Document:

Exhibit 10.3

 

Target Funds Participation Agreement

(Excludes Products Sold Through W&R Distribution
System)

 

This
Fund Participation Agreement (“Agreement”), dated as of the 19th day of
September, 2003 is made by and between MINNESOTA LIFE INSURANCE COMPANY (“Company”)
on behalf of the Company separate accounts identified on Exhibit A which
is attached hereto and may be amended from time to time (“Variable Accounts”),
and WADDELL & REED, INC. (“W&R”) which serves as the distributor
to the W&R TARGET FUNDS, INC. (the “Funds”) listed on Exhibit B.

 

WHEREAS, Company and W&R mutually desire the inclusion of the Funds
as underlying investment media for variable life insurance policies and/or
variable annuity contracts sold through distributors other than W&R and/or
its affiliates (collectively, the “Contracts”) issued by Company; and

 

WHEREAS,
the Contracts allow for the allocation of net amounts received by Company to
separate sub-accounts of the Variable Accounts for investment in shares of the
Funds and other similar funds distributed by W&R and/or its affiliates; and

 

WHEREAS,
selection of a particular sub-account (corresponding to a particular Fund) is
made by the Contract owner; and/or participants; and such Contract owner and
participants may reallocate their investment options among the sub-accounts of
the Variable Accounts in accordance with the terms of the Variable Accounts in
accordance with the terms of the Variable Accounts and the Contracts.

 

NOW
THEREFORE, Company and W&R, in consideration of the promises and
undertakings described herein, agree as follows:

 

1.               The scope of
this Agreement is limited to the inclusion of the Funds in variable annuity and
variable life contracts sold through distributors other than W&R and/or its
affiliates.

 

2.               (a)          Company represents and
warrants that the Variable Accounts have been established and are in good
standing under Minnesota Law; and the Variable Accounts have been registered as
unit investment trusts under the Investment Company Act of 1940, as amended
(the “1940 Act”) and will remain so registered, or are exempt from registration
pursuant to section 3(c)(11) of the 1940 Act;

(b)          Company represents and
warrants that it is an insurance company duly organized and in good standing
under the laws of its state of incorporation and that it has legally and
validly established each Variable Account and Contract;

(c)           Company represents and warrants that the Contracts
will be registered under the Securities Act of 1933, as amended (“1933 Act”)
unless an exemption from registration is available prior to any issuance or
sale of the Contracts and that the Contracts will be issued in compliance in
all material respects with applicable federal and state laws.

 

 

 

3.               Subject to the
terms and conditions of this Agreement, Company shall be appointed to, and
agrees, to act as a limited agent of W&R, for the sole purpose of receiving
instructions for the purchase and redemption of Fund shares (from Contract
owners or participants making investment allocation decisions under the Contracts)
prior to the close of regular trading each Business Day.  “Business Day” shall mean any day on which
the New York Stock Exchange (“NYSE”) is open for trading and on which the Funds
calculate their net asset value as set forth in the Funds’ most recent
Prospectuses and Statements of Additional Information. Except as particularly
stated in this paragraph, Company shall have no authority to act on behalf of
W&R or to incur any cost or liability on its behalf.

 

The Funds or their agent will use reasonable best efforts to provide
closing net asset value, change in net asset value, dividend or daily accrual
rate information and capital gain information by 6:00 p.m. Central Time
each Business Day to Company. Company shall use this data to calculate unit values.  Unit values shall be used to process that
same Business Day’s Variable Account transactions. Orders for purchases or
redemptions shall be placed with W&R or its specified agent no later than
8:30 a.m. Central Time of the following Business Day.  The Company may aggregate separately all
purchase and/or redemption orders for shares of the Funds that it received
prior to the close of trading on the NYSE (i.e., 3:00 Central time, unless the
NYSE closes earlier in which case such earlier time shall apply).  The Company will not aggregate pre-3:00
Central time trades with post-3:00 Central time trades. Orders for shares of
Funds shall be executed at the time they are received by W&R and at the net
asset value price determined as of the close of trading on the previous
Business Day, provided that the Company represents it has received such orders
prior to the close of the NYSE on the previous Business Day.  The Funds may refuse to sell shares to any
person or may suspend or terminate the offering of its shares if such action is
required by law or by regulatory authorities having jurisdiction or is, in the
sole discretion of the directors of the Funds, necessary in the best interest
of the shareholders of the Funds.  W&R
will not accept any order made on a conditional basis or subject to any delay
or contingency.  Company shall only place
purchase orders for shares of Funds on behalf of its customers whose addresses
recorded on Company’s books are in a state or other jurisdiction in which the
Funds are registered or qualified for sale, or are exempt from registration or
qualification as confirmed in writing by W&R.

 

Payment
for net purchases shall be wired to a custodial account designated by W&R
and payment for net redemptions will be wired to an account designated by
Company. Dividends and capital gain distributions shall be reinvested in
additional Fund shares at net asset value. 
Notwithstanding the above, W&R shall not be held responsible for
providing Company with ex-date net asset value, change in net asset value,
dividend or capital gain information when the New York Stock Exchange is
closed, when an emergency exists making the valuation of net assets not
reasonably practicable, or during any period when the Securities and Exchange
Commission (“SEC”) has by order permitted the suspension of pricing shares for
the protection of shareholders.

 

 

2

 

Issuance
and transfer of Fund shares will be by book entry only.  Share certificates will not be issued to
Company for any Variable Account.  Fund
shares will be recorded in the appropriate title for each Variable Account.

 

Company
agrees to provide W&R, upon request, written reports indicating the number
of shareholders or policyholders that hold interests in the Funds and such
other information (including books and records) that W&R may reasonably
request or as may be necessary or advisable to enable it to comply with any
law, regulation or order.

 

The
Funds shall furnish, on or before the ex-dividend date, notice to Company of
any income dividends or capital gain distributions payable on the shares of the
Funds.  Company hereby elects to receive
all such income dividends and capital gain distributions as are payable on a
Fund’s shares in additional shares of the Fund. 
The Funds shall notify Company of the number of shares so issued as
payment of such dividends and distributions.

 

In
the event adjustments are required to correct any material error in the
computation of the net asset value of a Fund’s shares, the Fund shall notify
the Company as soon as practicable after discovering the need for those
adjustments which result in a reimbursement to a Variable Account in accordance
with the Fund’s then current policies on reimbursement, which the Fund
represents are consistent with applicable SEC standards.  If an adjustment is to be made in accordance
with such policies to correct an error which has caused a Variable Account to
receive an amount different than that to which it is entitled, the Fund shall
make all necessary adjustments to the number of shares owned in the Variable
Account and distribute to the Variable Account the amount of such underpayment
for credit to Company’s Contract/Policy Owners.

 

4.               All expenses incident to the
performance by W&R and the Funds under this Agreement shall be paid by
W&R and the Funds.  W & R
shall pay fees or other compensation to the Company under this Agreement as
provided on Schedule C.  W & R’s
obligation to pay compensation or fees as provided in Schedule C shall survive
termination of this Agreement.

 

W&R shall promptly provide Company (or
its designee), or cause Company (or its designee) to be provided with, a
reasonable quantity of the Funds’ Statements of Additional Information and any
supplements, and a camera-ready copy of the Funds’ Prospectus and any
Supplements or at the option of the Company, a camera-ready copy of the
portions of the Funds’ Prospectus, and any supplements, pertaining specifically
to the Funds used in the Company’s Contracts, for use by Company in producing a
combined prospectus for each Contract incorporating both the Contract
Prospectus and the Funds’ Prospectus.

 

                        If the Company elects to
include any materials provided by W & R or the Funds, specifically
prospectuses, SAIs, shareholder reports and proxy materials, on its web site or
in any other computer or electronic format, the Company assumes sole
responsibility for maintaining such materials in the form provided by W &
R or the Funds and for promptly replacing such materials with all updates
provided by W & R or the Funds. 
W & R or the Funds agree to provide all such materials
requested by the Company in a Portable Document Format (PDF, 

 

 

3

 

both camera ready and low resolution
enhanced) in a timely fashion at no additional cost, together with such other
formats as may be mutually agreed upon.

 

                        Each Fund (at its expense)
shall provide Company with copies of any Fund-sponsored proxy materials in such
quantity as Company shall reasonably require for distribution to contract
owners.  The Fund shall bear the costs of
distributing Fund proxy materials (or similar materials such as voting
solicitation instructions).  Company
shall bear the cost of distributing prospectuses and statements of additional
information to contract owners.  Company
assumes sole responsibility for ensuring that such materials are delivered to
contract owners in accordance with applicable federal and state securities
laws.

 

                        If and to the extent
required by law, Company shall: (i) solicit voting instructions from
contract owners; (ii) vote the Fund(s) shares in accordance with the
instructions received from contract owners; and (iii) vote Fund(s) shares
for which no instructions have been received; so long as and to the extent that
the Commission continues to interpret the 1940 Act to require pass-through
voting privileges for variable contract owners. 
The Company reserves the right to vote Fund shares held in any
segregated asset account in its own right, to the extent permitted by law.  Company and its agents will in no way
recommend action in connection with or oppose or interfere with the
solicitation of proxies for the Fund shares held for the benefit of such
Contract owners.

 

5.               Company and its
agents shall make no representations concerning the Funds or Fund shares except
those contained in the Funds’ then current Prospectuses, Statements of
Additional Information or other documents produced by W&R (or an entity on
its behalf) which contain information about the Funds. Company agrees to allow
at least five (5) Business Days for W&R to review any advertising and
sales literature drafted by Company (or agents on its behalf) with respect to
the Funds prior to submitting such material to any regulator.

 

6.               W&R
represents that the Funds are currently qualified as regulated investment
companies under Subchapter M of the Internal Revenue Code of 1986 (the “Code”),
as amended, and that the Funds shall make every effort to maintain such
qualification.  W&R shall promptly
notify Company upon having a reasonable basis for believing that the Funds have
ceased to so qualify, or that they may not qualify as such in the future.

 

W&R
represents that the Funds currently comply with the diversification
requirements pursuant to Section 817(h) of the Code and Section 1.817-5(b) of
the Federal Tax Regulations and that the Funds will make every effort to
maintain the Funds’ compliance with such diversification requirements, unless
the Funds are otherwise exempt from section 817(h) and/or except as
otherwise disclosed in the Funds’ prospectus. 
W&R will notify Company promptly upon having a reasonable basis for
believing that the Funds have ceased to so qualify, or that the Funds might not
so qualify in the future. Unless otherwise exempt, W&R shall provide to
Company a statement indicating compliance with Section 817(h) and a
schedule of investment holdings, to be received by Company no later than
twenty-five (25) days following the end of each calendar quarter.

 

 

4

 

Company
represents that the Contracts are currently, and at the time of issuance will
be, treated as annuity contracts or life insurance policies, whichever is
appropriate under applicable provisions of the Code, and that it shall make
every effort to maintain such treatment. Company will promptly notify W&R
upon having a reasonable basis for believing that the Contracts have ceased to
be treated as annuity contracts or life insurance polices, or that the
Contracts may not be so treated in the future.

 

Unless
the Funds are exempt from the requirements of section 817(h), Company
represents that each Variable Account is a “segregated asset account” and that
interests in each Variable Account are offered exclusively through the purchase
of a “variable contract”, within the meaning of such terms pursuant to section
1.817-5(f)(2) of the Federal Tax Regulations, that it shall make every
effort to continue to meet such definitional requirements, and that it shall
notify W&R immediately upon having a reasonable basis for believing that
such requirements have ceased to be met or that they may not be met in the
future.

 

The
Funds represent and warrant that each is duly organized and validly existing
under the laws of Maryland and that each does and will comply in all material
respects with the 1940 Act and the rules and regulations thereunder.

 

The
Funds represent and warrant that the Fund shares offered and sold pursuant to
this Agreement will be registered under the 1933 Act and each Fund shall be
registered under the 1940 Act prior to and at the time of any issuance or sale
of such shares.  Each Fund shall amend
its registration statement under the 1933 Act and the 1940 Act from time to
time as required in order to effect the continuous offering of its shares.  Each Fund shall register and qualify its
shares for sale in accordance with the laws of the various states only if and
to the extent deemed advisable by the Fund or W&R.

 

Each
Fund represents and warrants that it, its directors, officers, employees and
other dealing with the money or securities, or both, of a Fund shall at all
times be covered by a blanket fidelity bond or similar coverage for the benefit
of the Fund in an amount not less than the minimum coverage required by Rule 17g-1
or other regulations under the 1940 Act. 
Such bond shall include coverage for larceny and embezzlement and be
issued by a reputable bonding company.

 

W&R
represents and warrants that it is currently and will continue to be a
registered-broker dealer and member in good standing with the National
Association of Securities Dealers (“NASD”).

 

7.               Within five (5) Business
Days after the end of each calendar month, the Funds or their agent shall
provide Company a monthly statement of account, which shall confirm all
transactions made during that particular month in the Variable Accounts.

 

8.               (a)   The directors of the Funds will monitor the operations of the
Funds for the existence of any material irreconcilable conflict among the
interest of all Contract owners of all separate accounts investing in the
Funds.  W&R shall notify Company of
the potential 

 

 

5

 

for, or the determination of, such irreconcilable material
conflict.  An irreconcilable conflict may
arise, among other things, from (i) an action by any state insurance
regulatory authority; (ii) a change in applicable insurance laws or
regulations; (iii) a tax ruling or provision of the Code or the
regulations thereunder; (iv) any other development relating to the tax
treatment of insurers, contract holders or policy owners or beneficiaries of
variable annuity or variable life insurance products; (v) the manner in
which the investments of the Funds are managed; (vi) a difference in
voting instructions given by variable annuity contract owners, on the one hand,
and variable life insurance policy owners on the other hand, or by the contract
holders or policy owners of different participating insurance companies; or (vii) a
decision by an insurer to override the voting instructions of participating
contract owners.

 

(b)         Company is responsible for
reporting any potential or existing conflicts to W&R and the Funds.  Company will be responsible for assisting the
directors in carrying out their responsibilities under this provision by
providing the directors with all information reasonably necessary for them to
consider the issues raised.  W&R
shall report to the directors any such conflict that comes to the attention of
W&R.

 

(c)          If a majority of the
directors of the Funds or a majority of the disinterested directors determine
that a material irreconcilable conflict exists involving Company, Company
shall, at its expense and to the extent reasonably practicable (as determined
by a majority of the disinterested directors), take whatever steps are necessary
to eliminate the irreconcilable material conflict, including, but not limited
to, withdrawing the assets allocable to some or all of the Variable Accounts
from the Funds and reinvesting such assets in a different investment medium,
including another Fund, offering to the affected Contract owners the option of
making such a change or offering a new funding medium, including a registered
investment company.

 

For
purposes of this provision, the directors or the disinterested directors shall
determine whether any proposed action adequately remedies any irreconcilable
material conflict.  In the event of a
determination of an irreconcilable material conflict, the directors shall cause
the Funds to take such action, such as establishment of one or more additional
Funds, as they reasonably determine to be in the interest of all shareholders
and Contract owners in view of all the applicable factors such as the cost,
feasibility, tax, regulatory and other considerations.  In no event will the Funds be required by
this provision to establish a new funding medium for any Contract.

 

Company
shall not be required by this provision to establish a new funding medium for
any Contract if an offer to do so has been declined by a vote of a majority of
the Contract owners materially adversely affected by the material
irreconcilable conflict.  Company will
decline an offer to establish a new funding medium only if Company believes it
is in the best interest of its Contract owners.

 

9.               This Agreement
shall terminate as to the sale and issuance of Fund shares in new Contracts
(i.e., Contracts issued after the effective date of termination):

 

 

6

 

(a)          at the option of Company or W&R upon at least 60
days advance written notice to the other;

(b)         at any time, upon W&R’s election, if the Funds
determine that liquidation of the Funds is in the best interest of the Funds
and their beneficial owners. Reasonable advance notice of election to liquidate
shall be furnished by W&R to permit the substitution of Fund shares with
the shares of another investment company pursuant to SEC regulation;

(c)          if the Contracts are not treated as annuity
contracts or life insurance policies by the applicable regulators or under
applicable rules or regulations;

(d)         if the Variable Accounts are not deemed “segregated
asset accounts” by the applicable regulators or under applicable rules or
regulations;

(e)          at the option of Company, if Fund shares are not
available for any reason to meet the requirements of Contracts as determined by
Company.

(f)            with respect only to the applicable Fund, upon a
decision by Company based on reasonable cause, in accordance with regulations
of the SEC, to substitute such Fund shares with the shares of another
investment company for Contracts for which the Fund shares have been selected
to serve as the underlying investment medium. 
Company shall give at least 60 days written notice to the Funds and
W&R of any decision to substitute Fund shares;

(g)         upon 60 days notice upon assignment of this
Agreement unless such assignment is made with the written consent of each other
party; and

(h)         in the event Fund shares are not registered, issued
or sold pursuant to Federal law, or such law precludes the use of Fund shares
as an underlying investment medium of Contracts issued or to be issued by
Company.  Prompt written notice shall be
given by either party to the other in the event the conditions of this
provision occur.

 

10.         All notices sent under this Agreement shall be given
in writing, and shall be delivered personally, or sent by fax, or by a
nationally-recognized overnight courier, postage prepaid.  All such notices shall be deemed to have been
duly given when so delivered personally or sent by fax, with receipt confirmed,
or one (1) business day after the date of deposit with such
nationally-recognized overnight courier. 
All such notices to Company, W&R or the Funds shall be delivered to:

 

Minnesota
Life Insurance Company

400
Robert Street North

Saint
Paul, Minnesota 55101

Attention:  General Counsel

 

Minnesota
Life Insurance Company

400
Robert Street North

Saint
Paul, Minnesota 55101

Attention:  Randy Wallake, Executive Vice President

 

 

7

 

Waddell &
Reed, Inc.

6300
Lamar Avenue

Overland
Park, KS  66202

Attention:
Legal Department

 

W&R
Target Funds, Inc.

6300 Lamar Avenue

Overland Park, KS 
66202

Attention: Treasurer

 

All
such notices to Company, W&R and the Funds shall be delivered to their
respective addresses as listed above, or such other address as Company, W&R
and/or the Funds may have furnished in writing to the other parties in
accordance herewith.

 

11. (a)                Company agrees to reimburse and/or indemnify
and hold harmless W&R, the Funds, and each of their directors, officers,
employees, agents and each person, if any, who controls or is controlled by
W&R within the meaning of the Securities Act of 1933 (the “1933 Act”)
(collectively, “Affiliated Party”) against any losses, claims, damages or
liabilities (“Losses”) to which W&R or any such Affiliated Party may become
subject, under the 1933 Act or otherwise, insofar as such Losses  arise out of or are based upon, but not
limited to:

 

(i)             any untrue statement or alleged untrue statement of
any material fact contained in information furnished by Company;

(ii)          the omission or the alleged omission to state in the
Registration Statements or Prospectuses of the Variable Accounts, or Contract,
or in any sales literature generated by Company on behalf of the Variable
Accounts or Contracts, a material fact required to be stated therein or
necessary to make the statements therein not misleading;

(iii)       statements or
representations of Company or its agents, with respect to the sale and
distribution of Contracts for which Fund shares are an underlying investment,
or wrongful conduct of Company or its agents with respect to sale of
acquisition of Variable Insurance Products or Fund shares;

(iv)      the failure of Company to provide the services and
furnish the materials under the terms of this Agreement;

(v)         a material breach of this Agreement or of any of the
representations or warranties contained herein; or

(vi)      any failure to register the Contracts or the
Variable Accounts under federal or state securities laws, state insurance laws
or to otherwise comply with such laws, rules, regulations or orders.

 

Provided
however, that Company shall not be liable in any such case to the extent any
such losses arise out of or are based upon an act, statement, omission or
representation or alleged act, alleged statement, alleged omission or alleged
representation which was made 

 

 

8

 

in
reliance upon and in conformity with written information furnished to Company
by or on behalf of W&R specifically for use therein.

 

Company
shall reimburse any legal or other expenses reasonably incurred by W&R, the
Funds, or any Affiliated Party in connection with investigating or defending
any such Losses, provided, however, that Company shall have prior approval of
the use of said counsel or the expenditure of said fees.

 

This
indemnity agreement shall be in addition to any liability which Company may
otherwise have.

 

(b)         W&R and the Funds agree to indemnify and hold
harmless Company and each of its directors, officers, employees, agents and each
person, (collectively, “Company Affiliated Party”), who controls Company within
the meaning of the 1933 Act against any Losses to which Company or any such
Company Affiliated Party may become subject, under the 1933 Act or otherwise,
insofar as such Losses  arise out of or
are based upon; but not limited to:

 

(i)             any untrue statement or alleged untrue statement of
any material fact contained in any information furnished by W&R or the
Funds, including but not limited to, the Registration Statements, Prospectuses
or sales literature of the Funds;

(ii)          the omission or the alleged omission to state in the
Registration Statements or Prospectuses of the Funds or in any sales literature
generated by the Funds or their affiliates a material fact required to be stated
therein or necessary to make the statements therein not misleading;

(iii)       W&R’s
failure to keep the Funds fully diversified and qualified as regulated
investment companies as required by the applicable provisions of the Code, the
1940 Act, and the applicable regulations promulgated thereunder;

(iv)      the failure of W&R to provide the services and
furnish the materials under the terms of this Agreement;

(v)         a material breach of this Agreement or of any of the
representations or warranties contained herein; or

(vi)      any failure to register the Funds under federal or
state securities laws or to otherwise comply with such laws, rules, regulations
or orders.

 

Provided
however, that W&R and the Funds shall not be liable in any such case to the
extent that any such losses arise out of or are based upon an act, statement,
omission or representation or alleged act, alleged statement, alleged omission
or alleged representation which was made in reliance upon or in conformity with
written information furnished to W&R or the Funds by Company specifically
for use therein.

 

W&R
and the Funds shall reimburse any reasonable legal or other expenses reasonably
incurred by Company or any Company Affiliated Party in connection with
investigating or defending any such Losses, provided, however, that W&R and
the Funds shall have prior approval of the use of said counsel or the
expenditure of said fees.

 

 

9

 

This
indemnity agreement will be in addition to any liability which W&R and the
Funds may otherwise have.

 

(c)          Each party shall promptly notify the other
party(ies) in writing of any situation which presents or appears to involve a
claim which may be the subject of indemnification under this Agreement and the
indemnifying party shall have the option to defend against any such claim.  In the event the indemnifying party so
elects, it shall notify the indemnified party and shall assume the defense of
such claim, and the indemnified party shall cooperate fully with the
indemnifying party, at the indemnifying party’s expense, in the defense of such
claim.  Notwithstanding the foregoing,
the indemnified party shall be entitled to participate in the defense of such
claim at its own expense through counsel of its own choosing.  Neither party shall admit to wrong-doing nor
make any compromise in any action or proceeding which may result in a finding
of wrongdoing by the other party without the other party’s prior written
consent.  Any notice given by the
indemnifying party to an indemnified party or participation in or control of
the litigation of any such claim by the indemnifying party shall in no event be
deemed to be an admission by the indemnifying party of culpability, and the
indemnifying party shall be free to contest liability among the parties with
respect to the claim.

 

12.         Subject to Section 9(f) of
this Agreement, W&R may request or Company may initiate the filing of a
substitution application pursuant to Section 26(c) of the 1940 Act to
substitute shares of a Fund held by a Company Variable Account for another
investment media (“Substitution Application”). 
The costs associated with a Substitution Application shall be allocated
as follows:

 

(a)          In the event W&R
requests Company to submit a Substitution Application, W&R shall reimburse
Company for all reasonable costs incurred by Company with respect to such
Substitution Application.  W&R shall
be obligated to reimburse Company under this provision irrespective of whether
the Substitution Application requested by W&R is effectuated.

(b)         In the event Company
initiates a Substitution Application and the Fund being substituted is offered
by separate accounts of companies other than Company, Company shall bear all
costs associated with the Substitution Application irrespective of whether the
Substitution Application is effectuated.

(c)          In the event Company
initiates a Substitution Application in accordance with Section 9(f),
Company shall bear the costs incurred in the transfer.

 

13.         The forbearance or neglect of any party to insist
upon strict compliance by another party with any of the provisions of this
Agreement, whether continuing or not, or to declare a forfeiture of termination
against the other parties, shall not be construed as a waiver of any of the
rights or privileges of any party hereunder. 
No waiver of any right or privilege of any party arising from any
default or failure of performance by any party shall affect the rights or
privileges of the other parties in the event of a further default or failure of
performance.

 

 

10

 

14.         This Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of Kansas, without
respect to its choice of law provisions and in accordance with the 1940 Act.  In the case of any conflict, the 1940 Act
shall control.

 

15.         Each party hereby represents and warrants to the
other that the persons executing this Agreement on its behalf are duly
authorized and empowered to execute and deliver the Agreement and that the
Agreement constitutes its legal, valid and binding obligation, enforceable
against it in accordance with its terms. 
Except as particularly set forth herein, neither party assumes any
responsibility hereunder, and will not be liable to the other for any damage,
loss of data, delay or any other loss whatsoever caused by events beyond its
reasonable control.

 

16.         Company acknowledges that the identity of W&R’s
(and its affiliates’ and/or subsidiaries’) customers and all information
maintained about those customers constitute the valuable property of
W&R.  Company agrees that, should it
come into contact or possession of any such information (including, but not
limited to, lists or compilations of the identity of such customers), Company
shall hold such information or property in confidence and shall not use,
disclose or distribute any such information or property except with W&R’s
prior written consent or as required by law or judicial process.

 

W&R
acknowledges that the identity of Company’s (and its affiliates’ and/or
subsidiaries’) customers and all information maintained about those customers
constitute the valuable property of Company. W&R agrees that, should it
come into contact or possession of any such information (including, but not
limited to, lists or compilations of the identity of such customers), W&R
shall hold such information or property in confidence and shall not use,
disclose or distribute any such information or property except with Company’s
prior written consent or as required by law or judicial process.

 

This
section shall survive the expiration or termination of this Agreement.

 

17.         Nothing in this Agreement shall be deemed to create
a partnership or joint venture by and among the parties hereto.

 

18.         Except to amend Exhibit A, or as otherwise
provided in this Agreement, this Agreement may not be amended or modified
except by a written amendment executed by each of the parties.

 

19.         Each party shall cooperate with each other party and
all appropriate government authorities (including without limitation the
Commission, the National Association of Securities Dealers, Inc. and state
insurance regulator) 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.

 

20.         The parties of this Agreement acknowledge and agree
that this Agreement shall not be exclusive in any respect.

 

 

11

 

21.         This Agreement may be executed by facsimile
signature and it may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.

 

 

 

	
   

  	
  MINNESOTA LIFE INSURANCE COMPANY

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Randy R. Wallake

  	
   

  
	
   

  	
  By:  Randy F.
  Wallake

  
	
   

  	
  Title:  Executive
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  WADDELL & REED, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Thomas W. Butch

  	
   

  
	
   

  	
  By:  Thomas W.
  Butch

  
	
   

  	
  Title:  Executive
  Vice President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  W&R TARGET FUNDS, INC.

  
	
   

  	
   

  
	
   

  	
  /s/ Henry J. Herrmann

  	
   

  
	
   

  	
  By:  Henry J.
  Herrmann

  
	
   

  	
  Title:  President

  
					

 

 

12

 

EXHIBIT A

 

 

Variable Accounts of Minnesota Life Insurance Company

 

1.               Minnesota Life Variable
Universal Life Account

2.               Variable Annuity Account

3.               Minnesota Life Variable Life
Account

 

 

13

 

EXHIBIT B

 

W&R Target Funds, Inc.

 

Funds Available to Variable Accounts

 

Balanced

Growth

Core
Equity

Value

Small
Cap Growth

International

Small
Cap Value

Micro
Cap Growth

Asset
Strategy

Science
and Technology

International
II

 

 

14

 

EXHIBIT C

 

Fees or Other Compensation

 

(a)          Compensation
described in this Exhibit C shall apply to all assets invested in the
Funds in connection with the Contracts (hereinafter the “Aggregated Assets”).

 

(b)         Assets Under Management.  Each quarter, W&R shall calculate and pay
to Company a fee that shall be equal to forty-five (45) basis points, on an
annualized basis, of the average daily account value of the Aggregated Assets
(including any seed money provided by Company or any of its affiliates),
provided, however, that the fee is subject to change pursuant to Paragraphs (c) and
(d) below.  The fee (the “Total Fee”)
shall include and not be in addition to the payment by W&R of the 12b-1
fees received by W&R from the Funds relating to the Aggregated Assets.  W&R may, at its option, pay any portion
of the Total Fee due which is attributable to 12b-1 fees to the underwriter of
the Contracts

 

(c)          Changes in Law.  If a change in the law requires a reduction
in the fees paid by a pooled investment vehicle pursuant to Section 12b-1
of the Investment Company Act of 1940 (or its functional equivalent), and if
the Funds are required to reduce the 12b-1 fees they pay that are based upon
the value of the Aggregated Assets (including seed money provided by Company or
any of its affiliates) as a result of such change in the law, then there shall
be a corresponding reduction in the amount of the Total Fee due pursuant to
above.

 

(d)         Voluntary Increase in 12b-1 Fees.  If a Fund voluntarily increases the fees it
pays pursuant to Section 12b-1 of the Investment Company Act of 1940 (or
its functional equivalent) that are based upon the value of the Aggregated
Assets (including seed money provided by Company or any of its affiliates),
then there shall be a corresponding increase in the amount of the Total Fee due
pursuant to above.

 

 

15Exhibit 10.12

 

ACCOUNTING
SERVICES AGREEMENT

 

 

                THIS AGREEMENT, originally made as of the 9th day of
March, 1995, by and between United Asset Strategy Fund, Inc. and Waddell &
Reed Services Company, is hereby amended and restated and effective July 1,
2003, by and between Waddell & Reed Advisors Asset Strategy Fund, Inc.
(f/k/a United Asset Strategy Fund, Inc.) (the “Fund”), a Maryland
corporation, and Waddell & Reed Services Company (“WRSCO”), a Missouri
corporation,

 

 

WITNESSETH:

 

                WHEREAS, the Fund wishes to appoint WRSCO to be its
Accounting Services Agent upon and subject to the terms and provisions of this
Agreement;

 

                NOW THEREFORE, in consideration of the mutual
covenants contained in this Agreement, the parties agree as follows:

 

                A.            Appointment
of WRSCO as Accounting Services Agent for the Fund; Acceptance.

 

                                (1) The Fund hereby appoints
WRSCO to act as Accounting Services Agent for the Fund upon and subject to the
terms and provisions of this Agreement.

 

                                (2)  WRSCO hereby accepts the
appointment as Accounting Services Agent for the Fund and agrees to act as such
upon and subject to the terms and provisions of this Agreement.

 

                B.            Duties
of WRSCO.

 

                                WRSCO shall perform such duties as
set forth in this Paragraph B as agent for and on behalf of the Fund.

 

                                (1)  WRSCO shall at its expense
provide bookkeeping and accounting services and assistance, including, in
particular, the following administrative services as are required by the Fund:

 

a)              maintaining the registration or qualification of the
Fund and their shares under state “Blue Sky” or securities laws and
regulations, provided that the Fund shall pay all related filing fees and
registration or qualification fees;

b)             price daily the value of shares of the Fund;

c)              assisting the Fund and third party solicitors (if any)
in connection with soliciting and gathering shareholder proxies;

d)             preparing the Fund’s U.S. Federal, state and local
income tax returns, provided that the Fund shall pay all charges for services
and expenses of the Fund’s independent accountants in reviewing such returns;

 

 

 

e)              preparing the financial information for the Fund’s
prospectuses, statements of additional information and periodic reports to
shareholders, provided that the Fund shall pay all charges for services and expenses
of the Fund’s independent accountants;

f)                preparing the semi-annual report on Forms N-SAR and
annual report on Form N-CSR or on such other substitute form as the
Securities and Exchange Commission (the “SEC”) from time to time may prescribe
under Section 30(b) of the Investment Company Act of 1940, as amended
(the “1940 Act”);

g)             assisting the Fund’s legal counsel with the
preparation and filing with the SEC of the Fund’s registration statement
(including prospectuses and statements of additional information), and any
amendments or supplements that may be made from time to time, and with the
preparation and filing with the SEC of notices and proxy materials for meetings
of shareholders, provided that the Fund shall pay all charges for services and
expenses of the Fund’s outside legal counsel;

h)             assisting in the printing of the Fund’s prospectuses,
periodic reports to shareholders and proxy materials; and

i)                 providing executive, clerical and secretarial
personnel competent to carry out the above responsibilities.

 

                                (2)  WRSCO shall maintain and
keep current the accounts, books, records, and other documents relating to the
Fund’s financial and portfolio transactions as may be required by rules and
regulations of the Securities and Exchange Commission adopted under Section 31(a) of
the 1940 Act.

 

                                (3)  WRSCO shall cause the
subject records of the Fund to be maintained and preserved pursuant to the
requirements under the 1940 Act.

 

                                (4)  In pricing daily the value
of shares of the Fund, WRSCO may make arrangements to and obtain the value of
portfolio securities from pricing services or quotation services that are
compensated by the Fund directly or indirectly through the placement of
portfolio transactions with broker-dealers who provide such valuation or
quotation services to WRSCO.

 

                                (5)  WRSCO shall maintain
duplicate copies of, or information from which copies of, the records necessary
to the preparation of the Fund’s financial statements and valuations of its
assets may be reconstructed.  Such duplicate
copies or information shall be maintained at a location other than where WRSCO
performs its normal duties hereunder so that in the event the records
established and maintained pursuant to the foregoing provisions of this Section B
are damaged or destroyed, WRSCO shall be able to provide the bookkeeping and
accounting services and assistance specified in this Section B.

 

                                (6)  In the event any of WRSCO’s
facilities or equipment necessary for the performance of its duties hereunder
is damaged, destroyed or rendered inoperable by reason of 

 

 

2

 

fire, vandalism, riot,
natural disaster or otherwise, WRSCO will use its best efforts to restore all
services hereunder to the Fund and will not seek from the Fund additional
compensation to repair or replace damaged or destroyed facilities or
equipment.  WRSCO shall also make and
maintain arrangements for emergency use of alternative facilities for use in
the event of the aforesaid destruction of or damage to its facilities.

 

                C.            Compensation
of WRSCO.

 

                                The Fund agrees to pay to WRSCO for
its services under this Agreement, an amount payable on the first day of the
month as shown on the following table pertinent to the average daily net assets
of the Fund during the prior month:

 

	
   

  	
  Fund’s Average Daily Net Assets for the Month

  	
   

  	
  Monthly Fee

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  $0 - $10 million

  	
   

  	
  $

  	
  0

  	
   

  
	
   

  	
  $10 - $25 million

  	
   

  	
  $

  	
  958

  	
   

  
	
   

  	
  $25 - $50 million

  	
   

  	
  $

  	
  1,925

  	
   

  
	
   

  	
  $50 - $100 million

  	
   

  	
  $

  	
  2,958

  	
   

  
	
   

  	
  $100 - $200 million

  	
   

  	
  $

  	
  4,033

  	
   

  
	
   

  	
  $200 - $350 million

  	
   

  	
  $

  	
  5,267

  	
   

  
	
   

  	
  $350 - $550 million

  	
   

  	
  $

  	
  6,875

  	
   

  
	
   

  	
  $550 - $750 million

  	
   

  	
  $

  	
  8,025

  	
   

  
	
   

  	
  $750 - $1.0 billion

  	
   

  	
  $

  	
  10,133

  	
   

  
	
   

  	
  $1.0 billion and over

  	
   

  	
  $

  	
  12,375

  	
   

  

 

In addition, for each
class of shares in excess of one, the Fund pays WRSCO a monthly per-class fee
equal to 2.5% of the monthly base fee.

 

The Fund also pays
monthly a fee paid at the annual rate of .01% or one basis point for the first
$1 billion of net assets with no fee charged for net assets in excess of $1
billion.  This fee may be voluntarily
waived until Fund assets are at least $10 million.

 

                D.            Right
of Fund to Inspect; Ownership of Records.

 

                The Fund will have the right under this Agreement to
perform on-site inspection of records and accounts, and audits directly
pertaining to the Fund’s accounting and portfolio records maintained by WRSCO
hereunder at WRSCO’s facilities.  WRSCO
will cooperate with the Fund’s independent accountants or representatives of
appropriate regulatory agencies and furnish all reasonably requested records
and data.  WRSCO acknowledges that these
records are the property of the Fund, and that it will surrender to the Fund
all such records promptly on request.

 

 

3

 

E.             Standard of Care; Indemnification.

 

                                WRSCO will at all times exercise due
diligence and good faith in performing its duties hereunder.  WRSCO will make every reasonable effort and
take all reasonably available measures to assure the adequacy of its personnel,
facilities and equipment as well as the accurate performance of all services to
be performed by it hereunder within, at a minimum, the time requirements of any
applicable statutes, rules or regulations and in conformity with the Fund’s
Articles of Incorporation, Bylaws and representations made in the Fund’s
current registration statement as filed with the Securities and Exchange
Commission.

 

                                WRSCO shall not be responsible for,
and the Fund agrees to indemnify WRSCO for, any losses, damages or expenses
(including reasonable counsel fees and expenses):  (i) resulting from any claim, demand,
action or suit not resulting from WRSCO’s failure to exercise good faith or due
diligence and arising out of or in connection with WRSCO’s duties on behalf of
the Fund hereunder; (ii) for any delay, error or omission by reason of
circumstances beyond its control, including acts of civil or military
authority, national emergencies, labor difficulties (except with respect to
WRSCO’s employees), fire, mechanical breakdown beyond its control, flood or
catastrophe, acts of God, insurrection, war, riots or failure beyond its
control of transportation, communication or power supply; or (iii) for any
action taken or omitted to be taken by WRSCO in good faith in reliance on the
accuracy of any information provided to it by the Fund or its directors or in
reliance on any advice of counsel who may be internally employed counsel or
outside counsel for the Fund or advice of any independent accountant or expert
employed by the Fund with respect to the preparation and filing of any document
with a governmental agency or authority.

 

                                In order for the rights to
indemnification to apply, it is understood that if in any case the Fund may be
asked to indemnify or hold WRSCO harmless, the Fund shall be advised of all
pertinent facts concerning the situation in question, and it is further
understood that WRSCO will use reasonable care to identify and notify the Fund
promptly concerning any situation which presents or appears likely to present a
claim for indemnification against the Fund. 
The Fund shall have the option to defend WRSCO against any claim which
may be the subject of this indemnification and, in the event that the Fund so
elects, it will so notify WRSCO, and thereupon the Fund shall take over
complete defense of the claim, and WRSCO shall sustain no further legal or
other expenses in such situation for which WRSCO shall seek indemnification
under this paragraph.  WRSCO will in no
case confess any claim or make any compromise in any case in which the Fund
will be asked to indemnify WRSCO except with the Fund’s prior written consent.

 

                F.             Term
of the Agreement; Taking Effect; Amendments.

 

                                This Agreement shall become effective
at the start of business on the date hereof and shall continue, unless
terminated as hereinafter provided, for a period of one (1) year and from
year-to-year thereafter, provided that such continuance shall be specifically
approved as provided below.

 

 

4

 

                                This Agreement shall go into effect,
or may be continued, or may be amended, or a new agreement covering the same
topics between the Fund and WRSCO may be entered into only if the terms of this
Agreement, such continuance, the terms of such amendment or the terms of such
new agreement have been approved by the Board of Directors of the Fund,
including the vote of a majority of the directors who are not “interested
persons,” as defined in the 1940 Act, of either party to this Agreement, the
agreement to be continued, amendment or new agreement, cast in person at a
meeting called for the purpose of voting on such approval.  Such a vote is hereinafter referred to as a “disinterested
director vote.”

 

                                Any disinterested director’s vote
shall, in favor of continuance, amendment or execution of a new agreement,
include a determination that:  (i) the
Agreement, amendment, new agreement or continuance in question is in the best
interests of the Fund and its shareholders; (ii) the services to be
performed under the Agreement, the Agreement as amended, new agreement or
agreement to be continued, are services required for the operation of the Fund;
(iii) WRSCO can provide services, the nature and quality of which are at
least equal to those provided by others offering the same or similar services;
and (iv) the fees for such services are fair and reasonable in the light
of the usual and customary charges made by others for services of the same
nature and quality.

 

                                Nothing herein contained shall
prevent any disinterested director vote from being conditioned on the favorable
vote of the holders of a majority (as defined in or under the 1940 Act) of the
outstanding shares of the Fund.

 

                G.            Termination.

 

                                (1)  This Agreement may be
terminated by WRSCO at any time without penalty upon giving the Fund at least
one hundred twenty (120) days’ written notice (which notice may be waived by
the Fund) and may be terminated by the Fund at any time without penalty upon
giving WRSCO at least sixty (60) days’ written notice (which notice may be
waived by WRSCO), provided that such termination by the Fund shall be directed
or approved by the vote of a majority of the Board of Directors of the Fund in
office at the time or by the vote of the holders of a majority (as defined in
or under the 1940 Act) of the outstanding shares of the Fund.

 

                                (2)  On termination, WRSCO will
deliver to the Fund or its designee all files, documents and records of the
Fund used, kept or maintained by WRSCO in the performance of its services
hereunder, including such of the Fund’s records in machine readable form as may
be maintained by WRSCO, as well as such summary and/or control data relating
thereto used by or available to WRSCO.

 

                                (3)  In addition, on such
termination or in preparation therefore at the request of the Fund and at the
Fund’s expense, WRSCO shall provide, to the extent that its capabilities then
permit, such documentation, personnel and equipment as may be reasonably
necessary in order for a new agent or the Fund to fully assume and commence to
perform the agency functions described in this Agreement with a minimum disruption
to the Fund’s activities.

 

 

5

 

                                (4)  This Agreement shall
automatically terminate in the event of its assignment, the term “assignment”
for this purpose having the meaning defined in Section 2(a)(4) of the
Act and the rules and regulations thereunder of the Securities and
Exchange Commission.

 

                IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed on the date and year first above written.

 

	
   

  	
  WADDELL & REED
  ADVISORS

  
	
   

  	
  ASSET STRATEGY FUND,
  INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/Henry J. Herrmann

  	
   

  
	
   

  	
   

  	
  Henry J. Herrmann,
  President

  
	
   

  	
   

  
	
  ATTEST:

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/Kristen A. Richards

  	
   

  	
   

  
	
   

  	
  Kristen A. Richards,
  Secretary

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  WADDELL & REED
  SERVICES COMPANY

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/Michael D. Strohm

  	
   

  
	
   

  	
   

  	
  Michael D. Strohm, President

  	
   

  
	
   

  	
   

  
	
  ATTEST:

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/Daniel C. Schulte

  	
   

  	
   

  
	
   

  	
  Daniel C. Schulte,
  Secretary

  	
   

  	
   

  
	
   

  	
   

  
							

 

 

6

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