Contracts (as opposed to Fund shares attributable to the Company's assets held in the Account) except (i) as necessary to implement Contract Owner initiated or approved transactions, or (ii) as required by state and/or federal laws or regulations or judicial or other legal precedent of general application (hereinafter referred to as a "Legally Required Redemption") or (iii) as permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. For the purposes of clause (i) above, "Contract Owner initiated or approved transactions" shall be deemed to include any redemptions required by the Contracts as a result of Contract Owner actions. Upon request, the Company will promptly furnish to the Fund and the Underwriter the opinion of counsel for the Company (which counsel shall be reasonably satisfactory to the Fund and the Underwriter) to the effect that any redemption pursuant to clause (ii) above is a Legally Required Redemption. Furthermore, except in cases where permitted under the terms of the Contracts, the Company shall not prevent Contract Owners from allocating payments to a Portfolio that was otherwise available under the Contracts without first giving the Fund or the Underwriter 60 days notice of its intention to do so. ARTICLE XI. NOTICES Any notice shall be sufficiently given when sent by registered or certified mail or overnight mail through a nationally-recognized delivery service to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other party. If to the Fund: 82 Devonshire Street Boston, Massachusetts 02109 Attention: Treasurer If to the Company: American Family Life Insurance Company 6000 American Parkway Madison, WI 53783-0001 Attention: Rose Detmer If to the Underwriter: 82 Devonshire Street Boston, Massachusetts 02109 Attention: Treasurer ARTICLE XII. MISCELLANEOUS 20 12.1 All persons dealing with the Fund must look solely to the property of the Fund for the enforcement of any claims against the Fund as neither the Board, officers, agents or shareholders assume any personal liability for obligations entered into on behalf of the Fund. 12.2 Subject to the requirements of legal process and regulatory authority, each party hereto shall treat as confidential the names and addresses of the owners of the Contracts and all information reasonably identified as confidential in writing by any other party hereto and, except as permitted by this Agreement, shall not disclose, disseminate or utilize such names and addresses and other confidential information until such time as it may come into the public domain without the express written consent of the affected party. 12.3 The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. 12.4 This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 12.5 If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby. 12.6 Each party hereto shall cooperate with each other party and all appropriate governmental authorities (including without limitation the SEC, the NASD and state insurance regulators) and shall permit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. Notwithstanding the generality of the foregoing, each party hereto further agrees to furnish the California Insurance Commissioner with any information or reports in connection with services provided under this Agreement which such Commissioner may request in order to ascertain whether the insurance operations of the Company are being conducted in a manner consistent with the California Insurance Regulations and any other applicable law or regulations. Nothing in this paragraph shall require a party to waive any rights or privileges to which they are legally entitled. 12.7 The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, which the parties hereto are entitled to under state and federal laws. 12.8. This Agreement or any of the rights and obligations hereunder may not be assigned by any party without the prior written consent of all parties hereto; provided, however, that the Underwriter may assign this Agreement or any rights or obligations hereunder to any affiliate of or company under common control with the Underwriter, if such assignee is duly organized, licensed and registered to perform the obligations of the Underwriter under this Agreement. The Company shall promptly notify the Fund and the Underwriter of any change in control of the Company. 21 12.9. The Company shall furnish, or shall cause to be furnished, to the Fund or its designee copies of the following reports: (a) the Company's annual statement (prepared under statutory accounting principles) and annual report (prepared under generally accepted accounting principles ("GAAP"), if any), as soon as practical and in any event within 90 days after the end of each fiscal year; (b) the Company's quarterly statements (statutory) (and GAAP, if any), as soon as practical and in any event within 45 days after the end of each quarterly period: (c) any financial statement, proxy statement, notice or report of the Company sent to stockholders and/or policyholders, as soon as practical after the delivery thereof to stockholders; (d) any registration statement (without exhibits) and financial reports of the Company filed with the Securities and Exchange Commission or any state insurance regulator, as soon as practical after the filing thereof; (e) any other report submitted to the Company by independent accountants in connection with any annual, interim or special audit made by them of the books of the Company, as soon as practical after the receipt thereof. 22 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and on its behalf by its duly authorized representative. AMERICAN FAMILY LIFE INSURANCE COMPANY By: ---------------------------- Name: ---------------------------- Its: ---------------------------- VARIABLE INSURANCE PRODUCTS FUND, VARIABLE INSURANCE PRODUCTS FUND II, and VARIABLE INSURANCE PRODUCTS FUND III By: ---------------------------- Name: Robert C. Pozen Their: Senior Vice President FIDELITY DISTRIBUTORS CORPORATION By: ---------------------------- Name: Kevin J. Kelly Its: Vice President 23 SCHEDULE A SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS Name of Separate Account and Policy Form Numbers of Contracts Date Established by Board of Directors Funded by Separate Account - -------------------------------------- --------------------------------- American Family Variable Account I L-97 VUL Ed. 3/01 (August 7, 2000) (representative policy form number) American Family Variable Account II L-A10 VA Ed. (August 7, 2000) (representative policy form number) 24 SCHEDULE B PROXY VOTING PROCEDURE The following is a list of procedures and corresponding responsibilities for the handling of proxies relating to the Fund by the Underwriter, the Fund and the Company. The defined terms herein shall have the meanings assigned in the Participation Agreement except that the term "Company" shall also include the department or third party assigned by the Insurance Company to perform the steps delineated below. 1. The number of proxy proposals is given to the Company by the Underwriter as early as possible before the date set by the Fund for the shareholder meeting to facilitate the establishment of tabulation procedures. At this time the Underwriter will inform the Company of the Record, Mailing and Meeting dates. This will be done verbally approximately two months before meeting. 2. Promptly after the Record Date, the Company will perform a "tape run", or other activity, which will generate the names, addresses and number of units which are attributed to each contractowner/policyholder (the "Customer") as of the Record Date. Allowance should be made for account adjustments made after this date that could affect the status of the Customers' accounts as of the Record Date. Note: The number of proxy statements is determined by the activities described in Step #2. The Company will use its best efforts to call in the number of Customers to Fidelity, as soon as possible, but no later than two weeks after the Record Date. 3. The Fund's Annual Report no longer needs to be sent to each Customer by the Company either before or together with the Customers' receipt of a proxy statement. Underwriter will provide the last Annual Report to the Company pursuant to the terms of Section 3.3 of the Agreement to which this Schedule relates. 4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is provided to the Company by the Fund. The Company shall produce and personalize the Voting Instruction Cards. The Legal Department of the Underwriter or its affiliate ("Fidelity Legal") must approve the Card before it is printed. Allow approximately 2-4 business days for printing information on the Cards. Information commonly found on the Cards includes: a. name (legal name as found on account registration) b. address c. Fund or account number d. coding to state number of units e. individual Card number for use in tracking and verification of votes (already on Cards as printed by the Fund) (This and related steps may occur later in the chronological process due to possible uncertainties relating to the proposals.) 25 5. During this time, Fidelity Legal will develop, produce, and the Fund will pay for the Notice of Proxy and the Proxy Statement (one document). Printed and folded notices and statements will be sent to Company for insertion into envelopes (envelopes and return envelopes are provided and paid for by the Insurance Company). Contents of envelope sent to Customers by Company will include: a. Voting Instruction Card(s) b. One proxy notice and statement (one document) c. return envelope (postage pre-paid by Company) addressed to the Company or its tabulation agent d. "urge buckslip" - optional, but recommended. (This is a small, single sheet of paper that requests Customers to vote as quickly as possible and that their vote is important. One copy will be supplied by the Fund.) e. cover letter - optional, supplied by Company and reviewed and approved in advance by Fidelity Legal. 6. The above contents should be received by the Company approximately 3-5 business days before mail date. Individual in charge at Company reviews and approves the contents of the mailing package to ensure correctness and completeness. Copy of this approval sent to Fidelity Legal. 7. Package mailed by the Company. * The Fund MUST allow at least a 15-day solicitation time to the Company as the shareowner. (A 5-week period is recommended.) Solicitation time is calculated as calendar days from (but NOT including) the meeting, counting backwards. 8. Collection and tabulation of Cards begins. Tabulation usually takes place in another department or another vendor depending on process used. An often used procedure is to sort Cards on arrival by proposal into vote categories of all yes, no, or mixed replies, and to begin data entry. Note: Postmarks are not generally needed. A need for postmark information would be due to an insurance company's internal procedure and has not been required by Fidelity in the past. 9. Signatures on Card checked against legal name on account registration which was printed on the Card. Note: For Example, If the account registration is under "Bertram C. Jones, Trustee," then that is the exact legal name to be printed on the Card and is the signature needed on the Card. 26 10. If Cards are mutilated, or for any reason are illegible or are not signed properly, they are sent back to Customer with an explanatory letter, a new Card and return envelope. The mutilated or illegible Card is disregarded and considered to be NOT RECEIVED for purposes of vote tabulation. Any Cards that have "kicked out" (e.g. mutilated, illegible) of the procedure are "hand verified," i.e., examined as to why they did not complete the system. Any questions on those Cards are usually remedied individually. 11. There are various control procedures used to ensure proper tabulation of votes and accuracy of that tabulation. The most prevalent is to sort the Cards as they first arrive into categories depending upon their vote; an estimate of how the vote is progressing may then be calculated. If the initial estimates and the actual vote do not coincide, then an internal audit of that vote should occur. This may entail a recount. 12. The actual tabulation of votes is done in units which is then converted to shares. (It is very important that the Fund receives the tabulations stated in terms of a percentage and the number of SHARES.) Fidelity Legal must review and approve tabulation format. 13. Final tabulation in shares is verbally given by the Company to Fidelity Legal on the morning of the meeting not later than 10:00 a.m. Boston time. Fidelity Legal may request an earlier deadline if required to calculate the vote in time for the meeting. 14. A Certification of Mailing and Authorization to Vote Shares will be required from the Company as well as an original copy of the final vote. Fidelity Legal will provide a standard form for each Certification. 15. The Company will be required to box and archive the Cards received from the Customers. In the event that any vote is challenged or if otherwise necessary for legal, regulatory, or accounting purposes, Fidelity Legal will be permitted reasonable access to such Cards. 16. All approvals and "signing-off" may be done orally, but must always be followed up in writing. 27 SCHEDULE C Other investment companies currently available under variable annuities or variable life insurance issued by the Company: Federated Insurance Series Federated Quality Bond Fund II Federated International Equity Fund II SEI Insurance Product Trust SEI VP Prime Obligation Fund Strong Variable Insurance Funds, Inc. Strong MidCap Growth Fund II Strong Opportunity Fund II, Inc. Strong Opportunity Fund II 28 EX-99.8(B) 5 a2039901zex-99_8b.txt EXHIBIT 99.8(B) FUND PARTICIPATION AGREEMENT This AGREEMENT is made this ___ day of ______________________, 2001, by and between _______ American Family Life Insurance Company (the "Insurer"), a life insurance company domiciled in Wisconsin, on its behalf and on behalf of the segregated asset accounts of the Insurer listed on Exhibit A to this Agreement (the "Separate Accounts"); Insurance Series (the "Fund"), a Massachusetts business trust; and Federated Securities Corp. (the "Distributor"), a Pennsylvania corporation. W I T N E S S E T H WHEREAS, the Fund 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 ("1940 Act") and the Fund is authorized to issue separate classes of shares of beneficial interest ("shares"), each representing an interest in a separate portfolio of assets known as a "portfolio" and each portfolio has its own investment objective, policies, and limitations; and WHEREAS, the Fund is available to offer shares of one or more of its portfolios to separate accounts of insurance companies that fund variable annuity contracts ("Variable Contracts") and to serve as an investment medium for Variable Contracts offered by insurance companies that have entered into participation agreements substantially similar to this agreement ("Participating Insurance Companies"), and the Fund will be made available in the future to offer shares of one or more of its portfolios to separate accounts of insurance companies that fund variable life insurance policies (at which time such policies would also be "Variable Contracts" hereunder), and 1 WHEREAS, the Fund is currently comprised of thirteen separate portfolios, and other portfolios may be established in the future; and WHEREAS, the Fund has obtained an order from the SEC dated December 29, 1993 (File No. 812-8620), granting Participating Insurance Companies and variable annuity and variable life insurance separate accounts exemptions from the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the 1940 Act and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Fund to be sold to and held by variable annuity and variable life insurance separate accounts of life insurance companies that may or may not be affiliated with one another (hereinafter the "Mixed and Shared Funding Exemptive Order"); and WHEREAS, the Distributor is registered as a broker-dealer with the SEC under the Securities Exchange Act of 1934, as amended ("1934 Act"), and is a member in good standing of the National Association of Securities Dealers, Inc. ("NASD"); and WHEREAS, Federated Investment Management Company (the "Adviser") is the investment adviser to the Fund and is a business trust duly organized, validly existing, and in good standing under the laws of the State of Delaware, and is registered with the SEC as an investment adviser under the Investment Advisers Act of 1940 and is registered or licensed as an investment adviser under the laws of all jurisdictions in which its activities require it to be so registered or licensed, except where the failure to be so licensed would not have a material adverse effect on its business; and WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Insurer wishes to purchase shares of one or more of the Fund's portfolios on behalf of its Separate Accounts to serve as an investment medium for 2 Variable Contracts funded by the Separate Accounts, and the Distributor is authorized to sell shares of the Fund's portfolios; NOW, THEREFORE, in consideration of the foregoing and the mutual promises and covenants hereinafter set forth, the parties hereby agree as follows: ARTICLE I. SALE OF FUND SHARES 1.1 The Distributor agrees to sell to the Insurer those shares of the portfolios offered and made available by the Fund and identified on Exhibit B ("Portfolios") that the Insurer orders on behalf of its Separate Accounts, and agrees to execute such orders on each day on which the Fund calculates its net asset value pursuant to rules of the SEC ("business day") at the net asset value next computed after receipt and acceptance by the Fund or its agent of the order for the shares of the Fund. 1.2 The Fund agrees to make available on each business day shares of the Portfolios for purchase at the applicable net asset value per share by the Insurer on behalf of its Separate Accounts; provided, however, that the Board of Trustees of the Fund may refuse to sell shares of any Portfolio to any person, or suspend or terminate the offering of shares of any Portfolio, if such action is required by law or by regulatory authorities having jurisdiction or is, in the sole discretion of the Trustees, acting in good faith and in light of the Trustees' fiduciary duties under applicable law, necessary in the best interests of the shareholders of any Portfolio (it being understood that for this purpose shareholders means Variable contract owners). Notice of election to suspend or terminate shall be furnished by the Fund, said termination to be effective 10 business days after receipt of such notice by the Insurer in order to give the Insurer sufficient time to take appropriate steps in response to such suspension or termination. 3 1.3 The Fund and the Distributor agree that shares of the Portfolios of the Fund will be sold only to Participating Insurance Companies, their separate accounts, and other persons consistent with each Portfolio being adequately diversified pursuant to Section 817(h) of the Internal Revenue Code of 1986, as amended ("Code"), and the regulations thereunder. No shares of any Portfolio will be sold directly to the general public to the extent not permitted by applicable tax law. 1.4 The Fund and the Distributor will not sell shares of the Portfolios to any insurance company or separate account unless an agreement containing provisions substantially the same as the provisions in Articles I, II and IV of this Agreement is in effect to govern such sales. 1.5 Upon receipt of a request for redemption in proper form from the Insurer, the Fund agrees to redeem any full or fractional shares of the Portfolios held by the Insurer, executing such requests on each business day at the net asset value next computed after receipt and acceptance by the Fund or its agent of the request for redemption, except that the Fund reserves the right to suspend the right of redemption, consistent with Section 22(e) of the 1940 Act and any rules thereunder. Such redemption shall be paid consistent with applicable rules of the SEC and procedures and policies of the Fund as described in the current prospectus and in this Agreement. The Fund agrees to notify the Insurer at least 10 business days prior to any changes in the procedures governing purchases and redemptions of portfolio shares which would affect the Insurer's obligations under this Agreement. 4 1.6 For purposes of Sections 1.1, 1.2 and 1.5, the Insurer shall be the agent of the Fund for the limited purpose of receiving and accepting purchase and redemption orders from each Separate Account and receipt of such orders by 4:00 p.m. Eastern time by the Insurer shall be deemed to be receipt by the Fund for purposes of Rule 22c-1 of the 1940 Act; provided that the Insurer will use its best efforts to provide notice of such orders to the Fund on the next following business day prior to 10:00 a.m. Eastern time on such day. 1.7 The Insurer agrees to purchase and redeem the shares of each Portfolio in accordance with the provisions of the current prospectus for the Fund. The Fund agrees to notify the Insurer at least 10 business days prior to any changes in the procedures governing purchases and redemptions of portfolio shares, which would affect the Insurer's obligations under this Agreement. 1.8 The Insurer shall pay for shares of the Portfolio on the next business day after it places an order to purchase shares of the Portfolio. Payment shall be in federal funds transmitted by wire. For purposes of Section 2.11, upon receipt by the Fund of the federal funds so wired, such funds shall cease to be the responsibility of the Insurer and shall become the responsibility of the Fund. 1.9 Issuance and transfer of shares of the Portfolios will be by book entry only unless otherwise agreed by the Fund. Stock certificates will not be issued to the Insurer or the Separate Accounts unless otherwise agreed by the Fund. Shares ordered from the Fund will be recorded in an appropriate title for the Separate Accounts or the appropriate subaccounts of the Separate Accounts. 1.10 The Fund shall furnish same day notice (by wire or telephone, followed by written confirmation) to the Insurer of any income dividends or capital gain 5 distributions payable on the shares of the Portfolios. The Insurer hereby elects to reinvest in the Portfolio all such dividends and distributions as are payable on a Portfolio's shares and to receive such dividends and distributions in additional shares of that Portfolio. The Insurer reserves the right to revoke this election in writing and to receive all such dividends and distributions in cash. The Fund shall notify the Insurer of the number of shares so issued as payment of such dividends and distributions. 1.11 The Fund shall instruct its recordkeeping agent to advise the Insurer on each business day of the net asset value per share for each Portfolio as soon as reasonably practical after the net asset value per share is calculated and shall use its best efforts to make such net asset value per share available by 7:00 p.m. Eastern time. If the Fund is unable to meet the 7:00 p.m. time stated herein, it shall provide additional time for the Insurer to place orders for the purchase and redemption of shares and make any applicable purchase payments. ARTICLE II. REPRESENTATIONS AND WARRANTIES 2.1 The Insurer represents and warrants that it is an insurance company duly organized and in good standing under applicable law and that it is taxed as an insurance company under Subchapter L of the Code. 2.2 The Insurer represents and warrants that it has legally and validly established each of the Separate Accounts as a segregated asset account under the Wisconsin Insurance Code, and that each of the Separate Accounts is a validly existing segregated asset account under applicable federal and state law. 6 2.3 The Insurer represents and warrants that the Variable Contracts issued by the Insurer or interests in the Separate Accounts under such Variable Contracts (1) are or, prior to issuance, will be registered as securities under the Securities Act of 1933 ("1933 Act") or, alternatively, (2) are not registered because they are properly exempt from registration under the 1933 Act or will be offered exclusively in transactions that are properly exempt from registration under the 1933 Act. 2.4 The Insurer represents and warrants that each of the Separate Accounts (1) has been registered as a unit investment trust in accordance with the provisions of the 1940 Act or, alternatively, (2) has not been registered in proper reliance upon an exclusion from registration under the 1940 Act. 2.5 Subject to the Fund's compliance with applicable diversification requirements, the Insurer represents that it believes, in good faith, that the Variable Contracts issued by the Insurer are currently treated as annuity contracts or life insurance policies (which may include modified life endowment contracts), whichever is appropriate, under applicable provisions of the Code. 2.6 The Fund represents and warrants that it is duly organized as a business trust under the laws of the Commonwealth of Massachusetts, and is in good standing under applicable law. 2.7 The Fund represents and warrants that Fund shares sold pursuant to this Agreement are registered under the 1933 Act, duly authorized for issuance and sold in compliance with all applicable federal and state laws and that the Fund is and shall remain registered as an open-end management investment company under the 1940 Act. 7 2.8 The Fund represents that it believes, in good faith, that the Portfolios currently comply with the diversification provisions of Section 817(h) of the Code and the regulations issued thereunder relating to the diversification requirements for variable life insurance policies and variable annuity contracts. 2.9 The Fund represents that it is currently qualified as a Regulated Investment Company under Subchapter M of the Code. 2.10 The Distributor represents and warrants that it is a member in good standing of the NASD and is registered as a broker-dealer with the SEC. The Distributor represents and warrants that is duly organized and in good standing under the laws of the State of Pennsylvania. 2.11 The Fund and the Distributor represent and warrant that all of their directors, officers, employees, investment advisers, and other individuals/entities dealing with money and/or securities of the Fund are and shall continue to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Fund in an amount not less than the minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or related provisions as may be promulgated from time to time. The aforesaid Bond shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. ARTICLE III. GENERAL DUTIES 3.1 The Fund shall take all such actions as are necessary to permit the sale of the shares of each Portfolio to the Separate Accounts, including maintaining its registration as an investment company under the 1940 Act, and registering the shares of 8 the Portfolios sold to the Separate Accounts under the 1933 Act for so long as required by applicable law. The Fund shall amend its Registration Statement filed with the SEC under the 1933 Act and the 1940 Act from time to time as required in order to effect the continuous offering of the shares of the Portfolios. The Fund shall register and qualify the shares for sale in accordance with the laws of the various states to the extent deemed necessary by the Fund or the Distributor. 3.2 The Fund shall make every effort to maintain qualification of each Portfolio as a Regulated Investment Company under Subchapter M of the Code (or any successor or similar provision) and shall notify the Insurer immediately upon having a reasonable basis for believing that a Portfolio has ceased to so qualify or that it might not so qualify in the future. 3.3 The Fund shall make every effort to enable each Portfolio to comply with the diversification provisions of Section 817(h) of the Code and the regulations issued thereunder relating to the diversification requirements for variable life insurance policies and variable annuity contracts and any prospective amendments or other modifications to Section 817 or regulations thereunder, and shall notify the Insurer immediately upon having a reasonable basis for believing that any Portfolio has ceased to comply. 3.4 The Insurer shall take all such actions as are necessary under applicable federal and state law to permit the sale of the Variable Contracts issued by the Insurer, including registering each Separate Account as an investment company to the extent required under the 1940 Act, and registering the Variable Contracts or interests in the Separate Accounts under the Variable Contracts to the extent required under the 1933 9 Act, and obtaining all necessary approvals to offer the Variable Contracts from state insurance commissioners. 3.5 The Insurer shall make every effort to maintain the treatment of the Variable Contracts issued by the Insurer as annuity contracts or life insurance policies, whichever is appropriate, under applicable provisions of the Code, and shall notify the Fund and the Distributor immediately upon having a reasonable basis for believing that such Variable Contracts have ceased to be so treated or that they might not be so treated in the future. 3.6 The Insurer shall offer and sell the Variable Contracts issued by the Insurer in accordance with applicable provisions of the 1933 Act, the 1934 Act, the 1940 Act, the NASD Rules of Fair Practice, and state law respecting the offering of variable life insurance policies and variable annuity contracts. 3.7 The Distributor shall sell and distribute the shares of the Portfolios of the Fund in accordance with the applicable provisions of the 1933 Act, the 1934 Act, the 1940 Act, the NASD Rules of Fair Practice, and state law. 3.8 A majority of the Board of Trustees of the Fund shall consist of persons who are not "interested persons" of the Fund ("disinterested Trustees"), 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, except that if this provision of this Section 3.8 is not met by reason of the death, disqualification, or bona fide resignation of any Trustee or Trustees, then the operation of this provision shall be suspended (a) for a period of 45 days if the vacancy or vacancies may be filled by the Fund's Board; (b) for a period of 10 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. 3.9 The Insurer will not in any way recommend any proposal or oppose or interfere with any reasonable proposal submitted by the Fund at a meeting of owners of Variable Contracts or shareholders of the Fund, unless such proposal is not in the best interests of Contract Owners, and will in no way recommend, oppose, or interfere with the solicitation of proxies for Fund shares held by Contract Owners, without the prior written consent of the Fund, which consent may be withheld in the Fund's sole discretion. 3.10 Each party hereto shall cooperate with each other party and all appropriate governmental authorities having jurisdiction (including, without limitation, the SEC, the NASD, and state insurance regulators) and shall permit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. ARTICLE IV. POTENTIAL CONFLICTS 4.1 During such time as the Fund engages in Mixed Funding or Shared Funding, the parties hereto shall comply with the conditions in this Article IV. 4.2 The Fund's Board of Trustees shall monitor the Fund for the existence of any material irreconcilable conflict (1) between the interests of owners of variable annuity contracts and variable life insurance policies, and (2) between the interests of owners of Variable Contracts ("Variable Contract Owners") issued by different Participating Life Insurance Companies that invest in the Fund. A material irreconcilable conflict may arise for a variety of reasons, including: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state 11 insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretive letter, or any similar action by insurance, tax, or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of any Portfolio of the Fund are being managed; (e) a difference in voting instructions given by variable annuity and variable life insurance contract owners; or (f) a decision by a Participating Insurance Company to disregard the voting instructions of Variable Contract Owners. 4.3 The Insurer agrees that it shall report any potential or existing conflicts of which it is aware to the Fund's Board of Trustees. The Insurer will be responsible for assisting the Board of Trustees of the Fund in carrying out its responsibilities under the Mixed and Shared Funding Exemptive Order, by providing the Board with all information reasonably necessary for the Board to consider any issues raised. This includes, but is not limited to, an obligation by the Insurer to inform the Board whenever Variable Contract Owner voting instructions are disregarded. The Insurer shall carry out its responsibility under this Section 4.3 with a view only to the interests of the Variable Contract Owners. 4.4 The Insurer agrees that in the event that it is determined by a majority of the Board of Trustees of the Fund or a majority of the Fund's disinterested Trustees that a material irreconcilable conflict exists, the Insurer shall, at its expense and to the extent reasonably practicable (as determined by a majority of the disinterested Trustees of the Board of the Fund), take whatever steps are necessary to remedy or eliminate the irreconcilable material conflict, up to and including: (1) withdrawing the assets allocable to some or all of the Separate Accounts from the Fund or any Portfolio and reinvesting such assets in a different investment medium, including another portfolio of the Fund, or submitting the question as to whether such segregation should be 12 implemented to a vote of all affected Variable Contract Owners and, as appropriate, segregating the assets of any appropriate group (I.E., annuity contract owners or life insurance contract owners of contracts issued by one or more Participating Insurance Companies), that votes in favor of such segregation, or offering to the affected Variable Contract Owners the option of making such a change; and (2) establishing a new registered management investment company or managed separate account. If a material irreconcilable conflict arises because of the Insurer's decision to disregard Variable Contract Owners' voting instructions and that decision represents a minority position or would preclude a majority vote, the Insurer shall be required, at the Fund's election, to withdraw the Separate Accounts' investment in the Fund, provided, however, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested Trustees, and no charge or penalty will be imposed as a result of such withdrawal. These responsibilities shall be carried out with a view only to the interests of the Variable Contract Owners. A majority of the disinterested Trustees of the Fund shall determine whether or not any proposed action adequately remedies any material irreconcilable conflict, but in no event will the Fund or its investment adviser or the Distributor be required to establish a new funding medium for any Variable Contract. The Insurer shall not be required by this Section 4.4 to establish a new funding medium for any Variable Contract if any offer to do so has been declined by vote of a majority of Variable Contract Owners materially adversely affected by the material irreconcilable conflict. 4.5 The Insurer, at least annually, shall submit to the Fund's Board of Trustees such reports, materials, or data as the Board reasonably may request so that the Trustees of the Fund may fully carry out the obligations imposed upon the Board by the conditions contained in the application for the Mixed and Shared Funding 13 Exemptive Order and said reports, materials, and data shall be submitted more frequently if deemed appropriate by the Board. 4.6 All reports of potential or existing conflicts received by the Fund's Board of Trustees, and all Board action with regard to determining the existence of a conflict, notifying Participating Insurance Companies of a conflict, and determining whether any proposed action adequately remedies a conflict, shall be properly recorded in the minutes of the Board of Trustees of the Fund or other appropriate records, and such minutes or other records shall be made available to the SEC upon request. 4.7 The Board of Trustees of the Fund shall promptly notify the Insurer in writing of its determination of the existence of an irreconcilable material conflict and its implications. ARTICLE V. PROSPECTUSES AND PROXY STATEMENTS; VOTING 5.1 The Insurer shall distribute such prospectuses, proxy statements and periodic reports of the Fund to the owners of Variable Contracts issued by the Insurer as required to be distributed to such Variable Contract Owners under applicable federal or state law. 5.2 The Distributor shall provide the Insurer with as many copies of the current prospectus of the Fund as the Insurer may reasonably request. If requested by the Insurer in lieu thereof, the Fund shall provide such documentation (including a final copy of the Fund's prospectus as set in type or in camera-ready copy) and other assistance as is reasonably necessary in order for the Insurer to either print a stand-alone document or print together in one document the current prospectus for the 14 Variable Contracts issued by the Insurer and the current prospectus for the Fund, or a document combining the Fund prospectus with prospectuses of other funds in which the Variable Contracts may be invested. The Fund shall bear the expense of printing copies of its current prospectus that will be distributed to existing Variable Contract Owners, and the Insurer shall bear the expense of printing copies of the Fund's prospectus that are used in connection with offering the Variable Contracts issued by the Insurer. 5.3 The Fund and the Distributor shall provide, at the Fund's expense, such copies of the Fund's current Statement of Additional Information ("SAI") as may reasonably be requested, to the Insurer and to any owner of a Variable Contract issued by the Insurer who requests such SAI. 5.4 The Fund, at its expense, shall provide the Insurer with copies of its proxy statements, periodic reports to shareholders, and other communications to shareholders in such quantity as the Insurer shall reasonably require for purposes of distributing to owners of Variable Contracts issued by the Insurer. The Fund, at the Insurer's expense, shall provide the Insurer with copies of its periodic reports to shareholders and other communications to shareholders in such quantity as the Insurer shall reasonably request for use in connection with offering the Variable Contracts issued by the Insurer. If requested by the Insurer in lieu thereof, the Fund shall provide such documentation (including a final copy of the Fund's proxy statements, periodic reports to shareholders, and other communications to shareholders, as set in type or in camera-ready copy) and other assistance as reasonably necessary in order for the Insurer to print such shareholder communications for distribution to owners or prospective purchasers of Variable Contracts issued by the Insurer. 15 5.5 The Fund will provide the Insurer with as much advance notice as is reasonably practicable of any proxy solicitation for any Portfolio, and of any material change in the Fund's registration statement or prospectus, particularly any change resulting in a change to the registration statement or prospectus for any Separate Account. The Fund will work with the Insurer to the extent that it is reasonable, so as to enable the Insurer to solicit proxies from Variable Contract owners, or to make changes to its registration statement or prospectus, in an orderly manner. The Fund will make reasonable efforts to attempt to have changes affecting the Variable Contract prospectuses become effective simultaneously with the annual updates for such prospectuses. 5.6 For so long as the SEC interprets the 1940 Act to require pass-through voting by Participating Insurance Companies whose Separate Accounts are registered as investment companies under the 1940 Act, the Insurer shall vote shares of each Portfolio of the Fund held in a Separate Account or a subaccount thereof, whether or not registered under the 1940 Act, at regular and special meetings of the Fund in accordance with instructions timely received by the Insurer (or its designated agent) from owners of Variable Contracts funded by such Separate Account or subaccount thereof having a voting interest in the Portfolio. The Insurer shall vote shares of a Portfolio of the Fund held in a Separate Account or a subaccount thereof that are attributable to the Variable Contracts as to which no timely instructions are received, as well as shares held in such Separate Account or subaccount thereof that are not attributable to the Variable Contracts and owned beneficially by the Insurer (resulting from charges against the Variable Contracts or otherwise), in the same proportion as the votes cast by owners of the Variable Contracts funded by that Separate Account or subaccount thereof having a voting interest in the Portfolio from whom instructions have been timely received. The Insurer shall vote shares of each Portfolio of the Fund 16 held in its general account, if any, in the same proportion as the votes cast with respect to shares of the Portfolio held in all Separate Accounts of the Insurer or subaccounts thereof, in the aggregate. 5.6 During such time as the Fund engages in Mixed Funding or Shared Funding, the Fund shall disclose in its prospectus that (1) the Fund is intended to be a funding vehicle for variable annuity and variable life insurance contracts offered by various insurance companies, (2) material irreconcilable conflicts possibly may arise, and (3) the Board of Trustees of the Fund will monitor events in order to identify the existence of any material irreconcilable conflicts and to determine what action, if any, should be taken in response to any such conflict. The Fund hereby notifies the Insurer that prospectus disclosure may be appropriate regarding potential risks of offering shares of the Fund to separate accounts funding both variable annuity contracts and variable life insurance policies and to separate accounts funding Variable Contracts of unaffiliated life insurance companies. ARTICLE VI. SALES MATERIAL AND INFORMATION 6.1 The Insurer shall furnish, or shall cause to be furnished, to the Fund or its designee, each piece of sales literature or other promotional material in which the Fund (or any Portfolio thereof) or its investment adviser or the Distributor is named at least 15 days prior to the anticipated use of such material, and no such sales literature or other promotional material shall be used unless the Fund and the Distributor or the designee of either approve the material or do not respond with comments on the material within 10 days from receipt of the material. The Fund, the Distributor, or its designee reserves the right to reasonably object to the continued use of any such literature or other promotional material in which the Fund or the Adviser or the 17 Distributor is named, and no such material shall be used in the Fund, the Distributor, or its designee so object. 6.2 The Insurer agrees that neither it nor any of its affiliates or agents shall give any information or make any representations or statements on behalf of the Fund or concerning the Fund other than the information or representations contained in the Registration Statement or prospectus for the Fund shares, as such registration statement and prospectus may be amended or supplemented from time to time, or in reports or proxy statements for the Fund, or in sales literature or other promotional material approved by the Fund or its designee and by the Distributor or its designee, except with the permission of the Fund or its designee and the Distributor or its designee. 6.3 The Fund or the Distributor or the designee of either shall furnish to the Insurer or its designee, each piece of sales literature or other promotional material in which the Insurer or its Separate Accounts are named at least 15 days prior to the anticipated use of such material, and no such material shall be used unless the Insurer or its designee approves the material or does not respond with comments on the material within 10 days from receipt of the material. The Insurer reserves the right to reasonably object at any time thereafter to the continued use of any such sales literature or other promotional material in which the Insurer or the Separate Accounts or the Variable Contracts are named, and no such material shall be used thereafter if the Insurer so objects. 6.4 The Fund and the Distributor agree that each and the affiliates and agents of each shall not give any information or make any representations on behalf of the Insurer or concerning the Insurer, the Separate Accounts, or the Variable Contracts issued by the Insurer, other than the information or representations contained in a 18 registration statement or prospectus for such Variable Contracts, as such registration statement and prospectus may be amended or supplemented from time to time, or in reports for the Separate Accounts or prepared for distribution to owners of such Variable Contracts, or in sales literature or other promotional material approved by the Insurer or its designee, except with the permission of the Insurer. 6.5 The Fund will provide to the Insurer at least one complete copy of the Mixed and Shared Funding Exemptive Application and any amendments thereto, all prospectuses, Statements of Additional Information, reports, proxy statements and other voting solicitation materials, applications for exemptions, request for no-action letters, and notices, orders or responses relating thereto and all amendments and supplements to any of the above, that relate to the Fund or its shares, promptly after the filing of such document with the SEC or the NASD. 6.6 The Insurer will provide to the Fund all prospectuses (which shall include an offering memorandum if the Variable Contracts issued by the Insurer or interests therein are not registered under the 1933 Act), Statements of Additional Information, reports, solicitations for voting instructions relating to the Fund, applications for exemptions, request for no-action letters, and notices, orders or responses relating thereto and all amendments or supplements to any of the above that relate to the Variable Contracts issued by the Insurer or the Separate Accounts which utilize the Fund as an underlying investment medium, promptly after the filing of such document with the SEC or the NASD. 6.7 For purposes of this Article VI, 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, 19 television, telephone or tape recording, videotape display, signs or billboards, motion pictures, telephone directories (other than routine listings), electronic media, computerized media, or other public media), sales literature (I.E., any written or electronic communication distributed or made generally available to customers or the public, including, but not limited to, brochures, circulars, research reports, market letters, performance reports or summaries, form letters, telemarketing scripts, 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. ARTICLE VII. INDEMNIFICATION 7.1 INDEMNIFICATION BY THE INSURER 7.1(a) The Insurer agrees to indemnify and hold harmless the Fund, each of its Trustees and officers, the Adviser, and the Distributor (collectively, the "Indemnified Parties" for purposes of this Section 7.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Insurer) or litigation expenses (including legal and other expenses), to which the Indemnified Parties may become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or litigation expenses are related to the sale or acquisition of the Fund's shares or the Variable Contracts issued by the Insurer and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement or prospectus (which shall include an offering memorandum) for the Variable Contracts issued by the Insurer or advertisement or sales literature for such Variable 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 20 stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Insurer by or on behalf of the Fund for use in the registration statement or prospectus for the Variable Contracts issued by the Insurer or advertisement or sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of such Variable Contracts or Fund shares; or (ii) arise out of or as a result of any statement or representation (other than statements or representations contained in the registration statement, prospectus or advertisement or sales literature of the Fund not supplied by the Insurer or persons under its control) or wrongful conduct of the Insurer or any of its affiliates, employees or agents with respect to the sale or distribution of the Variable Contracts issued by the Insurer or the Fund shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, or advertisement or sales literature of the Fund or any amendment thereof or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading if such a statement or omission was made in reliance upon information furnished to the Fund by or on behalf of the Insurer; or (iv) arise out of or result from any material breach of any representation and/or warranty made by the Insurer in this Agreement or arise out of or result from any other material breach of this Agreement by the Insurer; except to the extent provided in Sections 7.1(b) and 7.1(c) hereof. 7.1(b) The Insurer shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation expenses to which an Indemnified Party would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of the Indemnified Party's duties or by reason of the Indemnified Party's reckless disregard of obligations or duties under this Agreement or to the Fund. 21 7.1(c) The Insurer shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Party shall have notified the Insurer in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Party shall have received notice of such service on any designated agent), but failure to notify the Insurer of any such claim shall not relieve the Insurer from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Insurer shall be entitled to participate, at its own expense, in the defense of such action. The Insurer also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Insurer to such party of the Insurer's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Insurer will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 7.1(d) The Indemnified Parties shall promptly notify the Insurer of the commencement of any litigation or proceedings against them in connection with the issuance or sale of the Fund shares or the Variable Contracts issued by the Insurer or the operation of the Fund. 7.2 INDEMNIFICATION BY THE DISTRIBUTOR 7.2(a) The Distributor agrees to indemnify and hold harmless the Insurer, its affiliated principal underwriter of the Variable Contracts, and each of 22 their directors and officers and any affiliated person of the Insurer within the meaning of Section 2(a)(3) of the 1940 Act (collectively, the "Indemnified Parties" for purposes of this Section 7.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Distributor) or litigation expenses (including legal and other expenses) to which the Indemnified Parties may become subject under any statute or regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or litigation expenses are related to the sale or acquisition of the Fund's shares or the Variable Contracts issued by the Insurer and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement or prospectus or advertisements or sales literature of the Fund (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Distributor or the Fund or the designee of either by or on behalf of the Insurer for use in the registration statement or prospectus for the Fund or in advertisements or sales literature (or any amendment or supplement) or otherwise for use in the registration statement or prospectus for the Fund or in sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Variable Contracts issued by the Insurer or Fund shares; or (ii) arise out of or as a result of any statement or representations (other than statements or representations contained in the registration statement, prospectus or advertisement or sales literature for the Variable Contracts not supplied by the Distributor or any employees or agents thereof) or wrongful conduct of the Fund or Distributor, or the affiliates, employees, or agents of the Fund or the Distributor with respect to the sale or distribution of the Variable Contracts issued by the Insurer or Fund shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, or advertisement or sales literature covering the Variable Contracts issued 23 by the Insurer, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished to the Insurer by or on behalf of the Distributor or the Fund; or (iv) arise out of or result from any material breach of any representation and/or warranty made by the Distributor or the Fund in this Agreement or arise out of or result from any other material breach of this Agreement by the Distributor (including a failure, whether unintentional or in good faith or otherwise, to comply with the diversification requirements specified in Section 2.8 and Section 3.3 of this Agreement, or to qualify as a regulated investment company under Subchapter M of the Code; except to the extent provided in Sections 7.2(b) and 7.2(c) hereof. In addition to the foregoing, if any pricing error results in a material impact to Contract owners, then the Distributor will use best efforts to work with the Insurer to put such Contract owners in the same position they would have been in if no such pricing error had occurred. 7.2(b) The Distributor shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation expenses to which an Indemnified Party would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of the Indemnified Party's duties or by reason of the Indemnified Party's reckless disregard of obligations or duties under this Agreement or to the Insurer or the Separate Accounts. 7.2(c) The Distributor shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Party shall have notified the Distributor in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Party shall have received notice of such service on any designated agent), but failure to notify the Distributor of 24 any such claim shall not relieve the Distributor from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Distributor will be entitled to participate, at is own expense, in the defense thereof. The Distributor also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Distributor to such party of the Distributor's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Distributor will not be liable to such party under this Agreement for any legal or other expense subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 7.2(d) The Insurer shall promptly notify the Distributor of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of the Variable Contracts issued by the Insurer or the operation of the Separate Accounts. 7.3 INDEMNIFICATION BY THE FUND 7.3(a) The Fund agrees to indemnify and hold harmless the Insurer, its affiliated principal underwriter of the Variable Contracts, and each of their directors and officers and any affiliated person of the Insurer within the meaning of Section 2(a)(3) of the 1940 Act (collectively, the "Indemnified Parties" for purposes of this Section 7.3) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Fund) or litigation expenses (including legal and other expenses) to which the Indemnified Parties may become subject under any statute or regulation, at common law or otherwise, insofar as such 25 losses, claims, damages, liabilities or litigation expenses are related to the sale or acquisition of the Fund's shares or the Variable Contracts issued by the Insurer and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement or prospectus or advertisement or sales literature of the Fund (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Distributor or the Fund or the designee of either by or on behalf of the Insurer for use in the registration statement or prospectus for the Fund or in advertisements or sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Variable Contracts issued by the Insurer or Fund shares; or (ii) arise out of or as a result of any statement or representation (other than statements or representations contained in the registration statement, prospectus or sales literature for the Variable Contracts not supplied by the Distributor or any employees or agents thereof) or wrongful conduct of the Fund, or the affiliates, employees, or agents of the Fund, with respect to the sale or distribution of the Variable Contracts issued by the Insurer or Fund shares; or (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus or advertisement or sales literature covering the Variable Contracts issued by the Insurer, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon information furnished to the Insurer by or on behalf of the Fund; or (iv) arise out of or result from any material breach of any representation and/or warranty made by the Fund in this Agreement or arise out of or result from any other material breach of this Agreement by the Fund; (including a failure, whether unintentional or in good faith or otherwise, to comply with the diversification requirements specified in Section 2.8 and Section 3.3 of this Agreement, or to qualify as a regulated investment company under Subchapter M of the Code). 26 except to the extent provided in Sections 7.3(b) and 7.3(c) hereof. In addition to the foregoing, if any pricing error results in a material impact to Contract owners, then the Fund will use best efforts to work with the Insurer to put such Contract owners in the same position they would have been in if no such pricing error had occurred. 7.3(b) The Fund shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or litigation expenses to which an Indemnified Party would otherwise be subject by reason of willful misfeasance, bad faith, or gross negligence in the performance of the Indemnified Party's duties or by reason of the Indemnified Party's reckless disregard of obligations or duties under this Agreement or to the Insurer or the Separate Accounts. 7.3(c) The Fund shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such party shall have notified the Fund in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Party shall have received notice of such service on any designated agent), but failure to notify the Fund of any such claim shall not relieve the Fund from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against the Indemnified Parties, the Fund will be entitled to participate, at its own expense, in the defense thereof. The Fund also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Fund to such party of the Fund's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Fund will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred 27 by such party independently in connection with the defense thereof other than reasonable costs of investigation. 7.3(d) The Insurer shall promptly notify the Fund of the com-mencement of any litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of the Variable Contracts issued by the Insurer or the sale of the Fund's shares. ARTICLE VIII. APPLICABLE LAW 8.1 This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the laws of the State of Wisconsin. 8.2 This Agreement shall be subject to the provisions of the 1933, 1934, and 1940 Acts, and the rules and regulations and rulings thereunder, including such exemptions from those statutes, rules and regulations as the SEC may grant (including, but not limited to, the Mixed and Shared Funding Exemptive Order), and the terms hereof shall be interpreted and construed in accordance therewith. ARTICLE IX. TERMINATION 9.1 This Agreement shall terminate: (a) at the option of any party upon 180 days advance written notice to the other parties; or (b) at the option of the Insurer if shares of the Portfolios are not reasonably available to meet the requirements of the Variable Contracts issued by the 28 Insurer, as determined by the Insurer, and upon prompt notice by the Insurer to the other parties; or (c) at the option of the Fund or the Distributor upon institution of formal proceedings against the Insurer or its agent by the NASD, the SEC, or any state securities or insurance department or any other regulatory body regarding the Insurer's duties under this Agreement or related to the sale of the Variable Contracts issued by the Insurer, the operation of the Separate Accounts, or the purchase of the Fund shares; or (d) at the option of the Insurer upon institution of formal proceedings against the Fund or the Distributor or their agents by the NASD, the SEC, or any state securities or insurance department or any other regulatory body; or (e) upon requisite vote of the Variable Contract Owners having an interest in the Separate Accounts (or any subaccounts thereof) to substitute the shares of another investment company for the corresponding shares of the Fund or a Portfolio in accordance with the terms of the Variable Contracts for which those shares had been selected or serve as the underlying investment media; or (f) in the event any of the shares of a Portfolio are not registered, issued or sold in accordance with applicable state and/or federal law, or such law precludes the use of such shares as the underlying investment media of the Variable Contracts issued or to be issued by the Insurer; or 29 (g) by any party to the Agreement upon a determination by a majority of the Trustees of the Fund, or a majority of its disinterested Trustees, that an irreconcilable conflict, as described in Article IV hereof, exists; or (h) by any party by advance written notice upon the "assignment" of the Agreement (as defined under the 1940 Act) unless made with the written consent of each party to the Agreement; or (i) by the Insurer by written notice upon the sale, acquisition or change of control of the Adviser; or (j) by the Insurer, the Fund or the Distributor by written notice to the other parties upon a material breach of the Agreement by the other party; (k) by either the Fund or the Distributor by written notice to the Insurer, if either one or both of the Fund or the Distributor respectively, shall determine, in their sole judgment exercised in good faith, that the Insurer has suffered a material adverse change in its business, operations, financial condition or prospects since the date of this Agreement or is the subject to material adverse publicity; or (l) by the Insurer by written notice to the Fund and the Underwriter, if the Insurer shall determine, in its sole judgment exercised in good faith, that either the Fund or the Distributor has suffered a material adverse change in its business, operations, financial condition or prospects since the date of this Agreement or is the subject to material adverse publicity; or 30 (m) at the option of the Insurer if the Fund or a Portfolio fails to meet the requirements under Subchapter M of the Code for qualification as a Regulated Investment Company specified in Section 3.2 hereof or the diversification requirements specified in Section 3.3 hereof. 9.2 Each party to this Agreement shall promptly notify the other parties to the Agreement of the institution against such party of any such formal proceedings as described in Sections 9.1(c) and (d) hereof. The Insurer shall give 60 days prior written notice to the Fund of the date of any proposed vote of Variable Contract Owners to replace the Fund's shares as described in Section 9.1(e) hereof. 9.3 The Insurer shall not redeem Fund shares attributable to the Variable Contracts (as contrasted with Fund shares attributable to the Insurer's assets held in the Separate Account) except (i) as necessary to implement Variable Contract owner initiated or approved transactions or other Variable Contract transactions, or to resolve a conflict as contemplated by Article IV to this agreement, or (ii) as required by state and/or federal laws or regulations or judicial or other legal precedent of general application (hereinafter referred to as a "Legally Required Redemption") or (iii) as permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon request, the Insurer will promptly furnish to the Fund and the Distributor the opinion of counsel for the Insurer (which counsel shall be reasonably satisfactory to the fund and the Distributor) to the effect that any redemption pursuant to clause (ii) above is a Legally Required Redemption. Furthermore, except in cases where permitted under the terms of the Variable Contracts, the Insurer shall not prevent Variable Contract owners from allocating payments to a Portfolio that was otherwise available under the Contracts without first giving the Fund or the Distributor 60 days notice of its intention to do so. 31 9.4 Notwithstanding any termination of this Agreement, the Fund and the Distributor shall at the option of the Insurer continue to make available additional shares of the Fund pursuant to the terms and conditions of this Agreement, for all Variable Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as "Existing Contracts"). Specifically, without limitation, based upon instructions from the owners of the Existing Contracts, the Separate Accounts shall be permitted to reallocate investments in the Portfolios of the Fund and redeem investments in the Portfolios, and shall be permitted to invest in the Portfolios in the event that owners of the Existing Contracts make additional purchase payments under the Existing Contracts. If this Agreement terminates, the parties agree that Sections 3.10, 7.1, 7.2, 7.3, 8.1, and 8.2, and, to the extent that all or a portion of the assets of the Separate Accounts continue to be invested in the Fund or any Portfolio of the Fund, Articles I, II, and IV and Sections 5.5 and 5.6 will remain in effect after termination. ARTICLE X. NOTICES Any notice shall be sufficiently given when sent by registered or certified mail or by overnight mail through a nationally-recognized delivery service to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other party. If to the Fund: Insurance Series Federated Investors Tower 1001 Liberty Avenue Pittsburgh, Pennsylvania 15222-3779 Attn.: John W. McGonigle 32 If to the Distributor: Federated Securities Corp. Federated Investors Tower 1001 Liberty Avenue Pittsburgh, Pennsylvania 15222-3779 Attn.: John W. McGonigle If to the Insurer: PLEASE INSERT ADDRESS AND CONTACT ARTICLE XI: MISCELLANEOUS 11.1 The Fund and the Insurer agree that if and to the extent Rule 6e-2 or Rule 6e-3(T) under the 1940 Act is amended or if Rule 6e-3 is adopted in final form, to the extent applicable, the Fund and the Insurer shall each take such steps as may be necessary to comply with the Rule as amended or adopted in final form. 11.2 A copy of the Fund's Agreement and Declaration of Trust is on file with the Secretary of the Commonwealth of Massachusetts and notice is hereby given that any agreements that are executed on behalf of the Fund by any Trustee or officer of the Fund are executed in his or her capacity as Trustee or officer and not individually. The obligations of this Agreement shall only be binding upon the assets and property of the Fund and shall not be binding upon any Trustee, officer or shareholder of the Fund individually. 11.3 Nothing in this Agreement shall impede the Fund's Trustees or shareholders of the shares of the Fund's Portfolios from exercising any of the rights provided to such Trustees or shareholders in the Fund's Agreement and Declaration of Trust, as amended, a copy of which will be provided to the Insurer upon request. 33 11.4 Administrative services to Variable Contract Owners shall be the responsibility of Insurer. Insurer, on behalf of its separate accounts will be the sole shareholder of record of Fund shares. 11.5 It is understood that the name "Federated" or any derivative thereof or logo associated with that name is the valuable property of the Distributor and its affiliates, and that the Insurer has the right to use such name (or derivative or logo) only so long as this Agreement is in effect. Upon termination of this Agreement the Insurer shall forthwith cease to use such name (or derivative or logo). 11.6 The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. 11.7 This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 11.8 If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby. 11.9 This Agreement may not be assigned by any party to the Agreement except with the written consent of the other parties to the Agreement. 11.10 Subject to the requirements of legal process and regulatory authority, each party hereto shall treat as confidential the names and addresses of the Variable 34 Contract owners and all information reasonably identified as confidential in writing by any other party hereto and, except as permitted by this Agreement, shall not disclose, disseminate or utilize such names and addresses and other confidential information until such time as it may come into the public domain without the express written consent of the affected party. 11.11 The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, which the parties hereto are entitled to under state and federal laws. 35 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. INSURANCE SERIES ATTEST: BY: --------------------------- ------------------------------ Name: Name: ------------------------------ ----------------------------- Title: Title: ------------------------------ ---------------------------- FEDERATED SECURITIES CORP. ATTEST: BY: --------------------------- ------------------------------ Name: Name: ------------------------------ ----------------------------- Title: Title: ------------------------------ ---------------------------- AMERICAN FAMILY LIFE INSURANCE COMPANY ATTEST: BY: --------------------------- ------------------------------ Name: Name: ------------------------------ ----------------------------- Title: Title: ------------------------------ ---------------------------- 36 EXHIBIT A American Family Variable Account I American Family Variable Account II 37 EXHIBIT B International Equity Fund II Quality Bond Fund II 38 EX-99.8(C) 6 a2039901zex-99_8c.txt EXHIBIT 99.8(C) PARTICIPATION AGREEMENT AMONG AMERICAN FAMILY MUTUAL LIFE INSURANCE COMPANY SEI INSURANCE PRODUCTS TRUST AND SEI INVESTMENTS DISTRIBUTION COMPANY DATED AS OF MARCH __, 2001 TABLE OF CONTENTS
Page Article I. Sale and Redemption of Trust Shares..................................................2 Article II. Representations and Warranties.......................................................4 Article III. Prospectuses, Reports to Shareholders and Proxy Statements; Voting.............................................................................6 Article IV. Sales Material, Information and Notifications........................................8 Article V. Diversification.....................................................................10 Article VI. Potential Conflicts.................................................................10 Article VII. Indemnification.....................................................................12 Article VIII. Applicable Law and Venue............................................................17 Article IX. Termination.........................................................................18 Article X. Notices.............................................................................20 Article XI. Miscellaneous.......................................................................20
ii THIS AGREEMENT, dated as of the __ day of March, 2001, by and among AMERICAN FAMILY MUTUAL LIFE INSURANCE COMPANY (the "Company"), a Wisconsin life insurance company, on its own behalf and on behalf of each separate account of the Company set forth on Schedule A hereto, as may be amended from time to time (each such separate account hereinafter referred to as an "Account"), SEI INSURANCE PRODUCTS TRUST (the "Trust"), a Massachusetts business trust, and SEI INVESTMENTS DISTRIBUTION COMPANY (the "Underwriter"), a Delaware corporation. WHEREAS, the Trust engages in business as an open-end management investment company and is available to act as (i) the investment vehicle for separate accounts established by insurance companies for variable life insurance policies and variable annuity contracts ("Variable Contracts") and (ii) the investment vehicle for certain qualified pension and retirement plans ("Qualified Plans"); and WHEREAS, insurance companies desiring to utilize the Trust as an investment vehicle under their variable life insurance policies and/or Variable Contracts may enter into participation agreements with the Trust and the Underwriter (the "Participating Insurance Companies"); and WHEREAS, shares of the Trust are divided into several series of shares, each representing an interest in a particular managed portfolio of securities and other assets, any one or more of which may be made available under this Agreement (each such series hereinafter referred to as a "Fund"); and WHEREAS, the Trust has obtained an order from the Securities and Exchange Commission, dated November 15, 1999 (File No. 812-11722), granting Participating Insurance Companies and their separate accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended (the "1940 Act"), and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares of the Trust to be sold to and held by (i) separate accounts of both affiliated and unaffiliated life insurance companies offering variable life insurance policies and variable annuity contracts, (ii) Qualified Plans, and (iii) SEI Investments Management Corporation ("SIMC"), investment adviser to the Trust, or any of its affiliates (the "Mixed and Shared Funding Exemptive Order"); and WHEREAS, the Trust is registered as an open-end management investment company under the 1940 Act and its shares are registered under the Securities Act of 1933, as amended (the "1933 Act"); and WHEREAS, the Underwriter is registered as a broker-dealer under the Securities Exchange Act of 1934, as amended (the "1934 Act"), is a member in good standing of the National Association of Securities Dealers, Inc. (the "NASD") and serves as principal underwriter of the shares of the Trust; and 1 WHEREAS, each Account is a duly organized, validly existing separate account, established by resolution or under authority of the Board of Directors of the Company on the date shown in Schedule A hereto, to fund variable life insurance policies or variable annuity contracts; and WHEREAS, to the extent permitted by applicable insurance laws and regulations, the Company is authorized to purchase shares of the Funds on behalf of each Account and the Underwriter is authorized to sell such shares to the Company for each such Account; NOW, THEREFORE, in consideration of their mutual promises, the Company, the Trust and the Underwriter agree as follows: ARTICLE I. SALE AND REDEMPTION OF TRUST SHARES 1.1 The Trust agrees to sell shares of the Funds listed in Schedule A (as may be amended from time to time) to the Company for its Accounts on each Business Day. The Trust or its designee shall execute purchase orders placed for Fund shares at the net asset value of such shares next computed after receipt of such order by the Trust or its designee. For purposes of this Section 1.1, the Company shall be the designee of the Trust for receipt of such orders; provided that the Company receives the order prior to 4:00 p.m. Eastern time and that the Trust receives notice of such order prior to 11:00 a.m., provided however that such order is for a money market fund Eastern time on the next following Business Day in accordance with the procedures set forth in Schedule B, as may be amended from time to time (the "Procedures"). "Business Day" shall mean any day on which the Trust calculates its net asset value pursuant to its then-current prospectus and the rules of the Securities and Exchange Commission. 1.2 The Trust, so long as this Agreement is in effect, agrees to make its shares available to the Company indefinitely for purchase at the applicable net asset value per share on each Business Day. Notwithstanding the foregoing, the Board of Trustees of the Trust (the "Board") may refuse to permit the Trust 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 such action is, in the sole discretion of the Board acting in good faith and in light of its fiduciary duties under federal and any applicable state laws, necessary and in the best interests of the shareholders of such Fund (it being understood that for this purpose shareholders means Variable Contract owners). Notice of election to suspend or terminate shall be furnished by the Trust, said termination to be effective 10 business days after receipt of such notice by the Company (or such other date as required by law or other regulatory authority). 1.3 The Trust agrees that shares of the Trust will be sold only to: (i) Participating Insurance Companies and their separate accounts, (ii) Qualified Plans, and 2 (iii) such other persons permitted under the Internal Revenue Code of 1986, as amended. No shares of any Fund will be sold to the general public. 1.4 The Trust will not make its shares available for purchase by any insurance company or separate account unless an agreement containing provisions substantially the same as in Section 1.3 of Article I, Section 3.5 of Article III, Article V and Article VI of this Agreement is in effect to govern such sales. 1.5 The Trust agrees to redeem for cash, on the Company's request, any full or fractional share of a Fund held by the Company in an Account, at the net asset value of such share next computed after receipt by the Trust or its designee of the request for redemption. Subject to and in accordance with applicable laws and the prospectus and statement of additional information of the Trust, and subject to the consent of the Company, the Trust may redeem shares for assets other than cash. For purposes of this Section 1.5, the Company shall be the designee of the Trust for receipt of such requests for redemptions; provided that the Company receives the request prior to 4:00 p.m. Eastern time and that the Trust receives notice of such request prior to 11:00 a.m. Eastern time on the next following Business Day in accordance with the Procedures. 1.6 The Company agrees that purchases and redemptions of Fund shares shall be made in accordance with the provisions of the then-current prospectus of the Trust and this Agreement. The variable life insurance policies and/or variable annuity contracts issued by the Company, under which amounts may be invested in the Trust (the "Contracts"), are listed on Schedule A attached hereto, as may be amended from time to time. 1.7 The Company shall pay for Trust shares on the next Business Day after an order to purchase Trust shares is made in accordance with the provisions of Section 1.1 hereof and the Procedures. Payment shall be in federal funds transmitted by wire. For purposes of Section 2.10 and 2.11, upon receipt by the Trust of the federal funds so wired, such funds shall cease to be the responsibility of the Company and shall become the responsibility of the Trust. 1.8 Issuance and transfer of the Trust's shares will be by book entry only. Stock certificates will not be issued to the Company or any Account. Shares ordered from the Trust will be recorded in an appropriate title for each Account or the appropriate subaccount of each Account. 1.9 The Trust shall furnish same day notice (by electronic mail, by facsimile transmission or by telephone followed by written confirmation) to the Company of any income dividends or capital gain distributions payable on the Trust's shares. The Company hereby elects to receive all such income dividends and capital gain distributions as are payable on the Fund shares in additional shares of that Fund. The Company reserves the right to revoke this election and to receive all such income dividends and capital gain distributions in cash. Any such revocation must be in writing. 3 The Trust shall notify the Company of the number of shares so issued as payment of such dividends and distributions. 1.10 The Trust shall make the net asset value per share for each Fund available to the Company on a daily basis as soon as reasonably practical after the net asset value per share is calculated, and the Trust shall use its best efforts to make such net asset value per share available no later than 7:00 p.m. Eastern time in accordance with the Procedures. If, however, the Trust provides the net asset value per share later than 7:00 p.m. Eastern time, then the 11:00 a.m. deadline on the following day for receipt of orders in Sections 1.1 and 1.5 shall be extended by the lesser of (1) the amount of time from 7:00 p.m. Eastern time to the time that the Trust provided the net asset value per share, and (2) four hours; provided, however, that if the Trust does not provide the net asset value per share by 11:00 p.m. Eastern time the parties will work together to facilitate processing in a reasonable manner given the circumstances. ARTICLE II. REPRESENTATIONS AND WARRANTIES 2.1 The Company represents and warrants that it is an insurance company duly organized and in good standing under the insurance laws and regulations of the State of Wisconsin (and other laws and regulations of Wisconsin to the extent applicable to Wisconsin insurance companies), that each Account is legally and validly established as a separate account under applicable law, that the Company has registered each Account as a unit investment trust under the 1940 Act (unless exempt therefrom), and that the Company will maintain such registration for each Account (unless exempt therefrom) for as long as any Contract under that Account is outstanding. 2.2 The Company further represents and warrants that the Contracts will be issued and sold in compliance in all material respects with all applicable federal and state insurance and securities laws and regulations. The Company further represents and warrants that the Contracts are or will be registered under the 1933 Act or are or will be exempt from or not subject to registration thereunder. The Company shall amend the registration statements under the 1933 Act for the Contracts and the registration statements under the 1940 Act for the Accounts from time to time as required in order to effect the continuous offering of the Contracts or as may otherwise be required by applicable law (unless the Contracts and Accounts are exempt from or not subject to the registration requirements of the 1933 Act and the 1940 Act). 2.3 The Company represents and warrants that each principal underwriter of the Contracts is registered as a broker-dealer under the 1934 Act and is a member in good standing of the NASD. 2.4 The Company represents and warrants that the shares held in each Account or division thereof are the only securities held in the Account or division thereof, 4 and that the Company, on behalf of the Account or division thereof, will (i) vote such shares in the same proportion as shares of voted by all other holders of shares (in accordance with Section 3.4) and (ii) refrain from substituting another security for such shares unless the Commission has approved such substitution in the manner provided in Section 26 of the 1940 Act. 2.5 The Trust represents and warrants that Trust shares sold pursuant to this Agreement shall be registered under the 1933 Act, and shall be duly authorized for issuance and sold in compliance with the laws of the Commonwealth of Massachusetts and all applicable federal and state securities laws. The Trust represents and warrants that it is and shall remain registered as an open-end management investment company under the 1940 Act. The Trust represents and warrants that it shall amend the registration statement for its shares under the 1933 Act and the 1940 Act from time to time as required in order to effect the continuous offering of its shares and that it shall register and qualify the shares for sale in accordance with the laws of the various states to the extent required by applicable state law. 2.6 The Trust represents and warrants that it is currently qualified as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), that it will make every effort to maintain such qualification (under Subchapter M or any successor or similar provision), and that it will notify the Company immediately upon having a reasonable basis for believing that it has ceased to so qualify or that it might not so qualify in the future. 2.7 The Trust represents that it believes, in good faith, that the Funds currently comply with the diversification provisions of Section 817(h) of the Code and the regulations issued thereunder relating to the diversification requirements for the Variable Contracts. 2.8 Subject to the Fund's compliance with applicable diversification requirements, the Company represents and warrants that the Contracts are currently treated as life insurance policies (which may include modified life endowment contracts) or annuity contracts, under applicable provisions of the Code and that it will make every effort to maintain such treatment and that it will notify the Trust and the Underwriter immediately upon having a reasonable basis for believing that the Contracts have ceased to be so treated or that they might not be so treated in the future. 2.9 The Trust represents and warrants that it is lawfully organized and validly existing under the laws of Commonwealth of Massachusetts and that it does and will comply in all material respects with the 1940 Act. 2.10 The Trust represents and warrants that the Trust's investment policies, fees and expenses are and shall at all times remain in compliance with the laws of the Commonwealth of Massachusetts and that its operations are and shall at all times remain in material compliance with the laws of the Commonwealth of Massachusetts to the extent required to perform this Agreement. 5 2.11 The Trust represents and warrants that its Trustees, officers, employees, and other individuals and entities dealing with the money and/or securities of the Trust are and shall continue to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Trust in an amount not less than the minimum coverage as required currently by Rule 17g-1 of the 1940 Act or related provisions as may be promulgated from time to time. The Trust represents and warrants that the blanket fidelity bond shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. The Trust represents that shall notify the Company in the event that it no longer has the coverage required by this Section 2.11. 2.12 The Company represents and warrants that all of its Directors, officers, employees, investment advisers, and other individuals and affiliates dealing with the money and/or securities of the Trust are covered by a blanket fidelity bond or similar coverage, in an amount not less than $10 million; that the bond includes coverage for larceny and embezzlement and is issued by a reputable bonding company. The Company represents that it shall notify the Trust and the Underwriter in the event that it no longer has the coverage required by this Section 2.12. 2.13 The Underwriter represents and warrants that it is a member in good standing of the NASD and is registered as a broker-dealer with the SEC. The Underwriter represents and warrants that it is duly organized and in good standing under the laws of the State of Delaware. 2.14 The Trust currently does not intend to make payments to finance distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise, although it may make such payments in the future. To the extent that it decides to finance distribution expenses pursuant to Rule 12b-1, the Trust undertakes to have a board of trustees, a majority of whom are not interested persons of the Trust, formulate and approve any plan under Rule 12b-1 to finance distribution expenses. ARTICLE III. PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS; VOTING 3.1 The Trust or its designee shall provide the Company with an electronic version of the Trust's current prospectus and statement of additional information ("SAI"), including any prospectus or SAI supplements. 3.2 The Trust or its designee, shall provide the Company with an electronic version of its proxy materials, shareholder reports and other communications to shareholders. 3.3 The Company shall bear the expenses of distributing to Contract owners and to prospective Contract owners the documents of the Trust listed in Sections 3.1 and 3.2. 6 3.4 So long as and to the extent that the Securities and Exchange Commission continues to interpret the 1940 Act to require pass-through voting privileges for variable contract owners, the Company shall: (i) solicit voting instructions from Contract owners; (ii) vote Trust shares in accordance with instructions received from Contract owners; and (iii) vote Trust shares for which no instructions have been received in the same proportion as Trust shares of such Fund for which instructions have been received. The Company reserves the right to vote Trust shares held in any Account in its own right to the extent permitted by law. Participating Insurance Companies shall be responsible for ensuring that each of their Accounts calculates voting privileges in a manner consistent with the Mixed and Shared Funding Exemptive Order; provided, however, that the Trust or its designee shall provide each shareholder, including the Company and each Account, with the information necessary for the shareholder meeting, including each Account's respective ownership in each Fund. 3.5 The Trust will comply with all provisions of the 1940 Act requiring voting by shareholders. Further, the Trust will act in accordance with the Securities and Exchange Commission's interpretation of the requirements of Section 16(a) with respect to periodic elections of Trustees and with whatever rules the Commission may promulgate with respect thereto. 3.6 The Trust shall use reasonable efforts to provide Trust documents listed in Section 3.1 and 3.2 to the Company sufficiently in advance of the Company's mailing dates to enable the Company to complete, at reasonable cost, the printing, assembling and distribution of the documents in accordance with applicable laws and regulations. The Trust will provide the Company with as much advance notice as is reasonably practicable of any proxy solicitation for any Fund, and of any material change in the Trust's registration statement or prospectus, particularly any change resulting in a change to the registration statement or prospectus for any Variable Account. The Trust will work with the Company so as to enable the Company to solicit proxies from Variable Contract owners, or to make changes to its registration statement or prospectus, in an orderly manner. The Trust will make reasonable efforts to attempt to have changes affecting the Variable Contract prospectuses become effective simultaneously with annual updates for such prospectuses. 7 ARTICLE IV. SALES MATERIAL, INFORMATION AND NOTIFICATIONS 4.1 The Company shall furnish, or shall cause to be furnished, to the Trust or its designee, each piece of sales literature or other promotional material in which the Trust is named, at least fifteen (15) Business Days prior to its use. No such material shall be used if the Trust or its designee reasonably objects to such use within ten (10) Business Days after receipt of such material. The Trust, the Underwrites, or its designee reserves the right to reasonably object to the continued use of any such sales literature or other promotional material in which the Trust is named, and no such material shall be used if the Trust, the Underwriter, or its designee so reasonably object. 4.2 The Company shall not give any information or make any representations or statements on behalf of the Trust or concerning the Trust in connection with the sale of the Contracts other than the information or representations contained in the registration statement or prospectus for the Trust shares, as such registration statement and prospectus may be amended or supplemented from time to time, or in reports or proxy statements for the Trust, or in sales literature or other promotional material approved by the Trust or its designee, except with the permission of the Trust. 4.3 The Trust or its designee shall furnish, or shall cause to be furnished, to the Company or its designee, each piece of sales literature or other promotional material in which the Company or its Account(s) or Contracts are named at least fifteen (15) Business Days prior to its use. No such material shall be used if the Company or its designee reasonably objects to such use within ten (10) Business Days after receipt of such material. The Company reserves the right to reasonably object at any time thereafter to the continued use of any such literature or other promotional material in which the Company or the Variable Accounts or the Variable Contracts are named, and no such material shall be used thereafter if the Company so reasonably objects. 4.4 The Trust and the Underwriter shall not give any information or make any representations on behalf of the Company or concerning the Company, the Accounts or the Contracts, other than the information or representations contained in a registration statement or prospectus for the Contracts, as such registration statement and prospectus may be amended or supplemented from time to time, or in published reports for the Accounts or the Contracts which are in the public domain or approved by the Company for distribution to Contract owners, or in sales literature or other promotional material approved by the Company or its designee, except with the permission of the Company. 4.5 The Trust will provide to the Company at least one complete copy of all registration statements, prospectuses, SAIs, reports, proxy materials, sales literature and other promotional materials, applications for exemptions, requests for no-action letters and notices, orders or responses thereto, and all amendments and supplements to any of the above, that relate to the sale of Trust shares to the Company and the Accounts, within ten (10) Business Days after the earlier of the use of such document or the filing of such document with the Securities and Exchange Commission or the NASD. 8 4.6 The Company will provide to the Trust at least one complete copy of all registration statements, prospectuses, SAIs, reports, proxy materials, solicitations for voting instructions, sales literature and other promotional materials, applications for exemptions, requests for no-action letters and notices, orderes or responses relating thereto, and all amendments and supplements to any of the above, that relate to the investment in shares of the Trust under the Contracts, within ten (10) Business Days after the earlier of the use of such document or the filing of such document with the Securities and Exchange Commission or the NASD. 4.7 For purposes of this Article IV, the phrase "sales literature or other promotional material" includes, but is not limited to, any of the following: advertisements (such as material published, or designed for use in, a newspaper, magazine or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, telephone directories (other than routine listings), electronic media, computerized media, or other public media), sales literature (I.E., any written or electronic communication distributed or made generally available to customers or the public, including but not limited to, brochures, circulars, research reports, market letters, performance reports or summaries, form letters, telemarketing scripts, 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. 4.8 The Company shall furnish, or shall cause to be furnished, to the Trust or its designee copies of the following reports: (a) the Company's annual statement (prepared under statutory accounting principles) and annual report (prepared under generally accepted accounting principles ("GAAP"), if any), as soon as practical and in any event within 90 days after the end of each fiscal year; and (b) any financial statement, proxy statement, notice or report of the Company sent to stockholders and/or policyholders, as soon as practical after the delivery thereof to stockholders. 9 ARTICLE V. DIVERSIFICATION 5.1 The Trust will at all times invest money from the Contracts in such a manner as to ensure that the Contracts will be treated as variable contracts under the Code and the regulations issued thereunder. Without limiting the scope of the foregoing, the Trust will at all times comply with Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the diversification requirements for variable annuity, endowment, or life insurance contracts and any amendments or other modifications to such Section or Regulations. ARTICLE VI. POTENTIAL CONFLICTS 6.1 The Board will monitor the Trust for the existence of any material irreconcilable conflict between the interests of the owners of Contracts participating in the Accounts and participants of all Qualified Plans investing in the Trust, 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: (i) an action by any state insurance regulatory authority; (ii) 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; (iii) an administrative or judicial decision in any relevant proceeding; (iv) the manner in which the investments of the Trust are being managed; (v) a difference in voting instructions given by variable annuity Contract owners, variable life insurance Contract owners, and trustees of the Qualified Plans; (vi) a decision by a Participating Insurance Company to disregard the voting instructions of Contract owners; or (vii) if applicable, a decision by a Qualified Plan to disregard the voting instructions of plan participants. The Trust shall promptly inform the Company if the Board determines that a material irreconcilable conflict exists and the implications thereof. 6.2 The Company will report any potential or existing conflicts of which it is aware to the Board. The Company will assist the Board in carrying out its responsibilities under the Mixed and Shared Funding Exemptive Order by providing the Board with all information reasonably necessary for the Board to consider any issues raised. This includes, but is not limited to, an obligation by the Company to inform the Board whenever Contract owner voting instructions are disregarded. The responsibility to report such information and assist the Board will be carried out with a view only to the interests of Contract owners. 6.3 If it is determined by a majority of the Board, or a majority of its members who are not "interested persons" of the Trust under the 1940 Act (the "Independent Trustees"), that a material irreconcilable conflict exists, the Company shall, at its expense and to the extent reasonably practicable (as determined by a majority of the Independent 10 Trustees), take whatever steps are necessary to remedy or eliminate the material irreconcilable conflict, up to and including: (i) withdrawing the assets allocable to some or all of the Accounts from the Trust or any Fund and reinvesting such assets in a different investment medium, including (but not limited to) another Fund, or submitting the question whether such segregation should be implemented to a vote of all affected Contract owners and, as appropriate, segregating the assets of any appropriate group (I.E., annuity Contract owners, life insurance Contract owners, or variable Contract owners of one or more Participating Insurance Companies) that votes in favor of such segregation, or offering to the affected Contract owners the option of making such a change; and (ii) establishing a new registered management investment company or managed separate account. The responsibility of the Company to take remedial action will be carried out with a view only to the interests of Contract owners. 6.4 If a material irreconcilable conflict arises because of a decision by the Company to disregard Contract owner voting instructions and that decision represents a minority position or would preclude a majority vote, the Company may be required, at the Trust's election, to withdraw the affected Account's investment in the Trust and terminate this Agreement with respect to such Account (at the Company's expense); provided that no charge or penalty will be imposed as a result of such withdrawal. 6.5 For purposes of this Article VI, a majority of the Independent Trustees shall determine whether any proposed action adequately remedies any material irreconcilable conflict, but in no event will the Trust, the Underwriter, the Trust's adviser or any affiliate be required to establish a new funding medium for the Contracts. The Company shall not be required by the Article VI to establish a new funding medium for any Contract if an offer to do so has been declined by vote of a majority of Contract owners materially and adversely affected by the material irreconcilable conflict. 6.6 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or proposed Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act or the rules promulgated thereunder with respect to mixed or shared funding (as defined in the Mixed and Shared Funding Exemptive Order) on terms and conditions materially different from those contained in the Mixed and Shared Funding Exemptive Order, then (a) the Trust and/or the Participating Insurance Companies, as appropriate, shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections 3.4, 3.5 and Article VI of this Agreement shall continue in effect only to the extent that terms and conditions substantially identical to such Sections are contained in such Rule(s) as so amended or adopted. 6.7 The Trust hereby notifies the Company that Account prospectus disclosure regarding potential risks of mixed and shared funding may be appropriate. 6.8 The Company, at least annually, will submit to the Board such reports, materials or data as the Board reasonably may request so that the Board may fully 11 carryout the obligations imposed upon it by the Mixed and Shared Funding Exemptive Order, and such reports, materials and data will be submitted more frequently if deemed appropriate by the Board. ARTICLE VII. INDEMNIFICATION 7.1 INDEMNIFICATION BY THE COMPANY 7.1(a). The Company agrees to indemnify and hold harmless the Trust and each member of the Board and each officer and employee of the Trust, the Underwriter and each director, officer and employee of the Underwriter, and each person (other than a Participating Insurance Company or a separate account of a Participating Insurance Company) who controls the Trust or the Underwriter within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" and individually, an "Indemnified Party," for purposes of this Section 7.1) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Company) or expenses (including legal and other expenses), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities, or expenses (or actions in respect thereof) or settlements are alleged to be or are determined to be related to the sale or acquisition of the Trust's shares or the Contracts and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement, prospectus (which shall include an offering memorandum) or SAI for the Contracts or contained in the Contracts or advertisement or sales literature for the Contracts (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Company by or on behalf of the Trust for use in any registration statement, prospectus or SAI for the Contracts or in the Contracts or advertisement or sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Trust shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus, SAI or advertisement or sales literature of the Trust not supplied by the Company, or persons under its control and other than statements or representations authorized by the Trust or the Underwriter) or unlawful conduct of 12 the Company or persons under its control, with respect to the sale or distribution of the Contracts or Trust shares; or (iii) arise out of or result from any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, SAI or advertisement or sales literature of the Trust or any amendment thereof or supplement thereto or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if such a statement or omission was made in reliance upon and in conformity with information furnished to the Trust by or on behalf of the Company; or (iv) arise as a result of any failure by the Company to provide the services and furnish the materials under the terms of this Agreement; or (v) arise out of or result from any material breach of any representation or warranty made by the Company in this Agreement or arise out of or result from any other material breach of this Agreement by the Company. 7.1(b). The Company shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or expenses incurred or assessed against an Indemnified Party as such may arise from such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement. 7.1(c). The Company shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Company in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Company of any such claim shall not relieve the Company from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against an Indemnified Party, the Company shall be entitled to participate, at its own expense, in the defense of such action. The Company also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Company to such party of the Company's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Company will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 13 7.1(d). The Indemnified Parties will promptly notify the Company of the commencement of any litigation or proceedings against them in connection with the issuance or sale of the Trust shares, the Contracts or the operation of the Trust. 7.2 INDEMNIFICATION BY THE UNDERWRITER 7.2(a). The Underwriter agrees to indemnify and hold harmless the Company and each of its directors, officers and employees and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act (collectively, "Indemnified Parties" and individually, "Indemnified Party," for purposes of this Section 7.2) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Underwriter) or expenses (including legal and other expenses) to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements alleged to be or are determined to be related to the sale or acquisition of shares of a Fund or the Contracts and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement, prospectus, SAI or advertisement or sales literature of the Trust (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Trust by or on behalf of the Company for use in the registration statement, prospectus, statement of additional information for the Trust or in any advertisement or sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus, SAI or sales literature for the Contracts not supplied by the Underwriter, Trust or persons under their control and other than statements or representations authorized by the Company) or unlawful conduct of the Trust or the Underwriter or persons under their control, with respect to the sale or distribution of the Contracts or Fund shares; or (iii) arise out of or as a result of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, SAI or advertisement or sales literature covering the Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in 14 reliance upon and in conformity with information furnished to the Company by or on behalf of the Underwriter or Trust; or (iv) arise out of or result from any material breach of any representation and/or warranty made by the Underwriter or the Trust in this Agreement or arise out of or result from any other material breach of this Agreement by the Underwriter or the Trust (including a failure, whether unintentional or in good faith or otherwise, to comply with the diversification requirements specified in Section 2.8 and 5.1 of this Agreement, or to qualify as a regulated investment company under Subchapter M of the Code). 7.2(b). The Underwriter shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities, or expenses incurred or assessed against an Indemnified Party as such may arise from such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement. 7.2(c). The Underwriter shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Underwriter in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Underwriter of any such claim shall not relieve the Underwriter from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against any Indemnified Party, the Underwriter will be entitled to participate, at its own expense, in the defense thereof. The Underwriter also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Underwriter to such party of the Underwriter's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Underwriter will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 7.2(d). The Company will promptly notify the Underwriter of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of the Contracts, the operation of the Accounts or the Trust. 7.3 INDEMNIFICATION BY THE TRUST 7.3(a). The Trust agrees to indemnify and hold harmless the Company, the principal underwriter of the Variable Contracts, and each of their directors, officers, and employees and each person, if any, who controls the Company within the meaning of 15 Section 15 of the 1933 Act (hereinafter collectively, the "Indemnified Parties" and individually, "Indemnified Party," for purposes of this Section 7.3) against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of the Trust) or expenses (including legal and other expenses) to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities or expenses (or actions in respect thereof) or settlements alleged to or are determined to be related to the sale or acquisition of shares of a Fund or the Contracts, and: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement, prospectus, SAI or advertisement or sales literature of the Trust (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, provided that this agreement to indemnify shall not apply as to any Indemnified Party if such statement or omission or such alleged statement or omission was made in reliance upon and in conformity with information furnished to the Trust or the Underwriter by or on behalf of the Company for use in the registration statement, prospectus, statement of additional information for the Trust or in any advertisement or sales literature (or any amendment or supplement) or otherwise for use in connection with the sale of the Contract or Fund shares; or (ii) arise out of or as a result of statements or representations (other than statements or representations contained in the registration statement, prospectus, SAI or sales literature for the Contracts not supplied by the Underwriter, Trust or persons under their control and other than statements or representations authorized by the Company) or unlawful conduct of the Trust or the Underwriter or persons under their control, with respect to the sale or distribution of the Contracts or Fund shares; or (iii) arise out of or as a result of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, SAI or advertisement or sales literature covering the Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statement or statements therein not misleading, if such statement or omission was made in reliance upon and in conformity with the information furnished to the Company by or on behalf of the Underwriter or the Trust; or (iv) arise as a result of any failure by the Trust to provide the services and furnish the materials under the terms of this Agreement; or 16 (v) arise out of or result from any material breach of any representation and/or warranty made by the Trust in this Agreement or arise out of or result from any other material breach of this Agreement by the Trust (including a failure, whether unintentional or in good faith or otherwise, to comply with the diversification requirements specified in Sections 2.8 and 5.1 of this Agreement, or to qualify as a regulated investment company under Subchapter M of the Code). 7.3(b). The Trust shall not be liable under this indemnification provision with respect to any losses, claims, damages, liabilities or expenses incurred or assessed against an Indemnified Party as may arise from such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement. 7.3(c). The Trust shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified the Trust in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify the Trust of any such claim shall not relieve the Trust from any liability which it may have to the Indemnified Party against whom such action is brought otherwise than on account of this indemnification provision. In case any such action is brought against any Indemnified Party, the Trust will be entitled to participate, at its own expense, in the defense thereof. The Trust also shall be entitled to assume the defense thereof, with counsel satisfactory to the party named in the action. After notice from the Trust to such party of the Trust's election to assume the defense thereof, the Indemnified Party shall bear the fees and expenses of any additional counsel retained by it, and the Trust will not be liable to such party under this Agreement for any legal or other expenses subsequently incurred by such party independently in connection with the defense thereof other than reasonable costs of investigation. 7.3(d). The Company will promptly notify the Trust of the commencement of any litigation or proceedings against it or any of its officers or directors in connection with the issuance or sale of the Contracts, the operation of the Accounts, or the Trust. ARTICLE VIII. APPLICABLE LAW AND VENUE 8.1. This Agreement shall be construed and the provisions hereof interpreted under and in accordance with the substantive laws of the State of Delaware without regard to principles of conflict of laws. 17 8.2. This Agreement shall be subject to the provisions of the 1933 Act, the 1934 Act and the 1940 Act, and the rules and regulations and rulings thereunder, including such exemptions from those statutes, rules and regulations as the Securities and Exchange Commission may grant (including, but not limited to, the Mixed and Shared Funding Exemptive Order) and the terms hereof shall be interpreted and construed in accordance therewith. ARTICLE IX. TERMINATION 9.1. This Agreement shall continue in full force and effect until the first to occur of: (a) termination by any party for any reason by sixty (60) days advance written notice delivered to the other parties; or (b) termination by the Company, the Trust or the Underwriter by written notice to the other parties upon a material breach of the Agreement by other party; or (c) termination by the Trust or the Underwriter upon the institution of formal proceedings against the Company or its agents by the NASD, the SEC, or any state securities or insurance department or any other regulatory body regarding the Company's duties under this Agreement or related to the sale of the Variable Contracts issued by the Company, the operation of the Variable Accounts, or the purchase of Trust shares; or (d) termination by the Company upon the institution of formal proceedings against the Trust or the Underwriter or their agents by the NASD, the SEC, or any state securities or insurance department or any other regulatory agency; or (e) termination by the Company by written notice to the Trust and the Underwriter with respect to any Fund in the event any of the Fund's shares are not registered, issued or sold in accordance with applicable state and/or federal law or such law precludes the use of such shares as the underlying investment media of the Contracts issued or to be issued by the Company; or (c) termination by the Company by written notice to the Trust and the Underwriter with respect to any Fund in the event that such Fund ceases to qualify as a regulated investment company under Subchapter M of the Code or under any successor or similar provision, or if the Company reasonably believes that the Trust may fail to so qualify; or 18 (d) termination by the Company by written notice to the Trust and the Underwriter with respect to any Fund in the event that such Fund falls to meet the diversification requirements specified in Article V hereof; or (e) termination by the Trust by written notice to the Company if the Trust shall determine, in its sole judgment exercised in good faith, that the Company and/or its affiliated companies has suffered a material adverse change in its business, operations, financial condition or prospects since the date of this Agreement or is the subject of material adverse publicity; or (f) termination by the Company by written notice to the Trust and the Underwriter, if the Company shall determine, in its sole judgment exercised in good faith, that either the Trust or the Underwriter has suffered a material adverse change in its business, operations, financial condition or prospects since the date of this Agreement or is the subject of material adverse publicity. 9.2 Notwithstanding any termination of this Agreement, the Trust and the Underwriter shall, at the option of the Company, continue to make available additional shares of the Trust pursuant to the terms and conditions of this Agreement, for all Contracts in effect on the effective date of termination of this Agreement (hereinafter referred to as "Existing Contracts"). Specifically, without limitation, the owners of the Existing Contracts shall be permitted to direct reallocation of investments in the Trust, redemption of investments in the Trust and investment in the Trust upon the making of additional purchase payments under the Existing Contracts. The parties agree that this Section 9.2 shall not apply to any terminations under Article VI, and the effect of such Article VI terminations shall be governed by Article VI of this Agreement. 9.3 Notwithstanding any termination of the Agreement, for so long as the Variable Contracts remain outstanding and invested in a Fund, each party to this Agreement shall continue to perform its duties under this Agreement with reasonable efforts to maintain to the extent possible the continued tax deferred status of the Variable Contracts and the payment of benefits thereunder, except to the extent proscribed by law, the SEC or other regulatory body. 9.4 Notwithstanding anything in this Agreement to the contrary, the parties agree that the Trust may terminate and liquidate any Fund at any time the Board determines, in its sole judgment, that it is not in the interest of shareholders to continue the Fund. The Trust agrees that it shall give the Company reasonable advance notice of its intention to conduct any such Fund termination or liquidation and that any such Fund termination or liquidation shall comply with all applicable laws and regulations. 19 ARTICLE X. NOTICES 10.1 Any notice shall be sufficiently given when sent by registered or certified mail (or through a nationally recognized overnight courier that provides evidence of receipt) to the other party at the address of such party set forth below or at such other address as such party may from time to time specify in writing to the other party. If to the Company: American Family Mutual Life Insurance Company 6000 American Parkway Madison, Wisconsin 53783-0001 Attn: Rosalie Beck Detmer If to the Trust: SEI Insurance Products Trust One Freedom Valley Drive Oaks, Pa. 19456 Attn: Secretary If to Underwriter: SEI Investments Distribution Co. One Freedom Valley Drive Oaks, Pa. 19456 Attn: Secretary ARTICLE XI. MISCELLANEOUS 11.1 The Company and the Underwriter understand and acknowledge that: (i) the Trust is a registered investment company organized under Massachusetts law consisting of separate investment portfolios; (ii) no Fund of the Trust shall have any liability for the obligations of any other Fund of the Trust; (iii) under Massachusetts law, shareholders of a Massachusetts business trust could, under certain circumstances, be held personally liable for the Trust's obligations; and (iv) the Trust's declaration of trust, however, disclaims the shareholder liability set forth in (iii) above, for the Trust's acts or obligations. 11.2 Subject to the requirements of legal process and regulatory authority, each party hereto shall treat as confidential the names and addresses of the owners of the Contracts and all information reasonably identified as confidential in writing by any other party hereto and, except as permitted by this Agreement, shall not disclose, disseminate or utilize such names and addresses and other confidential information until such time as it may come into the public domain without the express written consent of the affected party. 20 11.3 Each of the parties acknowledges and agrees that this Agreement and the arrangement described herein are intended to be non-exclusive and that each of the parties is free to enter into similar agreements and arrangements with other entities. 11.4 The captions in this Agreement are included for convenience of reference only and in no way define or delineate any of the provisions hereof or otherwise affect their construction or effect. 11.5 This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 11.6 If any provision of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby. 11.7 Each party hereto shall cooperate with each other party and all appropriate governmental authorities (including without limitation the Securities and Exchange Commission, the NASD and state insurance regulators) and shall permit such authorities reasonable access to its books and records in connection with any investigation or inquiry relating to this Agreement or the transactions contemplated hereby. 11.8 The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations at law or in equity, which the parties hereto are entitled to under state and federal laws. 11.9 This Agreement or any of the rights and obligations hereunder may not be assigned by any party without the prior written consent of all parties hereto; provided, however, that the Underwriter may assign this Agreement or any rights or obligations hereunder to any affiliate of or company under common control with the Underwriter, if such assignee is duly licensed and registered to perform the obligations of the Underwriter under this Agreement. 11.10 This Agreement may be amended only by written agreement of the parties to the Agreement. 11.11 This Agreement contains the full and complete understanding between parties with respect to the transactions covered and contemplated under this Agreement, and supersedes all prior agreements and understandings between the parties relating to the subject matter hereof, whether oral or written, express or implied. 11.12 Except for the limited purposes provided in Sections 1.1 and 1.5, it is understood and agreed that the Company and each of its designees shall be acting as an independent contractor and not as an employee or agent of the Trust or the Underwriter, and none of the parties shall hold itself out as an agent of any other party with the authority to bind such party. Neither the execution nor performance of this Agreement 21 shall be deemed to create a partnership or joint venture by and among any of the Company, any designees, Trust, or Underwriter. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed in its name and on its behalf by its duly authorized representative and its seal to be hereunder affixed hereto as of the date specified above. AMERICAN FAMILY MUTUAL LIFE INSURANCE COMPANY By: ------------------------------------------ Title: --------------------------------------- Print Name: ---------------------------------- SEI INSURANCE PRODUCTS TRUST By: ------------------------------------------ Christine M. McCullough Vice President and Assistant Secretary SEI INVESTMENTS DISTRIBUTORS COMPANY By: ------------------------------------------ Robert C. Aller Vice President 22 SCHEDULE A PARTICIPATION AGREEMENT AMONG AMERICAN FAMILY MUTUAL LIFE INSURANCE COMPANY SEI INSURANCE PRODUCTS TRUST AND SEI INVESTMENTS DISTRIBUTION COMPANY Shares of the following Fund(s) are available: SEI VP Prime Obligation Fund - Class B Shares of the Fund(s) listed above shall be made available as investments for the following Accounts and Contracts funded by the Accounts: NAME OF ACCOUNT: NAME OF CONTRACT FUNDED BY ACCOUNT: - ------------------------------------ --------------------------------------- [ADD] [ADD] Dated as of May ___, 2000. A-1 SCHEDULE B PARTICIPATION AGREEMENT AMONG AMERICAN FAMILY MUTUAL LIFE INSURANCE COMPANY SEI INSURANCE PRODUCTS TRUST AND SEI INVESTMENTS DISTRIBUTION COMPANY PROCEDURES (a) On each day the Funds calculate their net asset value pursuant to the requirements of their then current prospectus and the rules of the Securities and Exchange Commission (each a "Business Day"), the Company may receive Instructions from the Contract owners of Contracts specified in Exhibit A for the purchase or redemption of shares of the Funds based solely upon each Company's receipt of Instructions from Contract owners, prior to the Close of Trading on that Business Day. Instructions in good order received by the Company prior to 4:00 p.m. Eastern time ("ET") on any given Business Day, or earlier if the New York Stock Exchange ("Exchange") closes earlier than 4:00 p.m. ET on any given Business Day (the "Trade Date") and transmitted to SEI Investments Fund Management or other SEI entity serving as the Funds' transfer agent (the "Transfer Agent") by no later than 10:00 a.m. ET on the Business Day following the Trade Date ("Trade Date plus One" or "TD+1"), will be executed at the NAV ("Share Price") of each applicable Fund, determined as of the Close of Trading on the prior Business Day ("Effective Trade Date"). Money Market activity will be executed at the NAV on TD+1 as an AM trade. (b) By no later than 7:00 p.m. ET on each Business Day ("Price Communication Time"), SEI Investments Fund Management or other SEI entity serving as fund administrator (the "Administrator") will use its best efforts to communicate to the Company via a mutually agreed upon format, the Share Price of each applicable Fund, as well as dividend and capital gain information and, in the case of income Funds, the daily accrual for interest rate factor (mil rate), determined at the Close of Trading on that Business Day. The Administrator will notify the Company when and if the Administrator does not communicate the required Share Price information by 7:00 p.m. ET on any Business Day. It is understood and agreed that, in the context of Section 22 of the 1940 Act and the rules and public interpretations thereunder by the staff of the Securities and Exchange Commission ("SEC Staff"), receipt by the Company of any Instructions from the Contract owners in a timely manner shall be deemed to be receipt by the Funds of such Instructions solely for pricing purposes and shall cause purchases and sales for the Contract owners to be deemed to occur at the Share Price for such Business Day. (c) As noted in Paragraph (a) above, by 10:00 a.m. ET on TD+1 ("Instruction Cutoff Time") and after the Company has processed all approved Contract owner activity, the Company will transmit to the Funds' Transfer Agent, by a method acceptable to the Company and the Funds' Transfer Agent, a report (the "Instruction Report") detailing the Instructions that were received by the Company prior to the Funds' daily determination of Share Price for each Fund (i.e., the Close of Trading) on each Business Day. The Company shall transmit a report on each Business Day, even if there are no Contract owner instructions to report. If the Transfer Agent does not receive an Instruction Report on any Business Day, it will notify the Company. (i) It is understood by the parties that all Instructions from the Contract owners shall be received and processed by the Company in accordance with its standard transaction processing procedures that apply to all investment options offered B-1 under the Contract. The Company shall maintain records sufficient to identify the date and time of receipt of all Contract owner transactions involving the Funds and shall make such records available upon reasonable request for examination by the Funds or its designated representative or, at the request of the Funds, by appropriate governmental authorities. Under no circumstances shall the Company change, alter or modify any Instructions received by it in good order. (ii) The Instruction Report shall state whether the Instructions received by the Company from the Contract owners by the Close of Trading on such Business Day resulted in the Accounts being a net purchaser or net seller of shares in each of the Funds and shall indicate the net dollar value purchased or net dollar value redeemed by each Account in each of the Funds and the date of the transaction. On Business Days where there are no Instructions in a Fund for an Account or all the Accounts, the Instruction Report will so indicate. Each transmission of Instructions by the Company of a net purchase or redemption Instruction relating to a particular Fund and a Business Day shall constitute a representation and covenant by the Company that such net purchase or redemption Instruction was based on Contract owner transactions received by the Company prior to the Close of Trading (and prior to the time the Share Price for each Fund) was determined on such Business Day, and that each net purchase or redemption Instruction included all such Contract owner transactions so received by the Company. All Instructions will be communicated in U.S. dollars. (d) As set forth below, upon the timely receipt from the Company of the Instruction Report, the Funds will execute the purchase or redemption transactions (as the case may be) at the Share Price for each Fund computed as of the Close of Trading on the Effective Trade Date. (i) Except as otherwise provided herein, all purchase and redemption transactions will settle on TD+1. Settlements will be through net Federal Wire transfers between the Company and a custodial account designated by the Funds. In the case of Instructions which constitute a net purchase order, settlement shall occur by the Company initiating a wire transfer to the custodian for the Funds for receipt by the Funds' custodian by no later than the Close of Business at the New York Federal Reserve Bank on TD+1, causing the remittance of the requisite Funds to cover such net purchase order. In the case of Instructions which constitute a net redemption order, settlement shall occur by the Funds' Transfer Agent instructing the Funds' custodian to initiate a wire transfer from the Funds' custodial accounts to the Company's custodial account for its receipt by no later than the Close of Business at the New York Federal Reserve Bank on TD+1, causing the remittance of the requisite Funds to cover such net redemption order. On any Business Day when the Federal Reserve Wire Transfer System is closed, all communication and processing rules will be suspended for the settlement of Instructions. Instructions will be settled on the next Business Day on which the Federal Reserve Wire Transfer System is open. The original TD+1 Settlement Date will not apply. Rather, for purposes of this Paragraph only, the Settlement Date will be the date on which the Instruction settles. The Funds reserve the right to (i) delay settlement of redemptions for up to five (5) Business Days after receiving a net redemption order in accordance with Section 22 of the 1940 Act and Rule 22c-1 thereunder, or (ii) suspend redemptions pursuant to the 1940 Act or as otherwise required by law. Settlements shall be in U.S. dollars. (ii) The Trust will verify, for each Fund, the NAV, the total dollar amount of transactions, and the number of shares transacted listed on the Instruction Report. The B-2 Trust will contact the Company on or before 1:00 p.m. Eastern time on TD+1 if any of the information to be verified is incorrect. The Trust will give the Company access to its system to verify its transactions. The Company and the Trust will cooperate to resolve any discrepancies as soon as reasonably practicable. This process will be reviewed periodically by both parties to make sure that the needs of both the Trust and the Company are being met. (e) In the event of any error or delay with respect to the Procedures outlined in SCHEDULE B herein: (i) which is caused by the Funds, the Funds' Transfer Agent or the adviser, the Funds or its agents (as appropriate) shall make any adjustments on the Funds' accounting system necessary to correct such error or delay and the responsible party or parties shall reimburse the Company for any losses or reasonable costs incurred directly as a result of the error or delay but specifically excluding any and all consequential punitive or other indirect damages; or (ii) which is caused by the Company or by any Contract owner, the Funds or its agent shall make any adjustment on the Funds' accounting system necessary to correct such error or delay and the affected party or parties shall be reimbursed by the Company for any losses or reasonable costs incurred directly as a result of the error or delay (or the Company shall make any adjustments on its recordkeeping system, if appropriate), but specifically excluding any and all consequential punitive or other indirect damages. In the event of any such adjustments on the Funds' accounting system, the Company shall make the corresponding adjustments on its internal recordkeeping system. In the event that errors or delays with respect to the Procedures are contributed to by more than one party hereto, each party shall be responsible for that portion of the loss or reasonable cost which results from its error or delay. The portion of any loss or cost for which the Funds is responsible may be adjusted between the Funds and its agents in accordance with the agreement between the Funds and such agent whereby the agency is created. All parties agree to provide the other parties prompt notice of any errors or delays of the type referred to herein and to use reasonable efforts to take such action as may be appropriate to avoid or mitigate any such costs or losses. Dated as of May ___, 2000. B-3 EX-99.8(D) 7 a2039901zex-99_8d.txt EXHIBIT 99.8(D) PARTICIPATION AGREEMENT THIS AGREEMENT, is made as of _____________, 2001, by and among American Family Life Insurance Company ("Company"), on its own behalf and on behalf of American Family Variable Account I and II, segregated asset accounts of the Company (each an "Account"), Strong Variable Insurance Funds, Inc. ("Strong Variable") on behalf of the portfolios of Strong Variable listed on the attached Exhibit A as such exhibit may be amended from time to time (the "Designated Portfolios"), Strong Opportunity Fund II, Inc. ("Opportunity Fund II"), Strong Capital Management, Inc. (the "Adviser"), the investment adviser for the Opportunity Fund II and Strong Variable, and Strong Investments, Inc. ("Distributors"), the Distributors for Strong Variable and the Opportunity Fund II (each, a "Party" and collectively, the "Parties"). PRELIMINARY STATEMENTS A. Beneficial interests in Strong Variable are divided into several series of shares, each representing the interest in a particular managed portfolio of securities and other assets (each, a "Portfolio"). B. To the extent permitted by applicable insurance laws and regulations, the Company intends to purchase shares of Opportunity Fund II and the Designated Portfolios ("Fund" or "Funds" shall be deemed to refer to each Designated Portfolio and to the Opportunity Fund II to the extent the context requires), on behalf of the Accounts to fund the variable annuity and variable life insurance contracts that use the Funds as an underlying investment medium (collectively the "Contracts"). C. The Company, Adviser and Distributors desire to facilitate the purchase and redemption of shares of the Funds by the Company or one or more of its wholly owned subsidiaries (each a "Designee"), for the Accounts through one or more accounts, which number shall be as mutually agreed upon by the parties, in each Fund (each an "Omnibus Account"), to be maintained of record by the Company, subject to the terms and conditions of this Agreement. AGREEMENTS The parties to this Agreement agree as follows: 1. PERFORMANCE OF SERVICES. Company agrees to perform certain administrative functions and services as set forth in the separate letter agreement entered into by and between the parties in conjunction with this Agreement with respect to the shares of the Funds beneficially owned by the purchasers of Contracts ("Owners") and included in the Accounts. 2. THE OMNIBUS ACCOUNTS. 2.1 Each Omnibus Account will be opened based upon the information contained in Exhibit B to this Agreement. In connection with each Omnibus Account, Company represents and warrants that it is authorized to act on behalf of each Owner effecting transactions in the Omnibus Account and that the information specified on Exhibit B to this Agreement is correct. 2.2 Each Fund shall designate each Omnibus Account with an account number. These account numbers will be the means of identification when the Parties are transacting in the Omnibus Accounts. The assets in the Accounts are segregated from the Company's own assets. The Adviser agrees to cause the Omnibus Accounts to be kept open on each Fund's books, as applicable, regardless of a lack of activity or small position size except to the extent the Company takes specific action to close an Omnibus Account or to the extent a Fund's prospectus as of the date of this Agreement reserves the right to close accounts which are inactive or of a small position size. In the latter two cases, the Adviser will give at least 180 days prior notice to the Company before closing an Omnibus Account. 2.3 The Company agrees to provide Adviser such information as Adviser or Distributors may reasonably request concerning Owners as may be necessary or advisable to enable Adviser and Distributors to comply with applicable laws, including state "Blue Sky" laws relating to the sales of shares of the Funds to the Accounts. 3. FUND SHARES TRANSACTIONS. 3.1 IN GENERAL. Shares of the Funds shall be sold on behalf of the Funds by Distributors and purchased by Company for the Accounts and, indirectly for the appropriate subaccount thereof at the net asset value next computed after receipt by Distributors of each order of the Company or its Designee, in accordance with the provisions of this Agreement, the then current prospectuses of the Funds, and the Contracts. Company may purchase shares of the Funds for its own account subject to (a) receipt of prior written approval by Distributors; and (b) such purchases being in accordance with the then current prospectuses of the Fund and the Contracts. The Board of Directors of each Fund ("Directors") may refuse to sell shares of the applicable Fund to any person, or suspend or terminate the offering of shares of the Fund if such action is required by law or by regulatory authorities having jurisdiction. Notice of election to suspend or terminate shall be furnished by a Fund, said termination to be effective, where practicable, ten (10) business after receipt of such notice by the Company in order to give the Company sufficient time to take appropriate steps in response to such suspension or termination. Company agrees to purchase and redeem the shares of the Funds in accordance with the provisions of this Agreement, of the Contracts and of the then current prospectuses for the Contracts and Funds. Except as necessary to implement transactions initiated or approved by Owners, or as otherwise permitted by state or federal laws or regulations, Company shall not redeem shares of Funds attributable to the Contracts. 2 3.2 PURCHASE AND REDEMPTION ORDERS. On each day that a Fund is open for business, the Company or its Designee shall aggregate and calculate the net purchase or redemption order it receives for the Accounts from the Owners for shares of the Fund that it received prior to the close of trading on the New York Stock Exchange (the "NYSE") (i.e. 3:00 p.m., Central time, unless the NYSE closes at an earlier time in which case such earlier time shall apply) and communicate to Distributors, by telephone or facsimile (or by such other means as the Parties to this Agreement may agree to in writing), the net aggregate purchase or redemption order (if any) for the Omnibus Account for such business day (a business day is each day the NYSE is open for business and the Fund values its shares (a "Business Day"); a Business Day is sometimes referred to herein as the "Trade Date"). The Company or its Designee will communicate such orders to Distributors prior to 9:00 a.m., Central Time, on the next Business Day following the Trade Date. All trades communicated to Distributors by the foregoing deadline shall be treated by Distributors as if they were received by Distributors prior to the close of trading on the Trade Date. 3.3 SETTLEMENT OF TRANSACTIONS. (a) PURCHASES. Company or its Designee will wire, or arrange for the wire of, the purchase price of each purchase order to the custodian for the Fund in accordance with written instructions provided by Distributors to the Company so that either (i) such funds are received by the custodian for the Fund prior to 12:00 p.m., Central time, on the next Business Day following the Trade Date, or (ii) Distributors is provided with a Federal Funds wire system reference number prior to such 12:00 p.m. deadline evidencing the entry of the wire transfer of the purchase price to the applicable custodian into the Federal Funds wire system prior to such time. Company agrees that if it fails to provide funds to the Fund's custodian by the close of business on the next Business Day following the Trade Date, then, at the option of Distributors, (A) the transaction may be canceled, or (B) the transaction may be processed at the next-determined net asset value for the applicable Fund after purchase order funds are received. In such event, the Company shall indemnify and hold harmless Distributors, Adviser and the Funds from any liabilities, costs and damages either may suffer as a result of such failure. For purposes of Section 6.5 (f), upon receipt by the Fund of the Federal funds so wired, such funds shall cease to be the responsibility of the Company and shall become the responsibility of the Fund. (b) REDEMPTIONS. The Adviser will use its best efforts to cause to be transmitted to such custodial account as Company shall direct in writing, the proceeds of all redemption orders placed by Company or its Designee by 9:00 a.m., Central time, on the Business Day immediately following the Trade Date, by wire transfer on that Business Day. Should Adviser need to extend the settlement on a trade, it will contact Company to discuss the extension. For purposes of determining the length of settlement, Adviser agrees to treat the Accounts no less favorably than other shareholders of the Funds. Any extension of the settlement on a trade will not prevent the prompt payment of redemption proceeds to Owners 3 consistent with Section 22 (e) of the Investment Company Act or 1940, as amended (the "1940 Act") and any rules thereunder. Each wire transfer of redemption proceeds shall indicate, on the Federal Funds wire system, the amount thereof attributable to each Fund; PROVIDED, HOWEVER, that if the number of entries would be too great to be transmitted through the Federal Funds wire system, the Adviser shall, on the day the wire is sent, fax such entries to Company or if possible, send via direct or indirect systems access until otherwise directed by the Company in writing. 3.4 BOOK ENTRY ONLY. Issuance and transfer of shares of a Fund will be by book entry only. Stock certificates will not be issued to the Company or the Accounts. Shares of the Funds ordered from Distributors will be recorded in the appropriate book entry title for the Accounts. 3.5 DISTRIBUTION INFORMATION. The Adviser or Distributors shall provide the Company with all distribution announcement information as soon as it is announced by the Funds. The distribution information shall set forth, as applicable, ex-dates, record date, payable date, distribution rate per share, record date share balances, cash and reinvested payment amounts and all other information reasonably requested by the Company. Where possible, the Adviser or Distributors shall provide the Company with direct or indirect systems access to the Adviser's systems for obtaining such distribution information. 3.6 REINVESTMENT. All dividends and capital gains distributions will be automatically reinvested on the payable date in additional shares of the applicable Fund at net asset value in accordance with each Fund's then current prospectus. 3.7 PRICING INFORMATION. Distributors shall use its best efforts to furnish to the Company prior to 6:00 p.m., Central time, on each Business Day each Fund's closing net asset value for that day, and for those Funds for which such information is calculated, the daily accrual for interest rate factor (mil rate). Such information shall be communicated via fax, or indirect or direct systems access acceptable to the Company. 3.8 PRICE ERRORS. (a) NOTIFICATION. If an adjustment is required in accordance with a Fund's then current policies on reimbursement ("Fund Reimbursement Policies") to correct a material error, as defined by the Securities and Exchange Commission (the "SEC") guidelines regarding Owner reimbursement, in place on the date of this Agreement, in the computation of the net asset value of Fund shares ("Price Error"), Adviser or Distributors shall notify Company as soon as practicable after discovering the Price Error. Notice may be made via facsimile or via direct or indirect systems access and shall state the incorrect price, the correct price and, to the extent communicated to the Fund's shareholders (it being understood for this purpose shareholders means Owners), the reason for the price change. 4 (b) UNDERPAYMENTS. If a Price Error causes an Account to receive less than the amount to which it otherwise would have been entitled, Adviser shall make all necessary adjustments (subject to the Fund Reimbursement Policies) so that the Account receives the amount to which it would have been entitled. (c) OVERPAYMENTS. If a Price Error causes an Account to receive more than the amount to which it otherwise would have been entitled, Company, when requested by Adviser (in accordance with the Fund Reimbursement Policies), will use its best efforts to collect such excess amounts from the applicable Owners. (d) FUND REIMBURSEMENT POLICIES. Adviser agrees to treat Company's customers no less favorably than Adviser treats its retail shareholders in applying the provisions of paragraphs 3.8(b) and 3.8(c). (e) EXPENSES. Adviser shall reimburse Company for all reasonable and necessary out-of-pocket expenses incurred by Company for payroll overtime, stationery and postage in adjusting Owner accounts affected by a Price Error described in paragraphs 3.8(b) and 3.8(c). Company shall use its best efforts to mitigate all expenses which may be reimbursable under this section 3.8(e) and agrees that payroll overtime shall not include any time spent programming computers or otherwise customizing Company's recordkeeping system. Upon requesting reimbursement, Company shall present an itemized bill to Adviser detailing the costs for which it seeks reimbursement. 3.9 AGENCY. Distributors hereby appoints the Company or its Designee as its agents for the limited purpose of accepting purchase and redemption instructions from the Owners for the purchase and redemption of shares of the Funds by the Company on behalf of the Accounts. 3.10 QUARTERLY REPORTS. Adviser agrees to provide Company a statement of Fund assets as soon as practicable and in any event within 30 days after the end of each fiscal quarter, and a statement certifying the compliance by the Funds during that fiscal quarter with the diversification requirements and qualification as a regulated investment company. In the event of a breach of Section 6.4(a), Adviser will take all reasonable steps (a) to notify Company of such breach and (b) to adequately diversify the Fund so as to achieve compliance within the grace period afforded by Treasury Regulation 1.817-5. 5 4. PROXY SOLICITATIONS AND VOTING. The Company shall, at its expense, distribute or arrange for the distribution of all proxy materials furnished by the Funds to the Accounts and shall: (a) solicit voting instructions from Owners; (b) vote the Fund shares in accordance with instructions received from Owners; and (c) vote the Fund shares for which no instructions have been received, as well as shares attributable to it, in the same proportion as Fund shares for which instructions have been received from Owners, so long as and to the extent that the SEC continues to interpret the 1940 Act, to require pass-through voting privileges for various contract owners. The Company and its Designees will not recommend action in connection with, or oppose or interfere with, the solicitation of proxies for the Fund shares held for Owners, except Company may recommend action when such action is in the best interest of the Owners. 5. CUSTOMER COMMUNICATIONS. 5.1 PROSPECTUSES. The Adviser or Distributors, at its expense, will provide the Company with as many copies of the current prospectus for the Funds as the Company may reasonably request for distribution, at the Company's expense, to existing or prospective Owners. 5.2 SHAREHOLDER MATERIALS. The Adviser and Distributors shall, as applicable, provide in bulk to the Company or its authorized representative, at a single address and at no expense to the Company, the following shareholder communications materials prepared for circulation to Owners in quantities requested by the Company which are sufficient to allow mailing thereof by the Company and, to the extent required by applicable law, to all Owners: proxy or information statements, annual reports, semi-annual reports, and all initial and updated prospectuses, supplements and amendments thereof. None of the Funds, the Adviser or Distributors shall be responsible for the cost of distributing such materials to Owners. 5.3 GENERAL DUTY. The Adviser and the Distributors will provide the Company with as much notice as is reasonably practicable of any proxy solicitation for a Fund, and of any material change in a Fund's registration statement or prospectus, particularly any change that may result in a change to the registration statement or prospectus for the Accounts. The Adviser and Distributors will provide reasonable assistance to the Company so as to enable the Company to solicit proxies from Owners, or to make changes to its registration statement or prospectus, in an orderly manner. 6. REPRESENTATIONS AND WARRANTIES. 6.1 The Company represents and warrants that: (a) It is an insurance company duly organized and in good standing under the laws of the State of Wisconsin and that it has legally and validly established the Accounts prior to any issuance or sale thereof as segregated asset accounts and that the Company has and will maintain the capacity to issue all Contracts that may be sold; and that it is and will remain duly 6 registered, licensed, qualified and in good standing to sell the Contracts in all the jurisdictions in which such Contracts are to be offered or sold; (b) It and each of its Designees is and will remain duly registered and licensed in all material respects under all applicable federal and state securities and insurance laws and shall perform its obligations under this Agreement in compliance in all material respects with any applicable state and federal laws; (c) The Contracts are and will be registered under the Securities Act of 1933, as amended (the "1933 Act"), and are and will be registered and qualified for sale in the states where so required; and each Account is and will be registered as a unit investment trust in accordance with the 1940 Act and shall be a segregated investment account for the Contracts; (d) The Contracts are currently treated as annuity contracts, under applicable provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and the Company, subject to each Fund's compliance with applicable diversification requirements, will maintain such treatment and will notify Adviser, Distributors and Funds promptly upon having a reasonable basis for believing that the Contracts have ceased to be so treated or that they might not be so treated in the future; (e) If required by applicable law, the arrangements provided for in this Agreement will be disclosed to the Owners; and 6.2 The Funds each represent and warrant that: (a) Fund shares sold pursuant to this Agreement are and will be registered under the 1933 Act and the Fund is and will be registered as a registered investment company under the 1940 Act, in each case, except to the extent the Company is so notified in writing; (b) It is currently qualified and will continue to be qualified as a Regulated Investment Company under Subchapter M of the Code and shall notify the Company immediately upon having a reasonable basis for believing that it has ceased to so qualify or that it might not so qualify in the future; (c) It currently complies and will continue to comply with the diversification provisions of Section 817(h) of the Code and the regulations issued thereunder relating to the diversification requirements for variable life insurance policies and variable annuity contracts and shall notify the Company immediately upon having a reasonable basis for believing that it has ceased to so comply or that it might not so comply in the future; (d) It is duly organized under applicable state law, and is in good standing under applicable law; and 7 (e) It will take all actions as are necessary to permit the sale of its shares to the Accounts, including maintaining its registration as an investment company under the 1940 Act, registering its shares sold to the Accounts under the 1933 Act for as long as required by applicable law, amending its registration statement filed with the SEC under the 1933 Act and the 1940 Act from time to time as required in order to effect the continuous offering of its shares and register and qualify its shares for sale in accordance with the laws of the various states to the extent deemed necessary by it or Distributors. 6.3 Distributors represents and warrants that: (a) It is and will be a member in good standing of the National Association of Securities Dealers, Inc. ("NASD") and is and will be registered as a broker-dealer with the SEC; (b) It is duly organized and in good standing under the laws of the State of Wisconsin, and will remain so under state law: and (c) It will sell and distribute Fund shares in accordance with all applicable state and federal laws and regulations. 6.4 Adviser represents and warrants that: (a) It will cause each Fund to invest money from the Contracts in such a manner as to ensure that the Contracts will be treated as variable annuity contracts under the Code and the regulations issued thereunder, and that each Fund complies and will comply with Section 817(h) of the Code as amended from time to time and with all applicable regulations promulgated thereunder; (b) It is and will remain duly registered and licensed in all material respects under all applicable federal and state securities and insurance laws and shall perform its obligations under this Agreement in compliance in all material respects with any applicable state and federal laws; and (c) It is duly organized and in good standing under the laws of the State of Wisconsin, and will remain so under state law. 8 6.5 Each of the Parties to this Agreement represents and warrants to the others that: (a) It has full power and authority under applicable law, and has taken all action necessary, to enter into and perform this Agreement and the person executing this Agreement on its behalf is duly authorized and empowered to execute and deliver this Agreement; (b) This Agreement constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms and it shall comply in all material respects with all laws, rules and regulations applicable to it by virtue of entering into this Agreement; (c) No consent or authorization of, filing with, or other act by or in respect of any governmental authority, is required in connection with the execution, delivery, performance, validity or enforceability of this Agreement; (d) The execution, performance and delivery of this Agreement will not result in it violating any applicable law or breaching or otherwise impairing any of its contractual obligations; (e) Each Party to this Agreement is entitled to rely on any written records or instructions provided to it by another Party; and (f) Its directors, officers, employees, and investment advisers, and other individuals/entities dealing with the money or securities of a Fund are and shall continue to be at all times covered by a blanket fidelity bond or similar coverage for the benefit of the Fund in an amount not less than the amount required by the applicable rules of the NASD and the federal securities laws, which bond shall include coverage for larceny and embezzlement and shall be issued by a reputable bonding company. 7. SALES MATERIAL AND INFORMATION 7.1 NASD FILINGS. The Company shall promptly inform Distributors as to the status of all sales literature filings pertaining to the Funds and shall promptly notify Distributors of all approvals or disapprovals of sales literature filings with the NASD. For purposes of this Section 7, the phrase "sales literature or advertisement" shall be construed in accordance with all applicable securities laws and regulations including, but not limited to, NASD Conduct Rule 2210. 9 7.2 COMPANY REPRESENTATIONS. Except with the prior written permission of the Distributors, Adviser or the Funds, or its respective designee, and except as required by law or regulatory authority, neither the Company nor any of its Designees shall make any material representations concerning the Adviser, the Distributors, or a Fund other than the information or representations contained in: (a) a registration statement of the Fund or prospectus of a Fund, as amended or supplemented from time to time; (b) published reports or statements of the Funds which are in the public domain or are approved by Distributors or the Funds; or (c) sales literature or advertisement of the Funds. 7.3 ADVISER, DISTRIBUTORS AND FUND REPRESENTATIONS. Except with the prior written permission of the Company or its Designee, and except as required by law or regulatory authority, none of Adviser, Distributors or any Fund shall give any information or make any material representations concerning the Company or its Designees, the Accounts, or the Contracts issued by the Company other than the information or representations contained in: (a) a registration statement or prospectus for the Contracts, as amended or supplemented from time to time; (b) published reports or statements of the Contracts or the Accounts which are in the public domain or are approved by the Company; or (c) sales literature or advertisement of the Company. 7.4 TRADEMARKS, ETC. Except to the extent required by applicable law, no Party shall use any other Party's names, logos, trademarks or service marks, whether registered or unregistered, without the prior consent of such Party. 7.5 INFORMATION FROM DISTRIBUTORS AND ADVISER. Upon request, Distributors or Adviser will provide to Company at least one complete copy of all registration statements, prospectuses, Statements of Additional Information, reports, proxy statements, solicitations for voting instructions, applications for exemptions, requests for no action letters, and all amendments to any of the above, that relate to the Funds, in final form as filed with the SEC, NASD and other regulatory authorities. 7.6 INFORMATION FROM COMPANY. Upon request, Company will provide to Distributors at least one complete copy of all registration statements, prospectuses, Statements of Additional Information, reports, solicitations for voting instructions, sales literature and advertisements, applications for exemptions, requests for no action letters, and notices, orders or responses relating thereto and all amendments and supplements to any of the above, that relate to a Fund and the Contracts, in final form as filed with the SEC, NASD and other regulatory authorities. 10 7.7 REVIEW OF MARKETING MATERIALS. (a) The Company shall furnish, or shall cause to be furnished, to the Adviser or Distributors, or a designee of such party, each piece of sales literature or advertisement in which the Fund, the Adviser, or Distributors is named at least fifteen (15) business days prior to the anticipated use of such material, and no such sales literature or advertisement shall be used unless the Adviser or Distributors, or its designee approves the material or does not respond with comments on the material within ten (10) business days from receipt of the material; provided, however, neither the Adviser nor Distributors will review such materials for compliance with applicable laws. The Adviser and Distributors, or their designees reserve the right to reasonably object to the continued use of any such sales literature or advertisement in which the Fund, the Adviser, or Distributors is named, and no such material shall be used if the Adviser or the Distributors, or their designees so object. (b) The Distributors or its designee shall furnish, or shall cause to be furnished, to the Company or its Designee, each piece of sales literature or advertisement in which the Company, the Accounts, or the Contracts issued by the Company are named at least fifteen (15) business days prior to the anticipated use of such material, and no such sales literature or advertisement shall be used unless the Company or its Designee either approve the material or do not respond with comments on the material within ten (10) business days from receipt of the material. The Company or its Designee reserves the right to reasonably object to the continued use of any such sales literature or advertisement in which the Company, the Accounts, or the Contracts issued by the Company are named, and no such material shall be used if the Company or its Designee so object. 8. FEES AND EXPENSES. 8.1 FUND REGISTRATION EXPENSES. Fund or Distributors shall bear the cost of registration and qualification of Fund shares; preparation and filing of Fund prospectuses and registration statements, proxy materials and reports; preparation of all other statements and notices relating to the Fund or Distributors required by any federal or state law; all costs of printing all copies of all Fund sales literature or advertisement prepared by Distributors, prospectuses, Statements of Additional Information, proxy materials, information statements, reports, and supplements, and amendments thereof, as required by applicable state and federal law, as these expenses relate to materials provided by Fund, the Adviser or Distributors to Company; payment of all applicable fees, including, without limitation, any fees due under Rule 24f-2 of the 1940 Act, relating to a Fund; and all taxes on the issuance or transfer of Fund shares on the Fund's records, and all other costs associated with ongoing compliance by the Funds or Distributors with all such laws, and its obligations under this Agreement, as these expenses and responsibilities relate to materials prepared by the Fund, the Adviser or Distributors. 11 8.2 CONTRACT REGISTRATION EXPENSES. The Company shall bear the expenses for the costs of preparation and filing of the Company's prospectus and registration statement with respect to the Contracts; preparation of all other statements and notices relating to the Accounts or the Contracts required by any federal or state law; expenses for the solicitation and sale of the Contracts including all costs of printing and distributing all copies of sales literature or advertisement prepared by Company or its Designee, prospectuses, Statements of Additional Information, proxy materials, and reports to Owners or potential purchasers of the Contracts as required by applicable state and federal law; payment of all applicable fees relating to the Contracts; all costs of drafting, filing and obtaining approvals of the Contracts in the various states under applicable insurance laws; filing of annual reports for the Accounts on form N-SAR, and all other costs associated with ongoing compliance by Company with all such laws and its obligations under this Agreement. 9. INDEMNIFICATION. 9.1 INDEMNIFICATION BY COMPANY. (a) Company agrees to indemnify and hold harmless the Funds, Adviser and Distributors and each of their directors, officers, employees and agents, and each person, if any, who controls any of them within the meaning of Section 15 of the 1933 Act, except for any other insurance company participating in the Funds (each, an "Indemnified Party" and collectively, the "Indemnified Parties" for purposes of this Section 9.1) from and against any and all losses, claims, damages, liabilities (including amounts paid in settlement with the written consent of Company), and expenses including reasonable legal fees and expenses, (collectively, hereinafter "Losses"), to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise insofar as such Losses: (i) arise out of or are based upon any untrue statements or alleged untrue statements of any material fact contained in the registration statement, prospectus, sales literature or advertisement for the Contracts or contained in 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 paragraph 9.1(a) 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 written information furnished to Company by or on behalf of a Fund, Distributors or Adviser for use in the registration statement, prospectus, sales literature or advertisement for the Contracts or in the Contracts (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of, or as a result of, statements or representations or wrongful conduct of Company, its Designees or its agents, with respect to the sale or distribution of the Contracts or Fund shares; or 12 (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, or sales literature or advertisement covering a Fund or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, if such a statement or omission was made in reliance upon written information furnished to a Fund, Adviser or Distributors by or on behalf of Company; or (iv) arise out of, or as a result of, any failure by Company, its Designees or persons under the Company's or Designees' control to furnish the materials contemplated under the terms of this Agreement; or (v) arise out of, or result from, any material breach of any representation or warranty made by Company, its Designees or persons under the Company's or Designees' control in this Agreement or arise out of or result from any other material breach of this Agreement by Company, its Designees or persons under the Company's or Designees' control; as limited by and in accordance with the provisions of Sections 9.1(b) and 9.1(c) hereof; or (vi) arise out of, or as a result of, adherence by Adviser or Distributors to instructions that it reasonably believes were originated by an authorized agent of Company. For purposes of this paragraph, "authorized agent of Company" shall mean any individual set forth in Exhibit D to this Agreement. This indemnification provision is in addition to any liability, which the Company or its Designees may otherwise have. (b) Company shall not be liable under this indemnification provision with respect to any Losses to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations or duties under this Agreement. (c) Company shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified Company in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify Company of any such claim shall not relieve Company from any liability which it may have to the Indemnified Party otherwise than on account of this indemnification provision. In case any such action is brought against any Indemnified Party, and it notified the indemnifying Party of the commencement thereof, the 13 indemnifying Party will be entitled to participate therein and, to the extent that it may wish, assume the defense thereof, with counsel satisfactory to such Indemnified Party. After notice from the indemnifying Party of its intention to assume the defense of an action, the Indemnified Party shall bear the expenses of any additional counsel obtained by it, and the indemnifying Party shall not be liable to such Indemnified Party under this Section for any legal or other expenses subsequently incurred by such Indemnified Party in connection with the defense thereof other than reasonable costs of investigation. The Indemnified Party may not settle any action without the written consent of the indemnifying Party. The indemnifying Party may not settle any action without the written consent of the Indemnified Party unless such settlement completely and finally releases the Indemnified Party from any and all liability. In either event, consent shall not be unreasonably withheld. (d) The Indemnified Parties will promptly notify Company of the commencement of any litigation or proceedings against the Indemnified Parties in connection with the issuance or sale of Fund shares or the Contracts or the operation of a Fund. 9.2 INDEMNIFICATION BY ADVISER AND DISTRIBUTORS. (a) Adviser and Distributors agrees to indemnify and hold harmless Company and each of its directors, officers, employees and agents and each person, if any, who controls Company within the meaning of Section 15 of the 1933 Act (each, an "Indemnified Party" and collectively, the "Indemnified Parties" for purposes of this Section 9.2) from and against any and all Losses to which the Indemnified Parties may become subject under any statute, regulation, at common law or otherwise, insofar as such Losses: (i) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement or prospectus or sales literature or advertisement of a Fund (or any amendment or supplement to any of the foregoing), or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, PROVIDED that this Section 9.2(a) 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 written information furnished to a Fund, Adviser or Distributors by or on behalf of Company for use in the registration statement or prospectus for a Fund or in sales literature or advertisement (or any amendment or supplement) or otherwise for use in connection with the sale of the Contracts or Fund shares; or (ii) arise out of, or as a result of, statements or representations or wrongful conduct of Adviser or Distributors or persons under its control, with respect to the sale or distribution of Fund shares; or 14 (iii) arise out of any untrue statement or alleged untrue statement of a material fact contained in a registration statement, prospectus, or sales literature or advertisement covering the Contracts, or any amendment thereof or supplement thereto, or the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, if such statement or omission was made in reliance upon written information furnished to Company by or on behalf of Adviser or Distributors; or (iv) arise out of, or as a result of, any failure by Adviser or Distributors or persons under its control to furnish the materials contemplated under the terms of this Agreement; or (v) arise out of or result from any material breach of any representation or warranty made by the Funds, Adviser or Distributors or persons under their control in this Agreement or arise out of or result from any other material breach of this Agreement by Adviser or Distributors or persons under their control (including a failure, whether unintentional or in good faith or otherwise, to comply with the diversification requirements specified in Section 6.2(c) and Section 6.4(a) of this Agreement, or to qualify as a regulated investment company under Subchapter M of the Code; as limited by and in accordance with the provisions of Sections 9.2(b) and 9.2(c) hereof. This indemnification provision is in addition to any liability which Adviser and Distributors may otherwise have. (b) Adviser and Distributors shall not be liable under this indemnification provision with respect to any Losses to which an Indemnified Party would otherwise be subject by reason of such Indemnified Party's willful misfeasance, bad faith, or gross negligence in the performance of such Indemnified Party's duties or by reason of such Indemnified Party's reckless disregard of obligations and duties under this Agreement. (c) Adviser and Distributors shall not be liable under this indemnification provision with respect to any claim made against an Indemnified Party unless such Indemnified Party shall have notified Adviser and Distributors in writing within a reasonable time after the summons or other first legal process giving information of the nature of the claim shall have been served upon such Indemnified Party (or after such Indemnified Party shall have received notice of such service on any designated agent), but failure to notify Adviser and Distributors of any such claim shall not relieve Adviser and Distributors from any liability which it may have to the Indemnified Party otherwise than on account of this indemnification provision. In case any such action is brought against any Indemnified Party, and it notified the indemnifying Party of the commencement thereof, the indemnifying Party will be entitled to participate therein and, to the extent that it may wish, assume the defense thereof, with counsel satisfactory to such Indemnified Party. After notice from the indemnifying Party of its intention to assume the defense of an action, the Indemnified Party shall bear the expenses of any additional counsel 15 obtained by it, and the indemnifying Party shall not be liable to such Indemnified Party under this Section for any legal or other expenses subsequently incurred by such Indemnified Party in connection with the defense thereof other than reasonable costs of investigation. The Indemnified Party may not settle any action without the written consent of the indemnifying Party. The indemnifying Party may not settle any action without the written consent of the Indemnified Party unless such settlement completely and finally releases the Indemnified Party from any and all liability. In either event, consent shall not be unreasonably withheld. (d) The Indemnified Parties will promptly notify Adviser and Distributors of the commencement of any litigation or proceedings against the Indemnified Parties in connection with the issuance or sale of the Contracts or the operation of the Accounts. 10. POTENTIAL CONFLICTS. 10.1 MONITORING BY DIRECTORS FOR CONFLICTS OF INTEREST. The Directors of each Fund will monitor the Fund for any potential or existing material irreconcilable conflict of interest between the interests of the contract owners of all separate accounts investing in the Fund, including such conflict of interest with any other separate account of any other insurance company investing in the Fund. An irreconcilable material conflict may arise for a variety of reasons, including: (a) an action by any state insurance regulatory authority; (b) a change in applicable federal or state insurance, tax, or securities laws or regulations, or a public ruling, private letter ruling, no-action or interpretive letter, or any similar action by insurance, tax or securities regulatory authorities; (c) an administrative or judicial decision in any relevant proceeding; (d) the manner in which the investments of the Fund are being managed; (e) a difference in voting instructions given by variable annuity contract owners and variable life insurance contract owners or by contract owners of different life insurance companies utilizing the Fund; or (f) a decision by Company to disregard the voting instructions of Owners. The Directors shall promptly inform the Company, in writing, if they determine that an irreconcilable material conflict exists and the implications thereof. 10.2 MONITORING BY THE COMPANY FOR CONFLICTS OF INTEREST. The Company will promptly notify the Directors, in writing, of any potential or existing material irreconcilable conflicts of interest, as described in Section 10.1 above, of which it is aware. The Company will assist the Directors in carrying out their responsibilities under any applicable provisions of the federal securities laws and any exemptive orders granted by the SEC ("Exemptive Order"), by providing the Directors, in a timely manner, with all information reasonably necessary for the Directors to consider any issues raised. This includes, but is not limited to, an obligation by the Company to inform the Directors whenever Owner voting instructions are disregarded. 10.3 REMEDIES. If it is determined by a majority of the Directors, or a majority of disinterested Directors, that a material irreconcilable conflict exists, as described in Section 10.1 above, the Company shall, at its own expense take whatever steps are necessary to remedy or 16 eliminate the irreconcilable material conflict, up to and including, but not limited to: (a) withdrawing the assets allocable to some or all of the separate accounts from the applicable Fund and reinvesting such assets in a different investment medium, including (but not limited to) another fund managed by the Adviser, or submitting the question whether such segregation should be implemented to a vote of all affected Owners and, as appropriate, segregating the assets of any particular group that votes in favor of such segregation, or offering to the affected owners the option of making such a change; and (b) establishing a new registered management investment company or managed separate account. 10.4 CAUSES OF CONFLICTS OF INTEREST. (a) STATE INSURANCE REGULATORS. If a material irreconcilable conflict arises because a particular state insurance regulator's decision applicable to the Company conflicts with the majority of other state regulators, then the Company will withdraw the affected Account's investment in the applicable Fund and terminate this Agreement with respect to such Account within the period of time permitted by such decision, but in no event later than six months after the Directors inform the Company in writing that it has determined that such decision has created an irreconcilable material conflict; PROVIDED, HOWEVER, that such withdrawal and termination shall be limited to the extent required by the foregoing material irreconcilable conflict as determined by a majority of the disinterested Directors. Until the end of the foregoing period, the Distributors and Funds shall continue to accept and implement orders by the Company for the purchase (and redemption) of shares of the Fund to the extent such actions do not violate applicable law. (b) DISREGARD OF OWNER VOTING. If a material irreconcilable conflict arises because of Company's decision to disregard Owner voting instructions and that decision represents a minority position or would preclude a majority vote, Company may be required, at the applicable Fund's election, to withdraw the Account's investment in said Fund. No charge or penalty will be imposed against the Account as a result of such withdrawal. 10.5 LIMITATIONS ON CONSEQUENCES. For purposes of Sections 10.3 through 10.5 of this Agreement, a majority of the disinterested Directors shall determine whether any proposed action adequately remedies any irreconcilable material conflict. In no event will a Fund, the Adviser or the Distributors be required to establish a new funding medium for any of the Contracts. The Company shall not be required by Section 10.3 to establish a new funding medium for the Contracts if an offer to do so has been declined by vote of a majority of Owners affected by the irreconcilable material conflict. In the event that the Directors determine that any proposed action does not adequately remedy any irreconcilable material conflict, then the Company will withdraw the Account's investment in the applicable Fund and terminate this Agreement as quickly as may be required to comply with applicable law, but in no event later than six (6) months after the Directors inform the Company in writing of the foregoing determination, 17 PROVIDED, HOWEVER, that such withdrawal and termination shall be limited to the extent required by any such material irreconcilable conflict. 10.6 CHANGES IN LAWS. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act or the rules promulgated thereunder with respect to mixed or shared funding (as defined in the Funds' Exemptive Order) on terms and conditions materially different from those contained in the Funds' Exemptive Order, then (a) the Funds and/or the Adviser, as appropriate, shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable; and (b) Sections 10.1, 10.2, 10.3 and 10.4 of this Agreement shall continue in effect only to the extent that terms and conditions substantially identical to such Sections are contained in such Rule(s) as so amended or adopted. 11. MAINTENANCE OF RECORDS. (a) Recordkeeping and other administrative services to Owners shall be the responsibility of the Company and shall not be the responsibility of the Funds, Adviser or Distributors. None of the Funds, the Adviser or Distributors shall maintain separate accounts or records for Owners. Company shall maintain and preserve all records as required by law to be maintained and preserved in making shares of the Funds available to the Accounts. (b) Upon the request of the Adviser or Distributors, the Company shall provide copies of all the historical records relating to transactions between the Funds and the Accounts, written communications regarding the Funds to or from the Accounts and other materials, in each case (i) as are maintained by the Company in the ordinary course of its business and in compliance with applicable law, and (ii) as may reasonably be requested to enable the Adviser and Distributors, or its representatives, including without limitation its auditors or legal counsel, to (A) comply with any request of a governmental body or self-regulatory organization or the Owners, (B) verify compliance by the Company with the terms of this Agreement, (C) make required regulatory reports, (D) verify to Advisor's reasonable satisfaction that all purchase and redemption orders aggregated for each Trade Date were received by Company prior to the close of trading on the NYSE on such Trade Date, or (E) perform general customer supervision. (c) Upon the request of the Company, the Adviser and Distributors shall provide copies of all the historical records relating to transactions between the Funds and the Accounts, written communications regarding the Funds to or from the Accounts and other materials, in each case (i) as are maintained by the Funds, Adviser and Distributors, as the case may be, in the ordinary course of its business and in compliance with applicable law, and (ii) as may reasonably be requested to enable the Company, or its representatives, including without limitation its auditors or legal counsel, to (A) comply with any request of a governmental body or self-regulatory organization or the Owners, (B) verify compliance by the Funds, Adviser and 18 Distributors with the terms of this Agreement, (C) make required regulatory reports, or (D) perform general customer supervision. (d) The Parties agree to cooperate in good faith in providing records to one another pursuant to this Section 11. 12. TERM AND TERMINATION. 12.1 TERM AND TERMINATION WITHOUT CAUSE. The initial term of this Agreement shall be for a period of one year from the date hereof. Unless terminated as to any Fund upon not less than thirty (30) days prior written notice to the other Parties, this Agreement shall thereafter automatically renew for the remaining Funds from year to year, subject to termination at the next applicable renewal date upon not less than 30 days prior written notice. Any Party may terminate this Agreement as to any Fund following the initial term upon six (6) months advance written notice to the other Parties. 12.2 TERMINATION BY FUND, DISTRIBUTORS OR ADVISER FOR CAUSE. Adviser, Fund or Distributors may terminate this Agreement by written notice to the Company, if any of them shall determine, in its sole judgment exercised in good faith, that (a) the Company has suffered a material adverse change in its business, operations, financial condition or prospects since the date of this Agreement or is the subject of material adverse publicity; or (b) any of the Contracts are not registered, issued or sold in accordance with applicable state and federal law or such law precludes the use of Fund shares as the underlying investment media of the Contracts issued or to be issued by the Company. 12.3 TERMINATION BY COMPANY FOR CAUSE. Company may terminate this Agreement by written notice to the Adviser, Funds and Distributors in the event that (a) any of the Fund shares are not registered, issued or sold in accordance with applicable state or federal law or such law precludes the use of such shares as the underlying investment media of the Contracts issued or to be issued by the Company; (b) the Funds cease to qualify as Regulated Investment Companies under Subchapter M of the Code or under any successor or similar provision, or if the Company reasonably believes that the Funds may fail to so qualify; (c) a Fund fails to meet the diversification requirements specified in Section 6.4(a); (d) if the shares of the Funds are not reasonably available to meet the requirement of the Contracts issued by the Company, as determined by the Company; or (e) upon the sale, acquisition or change of control of the Adviser. 12.4 TERMINATION BY ANY PARTY. This Agreement may be terminated as to any Fund by any Party at any time (a) by giving 30 days' written notice to the other Parties in the event of a material breach of this Agreement by the other Party or Parties that is not cured during such 30-day period, and (b) (i) upon institution of formal proceedings relating to the legality of the terms and conditions of this Agreement against the Accounts, Company, any Designee, the Funds, Adviser or Distributors by the NASD, the SEC or any other regulatory body provided that the 19 terminating Party has a reasonable belief that the institution of formal proceedings is not without foundation and will have a material adverse impact on the terminating Party, (ii) by the non-assigning Party upon the assignment of this Agreement in contravention of the terms hereof, (iii) as is required by law, order or instruction by a court of competent jurisdiction or a regulatory body or self-regulatory organization with jurisdiction over the terminating Party or, (iv) by any Party by advance written notice upon the "assignment" of the Agreement (as defined under the 1940 Act) unless made with the written consent of each Party to the Agreement. 12.5 LIMIT ON TERMINATION. Notwithstanding the termination of this Agreement with respect to any or all Funds, for so long as any Contracts remain outstanding and invested in a Fund each Party to this Agreement shall continue to perform such of its duties under this Agreement as are necessary to ensure the continued tax deferred status thereof and the payment of benefits thereunder, except to the extent proscribed by law, the SEC or other regulatory body. Except to the extent termination of this Agreement pursuant to Section 12.2, 12.3 or 12.4 makes it impracticable, for a period of one (1) year following the termination of this Agreement, for Contracts in effect on the effective date of such termination (the "Existing Contracts"), and based upon instructions from the Owners of the Existing Contracts, the Accounts shall be permitted to: (a) purchase additional shares of each Fund; and (b) reallocate investments among the Funds. Notwithstanding the foregoing, nothing in this Section 12.5 obligates a Fund to continue in existence. In the event that any Fund elects to terminate its operations, the Company shall, as soon as practicable, obtain an exemptive order or order of substitution from the SEC to remove all Owners from the applicable Fund. Notwithstanding any other provision in this Agreement, upon termination of this Agreement, the Accounts shall be permitted to redeem shares in the Funds based upon instructions from the Owners of Existing Contracts. 20 13. NOTICES. All notices under this Agreement shall be given in writing (and shall be deemed to have been duly given upon receipt) by delivery in person, by facsimile, by registered or certified mail or by overnight delivery or by a nationally-recognized delivery service (postage prepaid, return receipt requested) to the respective Parties as follows: If to Strong Variable: Strong Variable Insurance Funds, Inc. 100 Heritage Reserve Milwaukee, WI 53051 Attention: General Counsel Facsimile No.: 414/359-3948 If to Opportunity Fund II: Strong Opportunity Fund II, Inc. 100 Heritage Reserve Milwaukee, WI 53051 Attention: General Counsel Facsimile No.: 414/359-3948 If to Adviser: Strong Capital Management, Inc. 100 Heritage Reserve Milwaukee, WI 53051 Attention: General Counsel Facsimile No.: 414/359-3948 If to Distributors: Strong Investments, Inc. 100 Heritage Reserve Milwaukee, WI 53051 Attention: General Counsel Facsimile No.: 414/359-3948 21 If to Company: American Family Life Insurance Company 6000 American Parkway Madison, WI 53783-0001 Attention: Rosalie Beck Detmer Facsimile No.: (608) 243-4917 14. MISCELLANEOUS. 14.1. CAPTIONS. The captions in this Agreement are included for convenience of reference only and in no way affect the construction or effect of any provisions hereof. 14.2. ENFORCEABILITY. If any portion of this Agreement shall be held or made invalid by a court decision, statute, rule or otherwise, the remainder of the Agreement shall not be affected thereby. 14.3. COUNTERPARTS. This Agreement may be executed simultaneously in two or more counterparts, each of which taken together shall constitute one and the same instrument. 14.4. REMEDIES NOT EXCLUSIVE. The rights, remedies and obligations contained in this Agreement are cumulative and are in addition to any and all rights, remedies and obligations, at law or in equity, which the Parties to this Agreement are entitled to under state and federal laws. 14.5. CONFIDENTIALITY. Subject to the requirements of legal process and regulatory authority, the Funds and Distributors shall treat as confidential the names and addresses of the owners of the Contracts and all information reasonably identified as confidential in writing by the Company to this Agreement and, except as permitted by this Agreement, shall not disclose, disseminate or utilize such names and addresses and other confidential information without the express written consent of the Company until such time as it may come into the public domain. 14.6. GOVERNING LAW. This Agreement shall be governed by and interpreted in accordance with the internal laws of the State of Wisconsin applicable to agreements fully executed and to be performed therein; exclusive of conflicts of laws. 14.7. SURVIVABILITY. Sections 6, 7.2, 7.3, 7.4, 9, 11 and 12.5 hereof shall survive termination of this Agreement. In addition, all provisions of this Agreement shall survive termination of this Agreement in the event that any Contracts are invested in a Fund at the time the termination becomes effective and shall survive for so long as such Contracts remain so invested. 22 14.8. AMENDMENT AND WAIVER. No modification of any provision of this Agreement will be binding unless in writing and executed by the Party to be bound thereby. No waiver of any provision of this Agreement will be binding unless in writing and executed by the Party granting such waiver. Notwithstanding anything in this Agreement to the contrary, the Adviser may unilaterally amend Exhibit A to this Agreement to add additional series of Strong Variable Funds ("New Funds") as Funds by sending to the Company a written notice of the New Funds. Any valid waiver of a provision set forth herein shall not constitute a waiver of any other provision of this Agreement. In addition, any such waiver shall constitute a present waiver of such provision and shall not constitute a permanent future waiver of such provision. 14.9. ASSIGNMENT. This Agreement shall be binding upon and shall inure to the benefit of the Parties and their respective successors and assigns; PROVIDED, HOWEVER, that neither this Agreement nor any rights, privileges, duties or obligations of the Parties may be assigned by any Party without the written consent of the other Parties or as expressly contemplated by this Agreement. 14.10. ENTIRE AGREEMENT. This Agreement contains the full and complete understanding between the Parties with respect to the transactions covered and contemplated under this Agreement, and supersedes all prior agreements and understandings between the Parties relating to the subject matter hereof, whether oral or written, express or implied. 14.11. RELATIONSHIP OF PARTIES; NO JOINT VENTURE, ETC. Except for the limited purpose provided in Section 3.8, it is understood and agreed that the Company and each of its Designees shall be acting as an independent contractor and not as an employee or agent of the Adviser, Distributors or the Funds, and none of the Parties shall hold itself out as an agent of any other Party with the authority to bind such Party. Neither the execution nor performance of this Agreement shall be deemed to create a partnership or joint venture by and among any of the Company, any Designees, Funds, Adviser, or Distributors. 14.12. EXPENSES. All expenses incident to the performance by each Party of its respective duties under this Agreement shall be paid by that Party. 14.13. TIME OF ESSENCE. Time shall be of the essence in this Agreement. 14.14. NON-EXCLUSIVITY. Each of the Parties acknowledges and agrees that this Agreement and the arrangements described herein are intended to be non-exclusive and that each of the Parties is free to enter into similar agreements and arrangements with other entities. 23 14.15. OPERATIONS OF FUNDS. In no way shall the provisions of this Agreement limit the authority of the Funds, the Adviser or Distributors to take such action as it may deem appropriate or advisable in connection with all matters relating to the operation of such Fund and the sale of its shares. In no way shall the provisions of this Agreement limit the authority of the Company to take such action as it may deem appropriate or advisable in connection with all matters relating to the shares of funds other than the Funds offered to the Accounts. AMERICAN FAMILY LIFE INSURANCE COMPANY ----------------------------------------- By: Name: Title: STRONG CAPITAL MANAGEMENT, INC. ----------------------------------------- By: Name: Title: STRONG INVESTMENTS, INC. ----------------------------------------- By: Name: Title: STRONG VARIABLE INSURANCE FUNDS, INC. on behalf of the Designated Portfolios ----------------------------------------- By: Name: Title: STRONG OPPORTUNITY FUND II, INC. ----------------------------------------- By: Name: Title: 24 EXHIBIT A The following is a list of Designated Portfolios under this Agreement: Strong Mid Cap Growth Fund II 25 EXHIBIT B--ACCOUNT INFORMATION (FOR ACCOUNTS TO HAVE DIVIDENDS AND CAPITAL GAINS REINVESTED AUTOMATICALLY) 1. Entity in whose name each Account will be opened:_________________________ Mailing address: _________________________ _________________________ _________________________ 2. Employer ID number (FOR INTERNAL USAGE ONLY): _________________________ 3. Authorized contact persons: The following persons are authorized on behalf of the Company to effect transactions in each Account: Name:____________________________ Phone:____________________________ Name:____________________________ Phone:____________________________ Name:____________________________ Phone:____________________________ Name:____________________________ Phone:____________________________ 4. Will the Accounts have telephone exchange? ____ Yes ____ No (THIS OPTION LETS COMPANY REDEEM SHARES BY TELEPHONE AND APPLY THE PROCEEDS FOR PURCHASE IN ANOTHER IDENTICALLY REGISTERED ACCOUNT.) 5. Will the Accounts have telephone redemption? ____ Yes ____ No (THIS OPTION LETS COMPANY SELL SHARES BY TELEPHONE. THE PROCEEDS WILL BE WIRED TO THE BANK ACCOUNT SPECIFIED BELOW.) 6. All dividends and capital gains will be reinvested automatically. 7. Instructions for all outgoing wire transfers: ____________________________ ____________________________ ____________________________ ____________________________ 26 8. If this Account Information Form contains changed information, the undersigned authorized officer has executed this amended Account Information Form as of the date set forth below and acknowledges the agreements and representations set forth in the Services Agreement between the Company, Strong Capital Management, Inc. and Strong Investments, Inc. 9. COMPANY CERTIFIES UNDER PENALTY OF PERJURY THAT: (i) THE NUMBER SHOWN ON THIS FORM IS THE CORRECT EMPLOYER ID NUMBER (OR THAT COMPANY IS WAITING TO BE ISSUED AN EMPLOYER ID NUMBER), AND (ii) COMPANY IS NOT SUBJECT TO BACKUP WITHHOLDING BECAUSE (a) COMPANY IS EXEMPT FROM BACKUP WITHHOLDING, OR (b) COMPANY HAS NOT BEEN NOTIFIED BY THE INTERNAL REVENUE SERVICE ("IRS") THAT IT IS SUBJECT TO BACKUP WITHHOLDING AS A RESULT OF FAILURE TO REPORT ALL INTEREST OR DIVIDENDS, OR (c) THE IRS HAS NOTIFIED THE COMPANY THAT IT IS NO LONGER SUBJECT TO BACKUP WITHHOLDING. (CROSS OUT (ii) IF COMPANY HAS BEEN NOTIFIED BY THE IRS THAT IT IS SUBJECT TO BACKUP WITHHOLDING BECAUSE OF UNDERREPORTING INTEREST OR DIVIDENDS ON ITS TAX RETURN.) THE IRS DOES NOT REQUIRE COMPANY'S CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING. ----------------------------------- -------------------------------- (SIGNATURE OF AUTHORIZED OFFICER) (DATE) (Company shall inform Adviser and Distributors of any changes to information provided in this Account Information Form pursuant to Section 13 of the Agreement.) PLEASE NOTE: DISTRIBUTORS EMPLOYS REASONABLE PROCEDURES TO CONFIRM THAT INSTRUCTIONS COMMUNICATED BY TELEPHONE ARE GENUINE AND MAY NOT BE LIABLE FOR LOSSES DUE TO UNAUTHORIZED OR FRAUDULENT INSTRUCTIONS. PLEASE SEE THE PROSPECTUS FOR THE APPLICABLE FUND FOR MORE INFORMATION ON THE TELEPHONE EXCHANGE AND REDEMPTION PRIVILEGES. 27 EXHIBIT C Billing and Count Information Contact person that will furnish participant/shareholder counts: Name: __________________________________________ Title: __________________________________________ Company Name: __________________________________________ Address: __________________________________________ City, State, Zip: __________________________________________ Phone Number: __________________________________________ Fax Number: __________________________________________ E-mail address: __________________________________________ 28 EXHIBIT D (list of authorized Am Fam representatives) 29 EX-99.9 8 a2039901zex-99_9.txt EXHIBIT 99.9 [AMERICAN FAMILY LIFE INSURANCE COMPANY] February 19, 2001 Board of Directors American Family Life Insurance Company 6000 American Parkway Madison, Wisconsin 53783-0001 To The Board Of Directors: In my capacity as General Counsel of American Family Life Insurance Company (the "Company"), I have supervised the establishment of the American Family Variable Account II (the "Account"), by the Board of Directors of the Company as a separate account for assets applicable to certain flexible premium variable annuity contracts (the "Contracts") issued by the Company pursuant to the provisions of Sections 627.18 and 632.45 of the Insurance Laws of the State of Wisconsin. Moreover, I have supervised the preparation of Pre-Effective Amendment No. 1 to the Registration Statement on Form N-4 (the "Registration Statement") (File No. 333-45592) filed by the Company and the Account with the Securities and Exchange Commission under the Securities Act of 1933, for the registration of the Contracts to be issued with respect to the Account. I have made such examination of the law and examined such corporate records and such other documents as in my judgment are necessary and appropriate to enable me to render the following opinion that: 1. The Company has been duly organized under the laws of the State of Wisconsin and is a validly existing corporation. 2. The Contracts, when issued in accordance with the prospectus contained in the aforesaid registration statement and upon compliance with applicable local law, will be legal and binding obligations of the Company in accordance with their terms. 3. The Account is duly created and validly existing as a separate account pursuant to the aforesaid provisions of Wisconsin law. 4. The assets held in the Account equal to the reserves and other contract liabilities with respect to the Account will not be chargeable with liabilities arising out of any business the Company may conduct. I hereby consent to the filing of this opinion as an exhibit to the Registration Statement. Very truly yours /s/ James F. Eldridge, Esq. ----------------------------------- James F. Eldridge, Esq. Executive Vice President, Corporate Legal; Secretary EX-99.10(A) 9 a2039901zex-99_10a.txt EXHIBIT 99.10(A) [SUTHERLAND ASBILL & BRENNAN LLP] CONSENT OF SUTHERLAND ASBILL & BRENNAN LLP We consent to the reference to our firm under the heading "Legal Matters" in the prospectus included in Pre-Effective Amendment No. 1 to the Registration Statement on Form N-4 for certain flexible premium variable annuity contracts issued through American Family Variable Account II of American Family Life Insurance Company (File No. 333-45592). In giving this consent, we do not admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933. SUTHERLAND ASBILL & BRENNAN LLP By: /s/ Stephen E. Roth -------------------------- Stephen E. Roth Washington, D.C. March 1, 2001 EX-99.10(B) 10 a2039901zex-99_10b.txt EXHIBIT 99.10(B) CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Statement of Additional Information constituting part of this Pre-Effective Amendment No. 1 to the registration statement on Form N-4 (the "Registration Statement") of our report dated February 16, 2001, relating to the financial statements of American Family Life Insurance Company which appear in such Statement of Additional Information, and to the incorporation by reference of such report into the Prospectus which constitutes part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Statement of Additional Information. PRICEWATERHOUSECOOPERS LLP Chicago, Illinois March 1, 2001 EX-99.10(C) 11 a2039901zex-99_10c.txt EXHIBIT 99.10(C) CONSENT OF JAMES F. ELDRIDGE, ESQ. I hereby consent to the reference to my name under the heading "Legal Matters" in the prospectus included in Pre-Effective Amendment No. 1 to the Registration Statement on Form N-4 for certain flexible premium variable annuity contracts issued through American Family Variable Account II of American Family Life Insurance Company (File No. 333-45592). /s/ James F. Eldridge, Esq. -------------------------------- James F. Eldridge, Esq. General Counsel Executive Vice President, Corporate Legal; Secretary February 19, 2001 -----END PRIVACY-ENHANCED MESSAGE-----