Registration No. 333-45343
As filed with the Securities and Exchange Commission
on May 15, 1998
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
LIFE INSURANCE SEPARATE ACCOUNT OF
USAA LIFE INSURANCE COMPANY
(Exact Name of Trust)
USAA LIFE INSURANCE COMPANY
(Name of Depositor)
9800 Fredricksburg Road, C-3-W
San Antonio, Texas 78288
(Complete Address of Depositor's Principal Executive Offices)
DWAIN A. AKINS, ESQ.
Assistant Vice President and Assistant Secretary
USAA Life Insurance Company
9800 Fredricksburg Road, C-3-W
San Antonio, Texas 78288
(Name and Complete Address of Agent for Service)
Please send copies of all communications to:
GARY O. COHEN, ESQ.
Freedman, Levy, Kroll & Simonds
1050 Connecticut Avenue, N.W., Suite 825
Washington, D.C. 20036
(202) 457-5107
Title and Amount of Securities Being Registered:
An Indefinite Amount of Interests in
Life Insurance Separate Account of
USAA Life Insurance Company
Under Variable Universal Life Insurance Policies
<PAGE>
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
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 this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
This filing is made pursuant to Rules 6c-3 and 6e-3(T) under the Investment
Company Act of 1940.
ii
<PAGE>
RECONCILATION AND TIE BETWEEN ITEMS IN
FORM N-8B-2 AND THE PROSPECTUS
LIFE INSURANCE SEPARATE ACCOUNT OF
USAA LIFE INSURANCE COMPANY
<TABLE>
<CAPTION>
ITEM NO. OF FORM N-8B-2 * CAPTION IN PROSPECTUS**
<S> <C>
1 Cover Page
2 Cover Page
3 Not Applicable
4 Policy Distribution
5 Definitions
6 Separate Account
7 Not Required***
8 Not Required***
9 Legal Matters
10 Death Benefit; Other Policy Benefits;
Payment of Policy Benefits; Transfer of
Cash Value; Loans; Surrenders; Policy Lapse
and Reinstatement; Investment Options
Voting Privileges; Investment Options -
Additions or Changes to Investment Options;
The Contract
11 Investment Options
12 Investment Options
13 The Policy at a Glance - Policy Charges and
Deductions; The Policy at a Glance - Fund
Fees and Other Expenses; Charges and
Deductions; USAA Life
14 Policy Issuance; Premium Payments
iii
<PAGE>
15 Premium Payments; Investment Options
16 Premium Payments - Allocation of Premiums;
Investment Options
17 Death Benefit; Other Policy Benefits;
Payment of Policy Benefits; Transfer of
Cash Value; Loans; Surrenders; Policy Lapse
and Reinstatement
18 Tax Matters - Taxation of Policy Proceeds:
Our Taxes; Separate Account; Charges and
Deductions - Monthly Deductions: Mortality
and Expense Risk Charge; Financial
Statements
19 USAA Life; Reports and Records
20 Not Applicable
21 Loans
22 Not Applicable
23 Not Applicable**
24 Charges and Deductions; Cash Value;
Telephone Transactions; Free Look Right;
Postponement of Payments; More Policy
Information
25 USAA Life
26 Not Applicable
27 USAA Life
28 USAA Life - Directors of USAA Life; USAA
Life Officers (other than Directors)
29 USAA Life
30 Not Applicable
31 Not Applicable
32 Not Applicable
iv
<PAGE>
33 Not Applicable
34 Not Applicable
35 Policy Distribution
36 Not Required***
37 Not Applicable
38 Policy Distribution
39 Policy Distribution
40 Not Applicable
41 Policy Distribution; Investment Options
42 Not Applicable
43 Not Applicable
44 Charges and Deductions - Other Charges;
Investment Options
45 Not Applicable
46 Charges and Deductions - Other Charges;
Investment Options
47 Not Applicable
48 Not Applicable
49 Not Applicable
50 Not Applicable
51 Not Applicable**
52 Investment Options - Additions or Changes
to Investment Options
v
<PAGE>
53 Tax Matters - Taxation of USAA Life
54 Not Applicable
55 Not Applicable**
56 Not Required***
57 Not Required***
58 Not Required***
59 Not Required***
</TABLE>
* Registrant includes this Reconciliation and Tie Sheet in the amendment
to its Registration Statement in compliance with Instruction 4 as to the
Prospectus as set out in Form S-6. Registrant filed a Notification of
Registration as an investment company on Form N-8A and a Form N-8B-2
Registration Statement under the Investment Company Act of 1940 on January 30,
1998. Pursuant to Sections 8 and 30(b)(1) of the Investment Company Act of
1940, Rule 30a-1 under that Act, and Forms N-8B-2 and N-SAR under that Act,
Registrant will keep its Form N-8B-2 Registration Statement current through
the filing of periodic reports required by the Securities and Exchange
Commission.
** Caption in Prospectus, to the extent relevant to this Form. Certain
items are not relevant pursuant to the administrative practice of the
Commission and its staff of adapting the disclosure requirements of the
Commission's registration statement forms in recognition of the differences
between variable life insurance policies and other periodic payment plan
certificates issued by investment companies and between separate accounts
organized as management companies and unit investment trusts.
*** Not required pursuant to Instruction 1(a) as to the Prospectus as
set out in Form S-6.
vi
<PAGE>
VARIABLE UNIVERSAL LIFE INSURANCE POLICY
Offered By Prospectus dated:
______1998
USAA LIFE INSURANCE COMPANY
9800 Fredericksburg Road, San Antonio, Texas 78288
Telephone: toll free 1-800-531-8000
This Prospectus describes a Variable Universal Life Insurance Policy
("Policy") that we are offering, through our Life Insurance Separate Account,
to individual members of the United Services Automobile Association ("USAA"),
the parent company of the USAA Group of Companies, as well as to the general
public.
The Policy offers you:
o Life insurance protection guaranteed by USAA Life. SEE "Policy
Benefits."
o 12 investment options, available through the Separate Account,
including Funds of USAA LIFE INVESTMENT TRUST, THE ALGER AMERICAN
FUND, SCUDDER VARIABLE LIFE INVESTMENT FUND, and BT INSURANCE
FUNDS TRUST. SEE "Investment Options" and the accompanying Fund
prospectuses for a description of the Funds.
o Flexible premium payments. SEE "Premium Payments."
Please read this Prospectus carefully and keep it for future reference.
Your Prospectus and Policy may reflect variations required by the laws of your
state. This Prospectus is not valid unless accompanied by the current
prospectuses for the Funds. Defined terms used in this Prospectus appear at
the end of this booklet.
THE SECURITIES AND EXCHANGE COMMISSION ("SEC") HAS NOT APPROVED OR
DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE POLICIES ARE
SOLELY THE OBLIGATIONS OF USAA LIFE AND ARE NOT THE OBLIGATIONS OF, OR
GUARANTEED BY, ANY ONE ELSE. THE POLICY DOES NOT HAVE A MINIMUM GUARANTEED
CASH VALUE, WHICH MEANS THAT YOU BEAR THE ENTIRE INVESTMENT RISK THAT YOUR
POLICY CASH VALUE COULD DECLINE TO ZERO.
YOU MAY CANCEL THE POLICY WITHIN 10 DAYS AFTER RECEIVING IT, OR SUCH
LONGER PERIOD AS THE LAWS OF YOUR STATE MAY REQUIRE.
[FRONT COVER PAGE]
<PAGE>
TABLE OF CONTENTS
PAGE
DEFINITIONS 5
THE POLICY AT A GLANCE 9
QUESTIONS AND ANSWERS 13
POLICY INFORMATION 17
POLICY ISSUANCE 17
Who May Purchase a Policy 17
How to Purchase a Policy 17
Effective Date of Your Policy 17
PREMIUM PAYMENTS 18
Methods of Payment 18
Amount and Frequency of Payments 18
Allocation of Premiums 18
Planned Periodic Premium Payments 19
Annual Target Premium Payment 19
INVESTMENT OPTIONS 20
Additions or Changes to Investment Options 22
Voting Privileges 22
Special Considerations 23
POLICY LAPSE AND REINSTATEMENT 23
Lapse 23
Grace Period 23
Guaranteed Death Benefit 24
Reinstatement 24
CHARGES AND DEDUCTIONS 25
Premium Charge 25
Monthly Deductions From Cash Value 25
Separate Account Charges 26
Transfer Charges 27
Surrender Charges 27
Other Charges 28
Deduction of Charges 28
DEATH BENEFIT 28
Choosing Between Option A and Option B 28
Illustrations of Option A and Option B 29
Changing Your Death Benefit Option 29
Changing Your Policy's Specified Amount 30
OTHER POLICY BENEFITS 31
Optional Insurance Benefits 31
Benefits at Maturity 32
PAYMENT OF POLICY BENEFITS 33
Payment of Death Benefit 33
Payment of Maturity Benefit 33
2
<PAGE>
Death Benefit Payment Options 33
CASH VALUE 34
Calculating Your Value
in the Variable Fund Accounts 35
TRANSFER OF VALUE 35
LOANS 36
Loan Collateral 36
Loan Interest 36
Repayment of Indebtedness 37
Effect of Policy Loans 37
SURRENDERS 37
Full Surrenders 38
Partial Surrenders 38
TELEPHONE TRANSACTIONS 38
FREE LOOK RIGHT 39
POSTPONEMENT OF PAYMENTS 39
MORE POLICY INFORMATION 39
OWNERS AND BENEFICIARIES 39
Owners 39
Beneficiaries 40
CALCULATING YOUR COST OF INSURANCE 40
Net Amount at Risk 41
Net Amount at Risk - More Than One Rate Class 41
Cost of Insurance Rates 42
MINIMUM AMOUNT INSURED 42
THE CONTRACT 43
INCONTESTABILITY 43
MISSTATEMENT OF AGE OR SEX 44
SUICIDE EXCLUSION 44
NON-PARTICIPATING POLICY 44
REPORTS AND RECORDS 44
PERFORMANCE INFORMATION 45
OTHER INFORMATION 46
USAA LIFE 46
Directors of USAA Life 46
Officers (other than Directors) 47
SEPARATE ACCOUNT 50
POLICY DISTRIBUTION 50
TAX MATTERS 51
Taxation of Policy Proceeds 51
Taxation of USAA Life 56
STATE REGULATION OF USAA LIFE 57
LEGAL MATTERS 57
3
<PAGE>
EXPERTS 57
REGISTRATION STATEMENT 58
FINANCIAL STATEMENTS 58
4
<PAGE>
DEFINITIONS
IN THIS PROSPECTUS:
ACCUMULATION UNIT or UNIT means an accounting unit of measure that we use to
calculate values in each Variable Fund Account.
ADMINISTRATIVE CHARGE means a monthly charge deducted from the Policy's cash
value during the first Policy Year only. It compensates us for the start-up
expenses incurred in issuing the Policy. It is shown on the Policy Information
Page.
ANNIVERSARY means the same date each succeeding year as the Effective Date of
the Policy.
ANNUAL TARGET PREMIUM PAYMENT means an annual amount of premium payment that
we establish when we issue your Policy and that is shown on the Policy
Information Page. We use it to determine whether a premium charge will be
deducted from premium payments, whether a surrender charge is imposed on a
full surrender, and whether the Guaranteed Death Benefit applies.
BENEFICIARY means the person or entity designated to receive the death benefit
upon the Insured's death.
CASH SURRENDER VALUE means your Policy cash value less the surrender charge,
if any, payable on full surrender of your Policy.
CASH VALUE, on the Effective Date, means the Net Premium less the Monthly
Deduction for the following month. Thereafter, on any Valuation Date, cash
value means the sum of your Policy's value invested in the Variable Fund
Accounts plus, if applicable, any value transferred from the Separate Account
to USAA Life's general account to secure any Policy loan, plus any interest
earnings credited on the value held in the general account, less the amount of
any outstanding loan including any unpaid loan interest, and less any Monthly
Deductions, transfer charges, and partial surrender charges applied through
that date.
DATE OF RECEIPT means the date actually received at our Home Office, subject
to two exceptions: (1) if received on a date other than a Valuation Date, the
Date of Receipt will be the following Valuation Date; and (2) if received on a
Valuation Date after close of regular trading of the New York Stock Exchange,
the Date of Receipt will be the following Valuation Date.
DEATH BENEFIT means the benefit paid in accordance with the death benefit
option in effect on the Insured's death, reduced by any Indebtedness and any
due and unpaid Monthly Deductions, and increased by any optional insurance
benefits provided by rider.
5
<PAGE>
DEATH BENEFIT OPTION means one of the two death benefit options that the
Policy provides, namely, Option A and Option B. Option A is the greater of the
current Specified Amount or the Minimum Amount Insured. Option B is the
greater of the current Specified Amount, plus the Policy's cash value, or the
Minimum Amount Insured.
EFFECTIVE DATE means the date we approve the application and issue your Policy
or the date we approve any increase in Specified Amount under your Policy. The
Effective Date is shown on the Policy Information Page.
FREE LOOK PERIOD means the period of time required by state law during which
you may return the Policy for cancellation and receive a refund. If you
request cancellation of the Policy during the Free Look Period, we will refund
the greater of the premium payments your have paid or the value of the
Variable Fund Accounts as of the Date of Receipt of your request to cancel
plus any premium charge, Monthly Deduction and mortality and expense charge
that we have deducted. The Free Look Period is shown on the Policy Information
Page.
FUND means an investment portfolio that has specific investment objectives and
policies and is offered by a Mutual Fund.
GUARANTEED DEATH BENEFIT means that we guarantee your Policy will not lapse
during the first five Policy Years and that we will pay a Death Benefit if you
have paid a sufficient amount of premium.
HOME OFFICE means USAA Life Insurance Company, USAA Building, 9800
Fredericksburg Road, San Antonio, Texas 78288.
INDEBTEDNESS means the sum of all unpaid Policy loans and any unpaid accrued
interest due on such loans.
INSURED means the person whose life is insured. The Insured is identified on
the Policy Information Page. The Insured may or may not be the Owner.
LAPSE means your Policy has terminated because of insufficient cash value from
which to deduct the Monthly Deduction and any loan interest then due. No
insurance coverage exists when your Policy has lapsed.
MAINTENANCE CHARGE means a monthly charge deducted from the Policy's cash
value. It compensates us for recurring administrative expenses related to the
maintenance of the Policy and the Separate Account. It is shown on the Policy
Information Page.
MATURITY DATE means the date that we will pay your Policy's cash value to you,
as long as the Policy has not terminated because of lapse, full surrender, or
the Insured's death. The Maturity Date is shown on the Policy Information
Page.
6
<PAGE>
MONTHLY ANNIVERSARY means the same date of each succeeding month as the
Effective Date of your Policy.
MONTHLY DEDUCTION means a charge we make under your Policy each month against
the Policy's cash value. The charge is equal to:
1) the cost of insurance and any riders, plus
2) the administrative charge that is applied during the first 12 months
that the Policy is in effect, plus
3) the maintenance charge.
MINIMUM AMOUNT INSURED means the amount of life insurance required by the
Internal Revenue Code to qualify your Policy as life insurance and to exclude
the Death Benefit from a Beneficiary's taxable income.
MUTUAL FUND means an open-end investment company under federal securities law.
It may offer shares of several different Funds for investment.
NET ASSET VALUE means the current value of each Fund's total assets, less all
liabilities, divided by the total number of shares outstanding.
NET PREMIUM PAYMENT means the amount of a premium payment less the Policy's
premium charge.
NOTICE TO US means your signed statement that we receive at our Home Office
and that is in a form satisfactory to us.
OWNER means the person to whom we owe the rights and privileges of the Policy.
POLICY INFORMATION PAGE means the page that identifies certain information
about the Policy and specifies certain terms of the Policy.
POLICY YEAR means a period of 12 calendar months starting with the Effective
Date of the Policy, and each 12-month period thereafter. For example, if your
Policy was issued on July 15, your first Policy Year would end on the
following July 14. Each subsequent Policy Year would start on July 15 and end
on July 14.
PREMIUM CHARGE means an amount that we deduct from premium payments to
compensate us for sales charges and taxes related to the Policy.
SEPARATE ACCOUNT means the Life Insurance Account of USAA Life Insurance
Company. The Separate Account is an investment account established under Texas
law through which we invest the Net Premium Payments received for investment
in the Variable Fund Accounts under the Policy. The Separate Account is
divided into subdivisions called the Variable Fund Accounts. Each Variable
Fund Account invests the Net Premium Payments allocated to it in a particular
7
<PAGE>
Fund. We own the assets of the Separate Account. To the extent that the assets
are equal to the reserves and other contractual liabilities, they are not
chargeable with liabilities arising out of any other business of ours. The
income, gains, and losses, realized or unrealized, from the assets of the
Separate Account are credited or charged against the Separate Account without
regard to other income, gains or losses of ours. The Separate Account is
registered as an investment company under federal securities law.
SPECIFIED AMOUNT means the minimum death benefit payable as long as the Policy
is in effect. It is also the amount of life insurance we issue. It is shown on
the Policy Information Page.
SURRENDER CHARGE means an amount that we may deduct from your Policy's cash
value if you surrender your Policy in full.
VALUATION DATE means any business day, Monday through Friday, on which the New
York Stock Exchange is open for regular trading, except
1) any day on which the value of the shares of a Fund is not computed,
or
2) any day during which no order for the purchase, surrender or transfer
of Accumulation Units is received.
VALUATION PERIOD means the period of time from the end of any Valuation Date
to the end of the next Valuation Date.
VARIABLE FUND ACCOUNT means a subdivision of the Separate Account in which you
may invest Net Premium Payments. There are several Variable Fund Accounts
under the Policy. Each Variable Fund Account corresponds to a particular Fund.
Net Premium Payments allocated to a Variable Fund Account are invested in a
particular Fund.
The Variable Fund Accounts are also referred to in this Prospectus as
Accounts.
WE, OUR, US, or USAA Life means USAA Life Insurance Company.
YOU, YOUR or YOURS refers to the Owner of the Policy.
8
<PAGE>
THE POLICY AT A GLANCE
The following is a snapshot of the Policy. Please refer to the remainder
of the Prospectus for further details and other information.
-----------------------------------------------------------------------------
<TABLE>
PREMIUM PAYMENTS AND WITHDRAWALS
<S> <C>
MINIMUM AMOUNTS
INITIAL PREMIUM Depends on Specified Amount of insurance coverage
SUBSEQUENT PREMIUMS Depends on Specified Amount of insurance coverage
WITHDRAWALS None
</TABLE>
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<TABLE>
INSURANCE BENEFITS
<S> <C>
DEATH BENEFITS
OPTION A Greater of Specified Amount or Minimum Amount Insured
OPTION B Greater of Specified Amount plus cash value or Minimum Amount Insured
MINIMUM COVERAGE REQUIRED $100,000 ($25,000 for Insureds under age 18)
MINIMUM INCREASE OR DECREASE $25,000, subject to $50,000 minimum coverage amount ($25,000 for
IN COVERAGE Insureds under age 18) with certain exceptions
OPTIONAL INSURANCE Accelerated Benefit for Terminal Illness
BENEFITS AVAILABLE Accidental Death Benefit
BY RIDER Children Term Life Insurance
Extended Maturity Date
Waiver of Monthly Deduction in Event of Permanent Disability
BENEFITS AT MATURITY Current Policy cash value
</TABLE>
-----------------------------------------------------------------------------
<TABLE>
POLICY CHARGES AND DEDUCTIONS
<S> <C>
PREMIUM CHARGE 3% from each premium payment received
until 10 Annual Target Premium
Payments paid
</TABLE>
<TABLE>
MONTHLY DEDUCTIONS FROM CASH VALUE
<CAPTION>
COST OF INSURANCE CHARGE (1)
(PER $1000 OF NET AMOUNT AT Current Guaranteed Maximum (3)
RISK)
<S> <C> <C>
MALE (AGE 35) (2)
STANDARD $0.13 $0.23
STANDARD PLUS $0.11 $0.23
PREFERRED $0.06 $0.14
PREFERRED PLUS $0.05 $0.14
PREFERRED ULTRA $0.05 $0.14
FEMALE (AGE 35) (2)
STANDARD $0.08 $0.17
STANDARD PLUS $0.08 $0.17
PREFERRED $0.05 $0.13
PREFERRED PLUS $0.04 $0.13
PREFERRED ULTRA $0.03 $0.13
<FN>
(1) The cost of insurance charge for an Insured depends on the age, sex, and
rate class of the Insured. See "Calculating Your Cost of Insurance."
(2) Based on the approximate average issue age of 35 for the Insured.
(3) Based on the 1980 Commissioners Standard Ordinary Mortality Table. The
maximum cost of insurance charge, which is imposed at age 99, is $1,000
per $1,000 of net amount at risk.
</FN>
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
ADMINISTRATIVE CHARGE $10 (applies only during first Policy Year)
MAINTENANCE CHARGE $5
TERMINAL ILLNESS RIDER None
ACCIDENTAL DEATH BENEFIT RIDER $.07 per $1,000 coverage
CHILDREN TERM LIFE INSURANCE $.50 per $1,000 coverage
RIDER
EXTENDED MATURITY DATE RIDER None
WAIVER OF MONTHLY DEDUCTION Depends on age of Insured
RIDER
TRANSFER CHARGE $0 for first six transfers each Policy Year; $25 per transfer in
excess of six per Policy Year
SEPARATE ACCOUNT CHARGES
MORTALITY AND EXPENSE CHARGE 0.75% of net assets of Separate Account4
FEDERAL INCOME TAX CHARGE Currently none (5)
SURRENDER CHARGES
PARTIAL SURRENDER Lesser of $25 or 2% of amount withdrawn
FULL SURRENDER Maximum of 50% of Annual Target Premium Payment (declines each Policy
year to 0% after the 10th Policy Year)
<FN>
(4) The Mortality and Expense Charge is deducted on a daily basis at an
annual rate of 0.75% of the value of each Variable Fund Account.
(5) There is currently no Federal Income Tax Charge deducted from the assets
of the Separate Account, because USAA Life does not currently incur any
income tax on the earnings or the realized capital gains attributable to
the Separate Account.
</FN>
</TABLE>
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10
<PAGE>
<TABLE>
FUND FEES AND OTHER EXPENSES
<CAPTION>
Total Fund Total Fund
Other Expenses Other Expenses Operating Expenses Operating Expenses
Management Before Expense After Expense Before Expense After Expense
Fees Reimbursement Reimbursement Reimbursement Reimbursement (6)
---------- -------------- -------------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
USAA LIFE
INVESTMENT TRUST
Money Market Fund .20% .50% .15% .70% .35%
Income Fund .20% .32% .15% .52% .35%
Growth and Income
Fund .20% .14% .14% .34% .34%
World Growth Fund .20% .39% .39% .59% .59%
Diversified Assets
Fund .20% .22% .15% .42% .35%
Aggressive Growth
Fund .50% .35% .20% .85% .70%
International Fund .65% .59% .45% 1.24% 1.10%
ALGER AMERICAN
FUND
Growth Portfolio .75% .04% .04% .79% .79%
SCUDDER VARIABLE LIFE
INVESTMENT FUND
Capital Growth
Portfolio Class A
Shares .475% .035% .035% .51% .51%
BT INSURANCE
FUNDS TRUST
Equity 500 Index Fund .20% 2.58% .10% 2.78% .30%
Small Cap Index Fund .35% 2.92% .10% 3.27% .45%
EAFE(R) Equity Index Fund
.45% 2.30% .20% 2.75% .65%
<FN>
(6) The fee and expense figures shown with respect to each Fund are based on
amounts incurred during the most recent fiscal year. During this period,
certain expense reimbursement arrangements had the effect of reducing
expenses actually paid by certain Funds of the USAA Life Investment
Trust, and the BT Insurance Funds Trust, respectively. The expense
reimbursement arrangements for the Funds of the USAA Life Investment
Trust exist pursuant to an Underwriting and Administrative Services
Agreement, under which USAA Life, out of its general account, has agreed
to assume Fund expenses to the extent that such expenses exceed, on an
annual basis, .65% of the monthly average net assets of the World Growth
Fund, .70% of the monthly average net assets of the Aggressive Growth
Fund, 1.10% of the monthly average net assets of the International Fund,
and .35% of the monthly average net assets of each other Fund. This
Agreement is terminable by any party thereto upon 120 days' notice to
the other parties. Pursuant to a voluntary expense reimbursement
arrangement, Bankers Trust reimburses the BT Funds for certain expenses
so that the Equity 500 Index Fund, Small Cap Index Fund and EAFE (R)
Equity Index Fund total operating expenses will not exceed .30%, .45%,
and .65%, respectively. Such expense reimbursements may be terminated at
the discretion of Bankers Trust.
</FN>
</TABLE>
11
<PAGE>
-----------------------------------------------------------------------------
<TABLE>
TRANSFERS
<S> <C>
NUMBER OF FREE 6 per Policy Year
TRANSFERS
MINIMUM AMOUNT OF $250 (or remaining value in Variable Fund Account, if less)
TRANSFER
</TABLE>
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<TABLE>
LOANS
<S> <C>
MINIMUM LOAN None
ACCOUNT
MAXIMUM LOAN 85% of cash surrender value
AMOUNT
MAXIMUM INTEREST RATE 6% payable in advance, 4.5% preferred rate payable in advance
</TABLE>
12
<PAGE>
QUESTIONS AND ANSWERS
The following are answers to some basic questions about the Policy.
Please read the remainder of this Prospectus for further details.
WHAT KIND OF LIFE INSURANCE IS THE POLICY?
The Policy is a FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY. The
Policy is called "flexible premium" because it gives you the flexibility to
vary the amount and frequency of your premium payments, within certain limits.
SEE "Premium Payments." The Policy is called "variable" life insurance because
your cash value, your cost of insurance charges, and your life insurance
(death) benefits can vary according to your investment in one or more Variable
Fund Accounts. SEE "Cash Value," "Charges and Deductions - Monthly
Deductions," and "Death Benefit." Your investment experience in the Variable
Fund Accounts may be positive or negative. THE POLICY HAS NO MINIMUM
GUARANTEED CASH VALUE, WHICH MEANS YOU BEAR THE ENTIRE INVESTMENT RISK THAT
YOUR CASH VALUE COULD DECLINE TO ZERO.
HOW DO I BUY A POLICY?
You can buy a Policy by calling us at 1-800-531-8000 or by contacting
one of our regional offices. Our licensed insurance representatives can help
you complete an application and assist you through our application or
"underwriting" process, which normally involves a medical exam. We will issue
a Policy to you, provided you meet our requirements for insurability. We will
not issue a Policy that insures a person older than age 80. We also reserve
the right to reject an application for any reason. Insurance coverage under
your Policy begins on its Effective Date. SEE "Policy Issuance."
HOW MUCH INSURANCE CAN I BUY?
The minimum amount of insurance you can buy is $100,000 ($25,000 if the
Insured is less than 18 years of age). We call the amount of insurance that
you specify on your application the "Specified Amount." Federal tax law limits
your ability to make certain amounts of large premium payments relative to
your Policy's Specified Amount and may impose penalties on amounts you take
out of your Policy if you do not observe certain additional requirements. SEE
"Premium Payments - Amount and Frequency of Payments" and "Tax Matters." We
will monitor your premium payments to be sure that you do not exceed permitted
amounts or inadvertently incur any tax penalties due to excess premium
payments. You can change the Specified Amount, at any time, subject to the
conditions described under "Death Benefit - Changing Your Policy's Specified
Amount."
13
<PAGE>
WHAT INSURANCE PROTECTION DOES THE POLICY OFFER?
The Policy offers two types of insurance protection or "death
benefit" options. If you select the Option A death benefit, upon the Insured's
death, we will pay your beneficiary the greater of your Policy's Specified
Amount or the Minimum Amount Insured. If you select the Option B death
benefit, upon the Insured's death, we will pay your beneficiary the greater of
the sum of your Policy's Specified Amount and your cash value, on the one
hand, or the Minimum Amount Insured on the other. SEE "Death Benefit." As long
as the Policy remains in effect, under either option, the death benefit will
never be less than the Policy's Specified Amount, less any Indebtedness and
any due and unpaid Monthly Deductions.
In addition, you can add optional insurance death benefits to a Policy
by rider. SEE "Optional Insurance Benefits."
HOW MUCH ARE THE PREMIUM PAYMENTS?
Within certain limits, you have the flexibility to determine the amount
and timing of your premium payments to reflect your changing financial
conditions or objectives. We generally require a minimum initial premium to
issue a Policy, but we do not impose a minimum on your subsequent premium
payments. SEE "Premium Payments." You must, of course, maintain sufficient
cash value to keep your Policy in effect, which may require you to make
additional unscheduled premium payments. SEE "Policy Lapse and Reinstatement."
You will usually plan a periodic premium schedule when applying for a
Policy. If you wish, we will bill you for these amounts. However, you are not
required to follow this schedule. SEE "Premium Payments."
WHAT ARE THE CHARGES AND DEDUCTIONS?
We assess certain charges and deductions to support the operation of
your Policy and the Separate Account. Some charges apply to your premium
payments, some apply to your cash value, and others apply to the Separate
Account. In addition, we assess administrative fees for processing Policy
transactions, such as partial surrenders of cash value and transfer of value
among Variable Fund Accounts in excess of six free transfers per Policy Year.
SEE "The Policy At a Glance" and "Charges and Deductions."
WHAT FACTORS AFFECT MY COST OF INSURANCE?
If you are the Insured, your cost of insurance will depend on your age,
sex, and rate class. The rate class that applies depends on your health,
whether you use tobacco, and other factors that we use to determine your
insurability. During the life of the Policy, the maximum monthly cost of
insurance charges will never exceed the guaranteed monthly cost of insurance
rates specified in your Policy. SEE "Calculating Your Cost of Insurance."
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<PAGE>
WHAT IS THE SEPARATE ACCOUNT?
The Separate Account is a segregated asset account of USAA Life that
supports the Policy's variable life insurance benefits. The Separate Account
consists of 12 Variable Fund Accounts, each of which invests in a
corresponding Fund. SEE "Investment Options."
WHAT ARE MY INVESTMENT CHOICES?
You may invest in up to 12 Variable Fund Accounts, each of which invests
exclusively in a corresponding Fund of the USAA Life Investment Trust
("Trust"), The Alger American Fund ("Alger Fund"), Scudder Variable Life
Investment Fund ("Scudder Fund"), or BT Insurance Funds Trust ("BT Fund"). SEE
"Investment Options."
HOW WILL MY POLICY'S CASH VALUE VARY?
Your Policy's cash value will vary on a daily basis to reflect the
investment experience of the Variable Fund Accounts. Your Policy's cash value
also will reflect the amount and frequency of premium payments, any partial
surrenders of cash value, any Policy loans and the charges and deductions
connected with the Policy. There is no minimum guaranteed cash value, which
means you bear the entire investment risk that your cash value could decline
to zero. SEE "Cash Value."
HOW MAY I ALLOCATE MY CASH VALUE?
You may allocate your cash value to any of the Variable Fund Accounts by
specifying on your Policy application how much of your Net Premium Payment you
would like us to apply to each Account. We will allocate your Net Premium
Payments in accordance with your allocation instructions on your application,
until you direct otherwise. You may change future allocations at any time by
telephone or by Notice to Us. You may allocate your Net Premium Payment in
increments as small as1/10th of one percent. SEE "Premium Payments."
CAN I TRANSFER VALUE AMONG INVESTMENT OPTIONS?
Yes. You can transfer value among the Variable Fund Accounts up to six
(6) times per Policy Year without charge. Each transfer above six (6) in a
Policy Year is subject to a $25 transfer charge. You may authorize transfers
by telephone or by Notice to Us. SEE "Telephone Transactions." Each transfer
must be at least $250, or the remaining value in the Variable Fund Account, if
less. SEE "Transfer of Value."
HOW DO I ACCESS MY CASH VALUE?
You can partially or fully surrender the Policy for a portion or all of
its cash value, less any applicable charges, any Indebtedness, and any due and
unpaid Monthly Deductions. We assess an administrative charge equal to the
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<PAGE>
lesser of $25 or 2% of the amount withdrawn for each partial surrender paid.
We also assess a surrender charge for full surrenders. SEE "Surrenders" and
"Charges and Deductions - Surrender Charges." Partial surrenders and related
surrender charges will reduce your Policy's death benefit on a dollar for
dollar basis. SEE "Changing Your Policy's Specified Amount" under "Death
Benefits." Full surrenders will terminate the Policy. SEE "Tax Matters" for a
discussion of the tax consequences of surrenders.
CAN I BORROW AGAINST THE POLICY'S CASH VALUE?
Yes. You can borrow money from us by using your Policy as the sole
security for the loan. The most you can borrow against your Policy is 85% of
its cash surrender value. In some cases, we may reduce the amount you can
borrow. Interest on any loan is payable in advance at the maximum annual
interest rate of 6% (4.5% for preferred loans.). Lower rates may be available.
A loan, whether repaid or not, will have a permanent effect on the death
benefit and cash value of your Policy. SEE "Loans."
WHAT WILL CAUSE THE POLICY TO LAPSE WITHOUT VALUE?
Lapse will only occur when your cash value is insufficient to pay the
Monthly Deduction plus any loan interest then due and we do not receive
sufficient payment during the grace period. SEE "Lapse and Reinstatement."
WILL THE POLICY'S DEATH BENEFIT AND CASH VALUE BE TAXED?
The Policy is intended to meet the definition of a "life insurance
contract" under federal tax law. Therefore, the Policy's death benefit should
be fully excludable from the beneficiary's gross income if paid by reason of
the death of the Insured. In addition, any earnings on your investment in a
Variable Fund Account should not be taxable to you while the Policy is in
effect unless you surrender some or all of your Policy's cash value. We do not
intend this discussion to be tax advice. You should consult with your own tax
advisor before purchasing a Policy. SEE "Tax Matters."
CAN I OBTAIN PERSONALIZED ILLUSTRATIONS DEMONSTRATING HOW THE POLICY MIGHT
WORK?
Yes. We will furnish, upon request and at no charge, a personalized
illustration reflecting the proposed Insured's age, sex, and rate class. Where
applicable, we will also furnish upon request an illustration for a Policy
that is not affected by the sex of the Insured. We will base all such
personalized illustrations, to the extent appropriate, upon the methodology
and format of the form of illustration filed with the SEC. SEE "Registration
Statement."
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<PAGE>
DO I HAVE A "FREE LOOK" RIGHT TO EXAMINE THE POLICY?
Yes. You may cancel the Policy within 10 days after receiving it, or
such longer period as state law may require. USAA Life will refund the greater
of your premium payments or the value of the Variable Fund Accounts as of the
Date of Receipt of your cancellation request. SEE "Free Look Right."
POLICY INFORMATION
POLICY ISSUANCE
WHO MAY PURCHASE A POLICY
Any individual of legal age in a state where the Policies may be
lawfully sold can apply to purchase a Policy. However, we will not issue a
Policy that insures a person who is over 80 years of age.
HOW TO PURCHASE A POLICY
To obtain a Policy, you must complete an application and submit it,
along with your initial premium payment (if required), to our Home Office. You
also must provide us with satisfactory evidence of your insurability as part
of the application or "underwriting" process. During the underwriting process,
we will normally ask you to complete a medical examination so that we can
assign you to an underwriting or "rate" class that we will use to determine
your cost of insurance charges.
After we complete our underwriting process, we will promptly notify you
of our decision regarding your application. We reserve the right to reject any
application for any reason. If we accept your application, the insurance
coverage provided by your Policy will begin as of the Effective Date. We may,
in our discretion, backdate the Effective Date of a Policy by up to six months
prior to the date of your application, if by doing so the Insured's issue age,
and hence your cost of insurance charges, would be lower. If we backdate a
Policy, your initial premium must include sufficient premium to cover the
backdating period. We will make Monthly Deductions for the period the Policy
is backdated. You will not receive any investment performance for the
backdating period.
EFFECTIVE DATE OF YOUR POLICY
Insurance coverage begins on the Policy's Effective Date. We will need
to receive your first premium payment to put your Policy into effect, unless
the Specified Amount you are applying for, plus any other insurance you
currently have with USAA Life, exceeds $500,000, in which case we will bill
you. If you pay your first full premium with your Policy application and we
17
<PAGE>
issue the Policy as applied for, the Effective Date will ordinarily be the
date we approve the application and issue your Policy.
PREMIUM PAYMENTS
METHODS OF PAYMENT
We accept premium payments made by check or money order drawn on a U.S.
bank in U.S. dollars and made payable to "USAA Life Insurance Company" or
"USAA Life." We also accept premium payments made by bank draft, by wire, or
by exchange from another insurance company. All premium payments must be sent
directly to our Home Office. You can also use our Automatic Payment Plan to
have monthly premium payments automatically deducted from your bank account.
For further information about how to make premium payments by these methods
and any other method we may make available, please contact us by calling
1-800-531-8000.
AMOUNT AND FREQUENCY OF PAYMENTS
You generally have the flexibility to determine the amount and frequency
of your premium payments. You must, however, maintain sufficient cash value to
keep your Policy in effect. SEE "Lapse and Reinstatement." In addition, you
must observe the limitations described below.
INITIAL PREMIUM PAYMENT. To issue a Policy, we generally require that
you provide us with an initial premium payment equal to at least one full
Planned Periodic Premium Payment, as specified in your Policy. If you have
elected to use our Automatic Payment Plan, the minimum initial premium payment
would equal two (2) monthly payments under the Plan.
MINIMUM AND MAXIMUM PREMIUM PAYMENTS. Except for your initial premium
payment, we do not require any minimum premium payment. However, at no time
may the total amount of your premium payments exceed the maximum amount
allowed by federal tax law, unless necessary to prevent lapse. We will monitor
your Policy's cash value and the amount of life insurance at risk to us that
is required to qualify the Policy as life insurance and to exclude the death
benefit from the beneficiary's taxable income. If a premium payment would
cause you to exceed the maximum amount allowed by federal tax law, we will
refund the excess premium payment to you. We also may invite you to apply,
subject to proof of insurability, to increase the Specified Amount of your
Policy. For more information, please refer to "Tax Matters."
ALLOCATION OF PREMIUMS
On your Policy application, you must specify how much of your Net
Premium Payments you want to allocate to each Variable Fund Account. You can
specify allocations in increments as small as 1/10th of one percent, provided
that the total amount of your allocations equals 100%.
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<PAGE>
PREMIUMS RECEIVED DURING THE APPLICATION PROCESS. We will hold your
initial premium payment in our general account during the application process.
During this time, we will not credit any earnings to you.
PREMIUMS RECEIVED DURING FREE LOOK PERIOD. We will allocate your initial
Net Premium Payment to the Money Market Variable Fund Account at the Account's
Accumulation Unit value next computed on the date we accept your application.
We will allocate any subsequent Net Premium Payment that you make during your
Free Look Period to the Money Market Variable Fund Account at the Account's
Accumulation Unit value next computed on the Date of Receipt of the payment.
SEE "Calculating Your Value in the Variable Fund Accounts." Your Net Premium
Payments will remain in the Money Market Variable Fund Account for the Free
Look Period plus five days. On the Valuation Date immediately following the
end of that period, we will allocate your Net Premium Payments, plus any
earnings, among the Variable Fund Accounts in accordance with the allocation
instructions specified on your Policy application, at the Accumulation Unit
value next computed on that Date.
PREMIUMS RECEIVED AFTER FREE LOOK PERIOD. We will allocate Net Premium
Payments that you make after your Free Look Period in accordance with the
allocation instructions specified on your Policy application, unless you
direct otherwise. We will credit your Net Premium Payments to the Variable
Fund Accounts on the Date of Receipt at the Accumulation Unit value next
computed on that Date.
CHANGING YOUR ALLOCATIONS. You may change your allocation instructions
at any time by telephone or by Notice to Us. There are no charges or fees for
changing your allocation instructions. The allocation change will become
effective with the first premium payment we receive on or following the Date
of Receipt of your request.
PLANNED PERIODIC PREMIUM PAYMENTS
You may, for convenience, choose to make planned periodic premium
payments. Your Policy will show a schedule of planned periodic premium
payments and, if you like, we will send you premium notices at quarterly,
semi-annual, or annual intervals. To facilitate planned periodic premium
payments, we also will accept monthly premium payments through our Automatic
Payment Plan. You are not obligated to follow the schedule of planned periodic
premium payments and failing to do so will not itself cause your Policy to
lapse. Conversely, following the schedule will not guarantee that your Policy
will remain in effect, unless you have made enough premium payments to qualify
for the Guaranteed Death Benefit. SEE "Guaranteed Death Benefit."
ANNUAL TARGET PREMIUM PAYMENT
We will use the Annual Target Premium Payment specified in your Policy
to determine whether we will deduct a premium charge from your premium
payments or a surrender charge if you fully surrender. SEE "Premium Charge"
and "Surrender Charge" under "Charges and Deductions." We also will use the
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Annual Target Premium Payment to determine whether the Guaranteed Death
Benefit applies. SEE "Guaranteed Death Benefit" under "Lapse and
Reinstatement." We determine the Annual Target Premium Payment actuarially
based on the age, sex and rate class of the Insured, and the insurance
benefits contained in the Policy.
INVESTMENT OPTIONS
Currently, you may invest, through the Separate Account, in up to 12
Funds. The Separate Account consists of 12 Variable Fund Accounts, seven of
which correspond to Funds of the Trust, three of which correspond to the BT
Fund, and one each of which corresponds to a Fund of the Alger Fund and the
Scudder Fund. You can invest in a Fund by allocating Net Premium Payments to
the corresponding Variable Fund Account.
USAA Investment Management Company ("USAA IMCO"), 9800 Fredericksburg
Road, San Antonio, Texas 78288, serves at the investment adviser to the Trust.
USAA IMCO is a wholly-owned indirect subsidiary of USAA. Bankers Trust
Company, 130 Liberty Street, New York, New York 10006, serves as the
investment manager of the BT Fund. Fred Alger Management, Inc., 75 Maiden
Lane, New York, New York 10038, serves as investment manager of the Alger
Fund's Growth Portfolio. Scudder Kemper Investments, Inc., Two International
Place, Boston, Massachusetts 02110, serves as the investment adviser to the
Scudder Fund's Capital Growth Portfolio. Neither Bankers Trust Company, Fred
Alger Management, Inc., nor Scudder, Kemper Investments, Inc. is affiliated
with USAA.
A brief description of each Fund appears in the table below. For more
information, including a discussion of potential investment and other risks,
please refer to the accompanying prospectuses for the Funds.
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<PAGE>
<TABLE>
<CAPTION>
FUND INVESTMENT OBJECTIVE
<S> <C>
USAA LIFE INVESTMENT TRUST
Money Market Fund Highest level of current income consistent with preservation of
capital and maintenance of liquidity
Income Fund Maximum current income without undue risk to principal
Growth and Income Fund Capital growth and current income
World Growth Fund Long-term capital appreciation
Diversified Assets Fund Long-term capital growth, consistent with preservation of capital and
balanced by current income
Aggressive Growth Fund Appreciation of capital
International Fund Capital appreciation with current income as a secondary objective
THE ALGER AMERICAN FUND
Growth Portfolio Long-term capital appreciation
SCUDDER VARIABLE
LIFE INVESTMENT FUND
Capital Growth Portfolio - Maximize long-term capital growth from a portfolio consisting
Class A shares primarily of equity securities
BT INSURANCE FUNDS TRUST
Equity 500 Index Fund To replicate as closely as possible the performance of the Standard &
Poor's 500 Composite Stock Price Index before the deduction of Fund
expenses. To replicate as closely as possible the performance of the
Russell 2000
Small Cap Index Fund Index before the deduction of Fund expenses.
EAFE(R) Equity Index Fund To replicate as closely as possible the performance of the Morgan
Stanley Capital International Europe, Australia, Far East (EAFE)
Index before the deduction of Fund expenses.
</TABLE>
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<PAGE>
ADDITIONS OR CHANGES TO INVESTMENT OPTIONS
We may, from time to time, make additional Funds or Mutual Funds
available as investment options through corresponding Variable Fund Accounts.
We may do so when, for example, we believe marketing or investment conditions
warrant.
We also reserve the right, subject to compliance with applicable law, to
change the Funds that are or may be available as investment options. We may,
for example, eliminate or merge one or more Funds or substitute the shares of
a Fund for those of another Fund or Mutual Fund. We may do so, in our sole
discretion, if in our judgment further investment in any Fund would be
inappropriate in view of the purposes of the Policies. We will give you
written notice of the addition, elimination, merger, or substitution of any
Fund to the extent required by law. In any event, the Separate Account may
purchase other securities for other classes of policies.
In the event of any substitution or other change, we may, by appropriate
endorsement, make any changes in your Policy and any future policies as may be
necessary or appropriate to reflect the substitution or change. Also, we may
operate the Separate Account as a management company, we may deregister it
with the SEC in the event such registration is no longer required, or we may
combine it with other USAA Life separate accounts.
VOTING PRIVILEGES
From time to time, a Fund may seek shareholder approval on certain
matters. Each Variable Fund Account is a shareholder of the corresponding Fund
in which it invests. As the depositor of the Variable Fund Accounts, we are
entitled to vote the shares held by the Accounts. However, in our view,
applicable law currently requires us to vote the shares held by our Variable
Fund Accounts in accordance with instructions that we receive from Owners who
have a voting interest in the Funds. We presently intend to do so. We also
presently intend to vote shares on which we have received no instructions, as
well shares that we own that are not attributable to Policies, in the same
proportion as we vote shares for which we have received instructions. If,
however, applicable law changes or our view of the law changes, we may elect
to vote the Fund shares in our own right.
The number of Fund shares for which you may provide instructions depends
on your value in each corresponding Variable Fund Account, determined as of
the record date established by the Fund for determining shareholders. SEE
"Cash Value." We will send you voting instruction forms and related materials
at the appropriate time.
We may disregard your voting instructions under certain circumstances as
permitted by applicable law. In the event we disregard voting instructions, we
will include a summary of that action and the reasons for such action in the
next report to Owners.
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SPECIAL CONSIDERATIONS
The Scudder Fund, the Alger Fund, and the BT Fund offer shares to
separate accounts of unaffiliated life insurance companies to fund benefits
under variable annuity contracts and variable life insurance policies. The
Trust offers its shares to separate accounts of USAA Life to fund benefits
under the Policies and variable annuity contracts. We do not foresee any
disadvantage to Owners arising out of these arrangements. Nevertheless,
differences in treatment under tax and other laws, as well as other
considerations, could cause the interests of various purchasers of contracts
and policies to conflict. For example, violation of the federal tax laws by
one separate account investing in a Mutual Fund could cause the contracts or
policies funded through another separate account to lose their tax-deferred
status, unless remedial action were taken. If a material irreconcilable
conflict arises between separate accounts, a separate account may be required
to withdraw its participation in a Mutual Fund. If it becomes necessary for
any separate account to replace shares of a Mutual Fund with another
investment, the Mutual Fund may have to liquidate portfolio securities on a
disadvantageous basis. At the same time, the Scudder Fund, the Alger Fund, the
BT Fund, and USAA Life are subject to conditions imposed by the SEC that are
designed to prevent or remedy any conflict of interest. The Trust, which is
not subject to such conditions, has nevertheless adopted certain procedures
that substantially reflect and implement the substance of such conditions. In
this connection, the Board of Trustees of each Mutual Fund has the obligation
to monitor events in order to identify any material irreconcilable conflict
that may possibly arise and to determine what action, if any, should be taken
to remedy or eliminate the conflict.
POLICY LAPSE AND REINSTATEMENT
LAPSE
Your Policy will lapse at any time that your Policy cash value is
insufficient to pay the Monthly Deduction and any loan interest then due,
unless you have paid enough premiums to qualify for the Guaranteed Death
Benefit. SEE "Guaranteed Death Benefit." Any deduction for the cost of
insurance after lapse shall not be considered a reinstatement of the Policy
(or of any benefit provided by rider) nor a waiver by us of the lapse.
GRACE PERIOD
You have a grace period during which to provide us with sufficient
payment to keep your Policy in force. The grace period will begin on any
Monthly Anniversary when your Policy cash value is insufficient to cover the
Monthly Deduction for the following month and any loan interest then due. We
will notify you, and any assignee of record, of the date the grace period
expires and of the premium necessary to continue the Policy in effect. During
the grace period, you must submit enough premium to cover three (3) Monthly
Deductions and any loan interest due. The grace period is 61 days long and
begins on the date we send notice to you.
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If you fail to pay the necessary premium within the grace period, all
insurance, including benefits provided by rider, terminates, and a Policy
lapse has occurred. If the Insured dies during the grace period, we will pay
the death benefit, less any due and unpaid Monthly Deductions and any loan
interest due through the month of death, to your beneficiary. We will not
refund any cash value remaining in the Policy at the beginning of the grace
period during the grace period or at lapse.
GUARANTEED DEATH BENEFIT
You have the option to pay planned periodic premium payments based on
the Annual Target Premium Payment specified in your Policy. If on any Monthly
Anniversary during your first five (5) Policy Years the total premium you have
paid, less any partial surrenders, is equal to or greater than the Annual
Target Premium Payment specified in your Policy, adjusted to reflect the
number of Monthly Anniversaries that have occurred since the Policy's
Effective Date, then we guarantee that your Policy will not lapse, even if the
cash value is insufficient to pay for the Monthly Deduction and any loan
interest then due. The guaranteed death benefit is only available during the
first five (5) Policy Years.
To illustrate how the guaranteed death benefit works, let's assume your
Annual Target Premium Payment is $2,000. If you have paid an amount equal to
three and a half Annual Target Premium Payments or $7,000, your Policy will
not lapse, during the first three and a half Policy Years, even if your cash
value on any Monthly Anniversary during that period is insufficient to pay
your Monthly Deduction and any loan interest then due. The same would be true
on any Monthly Anniversary thereafter, until after the fifth Policy Year,
provided you have met the then applicable Annual Target Premium Payment
requirements. Conversely, if you have not met the applicable Annual Target
Premium Payment requirements on any Monthly Anniversary, the guaranteed death
benefit would not apply and your Policy would lapse if your cash value is
insufficient to pay your Monthly Deduction and any loan interest then due.
If you change your Policy's Specified Amount within the first five (5)
Policy Years, we will declare a new Annual Target Premium Payment and use it
to determine whether the Guaranteed Death Benefit applies.
REINSTATEMENT
You may reinstate a lapsed Policy within five (5) years from the date of
lapse and before the Policy's maturity date. We will require the following for
reinstatement:
1. A completed written application for reinstatement;
2. Proof of insurability satisfactory to USAA Life;
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<PAGE>
3. Payment of premium sufficient to pay the estimated Monthly
Deductions for at least the three (3) Policy months beginning with
the effective date of reinstatement; and
4. Payment of, or agreement to reinstate, any Policy Indebtedness.
The effective date of the reinstated Policy will be the Monthly
Anniversary on or before approval date of reinstatement.
Upon reinstatement, we will reinstate your Policy's death benefit to the
Specified Amount in effect at lapse, less, if applicable, any reinstated
Indebtedness. Your Policy's initial reinstated cash value will be the net
reinstated premium less the Monthly Deduction for the month following the
effective date of the reinstatement plus, if applicable, any reinstated
Indebtedness plus any interest earnings credited to the loan collateral held
in the general account. You will not receive any past performance during the
grace period.
One advantage of reinstating a lapsed Policy is that the first-year-only
administrative charge will not be repeated if it has already been paid. A
possible disadvantage of reinstatement is that any Policy Indebtedness must be
paid or reinstated.
CHARGES AND DEDUCTIONS
PREMIUM CHARGE
We deduct a 3% premium charge from each premium we receive to compensate
us for sales charges and taxes. The resulting Net Premium Payment is the
amount we allocate to the Variable Fund Accounts that you select.
We will deduct the premium charge from all of your premium payments
until the gross amount of premium payments we receive exceeds the sum of the
Annual Target Premium Payments payable over 10 years. If you increase or
decrease the Specified Amount, we will calculate a new Annual Target Premium
Payment for you and use it to and determine whether the premium charge
applies.
To illustrate how this charge works, if your Annual Target Premium
Payment is $2,000, we would no longer deduct the premium charge once you have
paid in premiums of $20,000 ($2,000 per Policy Year for 10 years).
MONTHLY DEDUCTIONS FROM CASH VALUE
On your Policy's Effective Date, and each Monthly Anniversary
thereafter, we will deduct certain monthly charges from your Policy's cash
value. SEE "Deduction of Charges." The Monthly Deduction will include your
cost of insurance charges, charges for any optional insurance benefits
25
<PAGE>
provided by rider, an administrative charge, and a maintenance charge, as
described below.
COST OF INSURANCE CHARGES. Your monthly cost of insurance charges will
depend on a number of variables, including the Specified Amount of insurance
coverage and death benefit option you select (both of which affect the net
amount at risk to us), your cost of insurance RATE (which is based on the
Insured's age, sex, and rate class), and the investment experience of your
value in the Variable Fund Accounts. For more information on how we determine
your cost of insurance charges, SEE "Calculating Your Cost of Insurance."
CHARGES FOR OPTIONAL INSURANCE BENEFITS. The Monthly Deduction will
include charges for any optional insurance benefits added to the Policy by
rider. SEE "Optional Insurance Benefits."
ADMINISTRATIVE CHARGE (FIRST POLICY YEAR ONLY). During your first twelve
Policy months only, we will deduct a monthly administrative charge of $10.
This charge compensates us for start-up administrative expenses that we incur
in issuing your Policy. These expenses include, for example, the cost of
processing your application, conducting a medical examination, determining
insurability and rate class, and establishing Policy records. The investment
advisers or other affiliates of certain Mutual Funds reimburse USAA Life for
the cost of administrative services provided to the Funds as investment
options under the Policies. Compensation is paid out of fee earnings, based on
a percentage of a Fund's average net assets attributable to a Policy.
RECURRING MAINTENANCE CHARGE. The Monthly Deduction will include a
recurring maintenance charge of $5. This charge compensates us for the
recurring administrative expenses related to the maintenance of your Policy
and of the Separate Account. These expenses include, for example, premium
notices and collection, recordkeeping, processing death benefit claims, Policy
changes, reporting, and overhead costs. This charge is guaranteed not to
increase during the life of the Policy.
SEPARATE ACCOUNT CHARGES
We deduct certain charges on a daily basis as a percentage of the value
of each Variable Fund Account of the Separate Account. These charges have the
affect of reducing your Policy's cash value.
MORTALITY AND EXPENSE CHARGE. We assess a daily charge of .00204% (equal
to 0.75% annual rate) against the values of each Variable Fund Account for
mortality and expense risks that we assume under the Policies. We guarantee
that this charge will not increase during the life of your Policy. The
mortality risk that we assume is that Insureds may live for a shorter period
of time than we estimate and, thus a greater amount of death benefits than
expected will be payable. The expense risk we assume is that expenses incurred
in issuing and administering the Policies will be greater than we estimate.
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<PAGE>
FEDERAL INCOME TAX CHARGE. Currently, we make no charge against the
Separate Account for federal income taxes that may be attributable to the
Separate Account. We may, however, make such a charge in the future, should it
be necessary. We also may make charges for other taxes, if any, attributable
to the Separate Account. SEE "Tax Matters."
TRANSFER CHARGES
We assess a $25 charge for each value transfer between Variable Fund
Accounts in excess of six (6) per Policy Year. SEE "Transfer of Value" and
"Deduction of Charges."
SURRENDER CHARGES
PARTIAL SURRENDER CHARGE. For each partial surrender of cash value, we
assess a charge equal to the lesser of $25 or 2% of the amount withdrawn. This
charge is also referred to as an "administrative processing fee." SEE "Partial
Surrenders" and "Deduction of Charges."
FULL SURRENDER CHARGE. For full surrenders prior to the end of the 10th
Policy Year, we assess the surrender charge described below. The purpose of
the surrender charge is to compensate us for the expenses we incur in
distributing the Policies. The amount of the surrender charge will equal a
percentage of the Annual Target Premium Payment specified in your Policy,
regardless of the amount of premiums you actually pay. SEE "Annual Target
Premium Payment." The applicable percentage depends on when you surrender. As
shown in the table below, the applicable percentage declines each Policy Year
to 0% after the 10th Policy Year.
<TABLE>
SURRENDER CHARGE AS A % OF ANNUAL TARGET PREMIUM PAYMENT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Policy Year 1 2 3 4 5 6 7 8 9 10 11+
APPLICABLE % 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%
</TABLE>
To illustrate how the surrender charge works, if your Annual Target
Premium Payment is $2,000 and you surrendered your Policy in full during the
first Policy Year, the surrender charge would be determined by multiplying 50%
times $2,000 = $1,000. Thus, in this example the surrender charge would be
$1,000.
If you increase or decrease your Policy's Specified Amount within the
first 10 Policy Years, we will declare a new Annual Target Premium Payment for
you, which we will use to determine the surrender charge. SEE "Changing Your
Policy's Specified Amount." However, we will not impose a surrender charge at
the time you decrease your Policy's Specified Amount.
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OTHER CHARGES
The Variable Fund Accounts purchase shares of the Funds at the net asset
value of the shares. The net asset value reflects the investment management
fees and other expenses already deducted from each Fund's assets. These fees
and other expenses appear under "The Policy At a Glance." Please refer to the
accompanying prospectuses for the Funds for more information on these fees and
expenses.
DEDUCTION OF CHARGES
We will deduct the Monthly Deduction, any partial surrender charge, and
any transfer charge from your value in each Variable Fund Account in the same
proportion as each Variable Fund Account's value has to the total Policy cash
value. If you direct us in advance, we will permit you to specify from which
Variable Fund Account(s) you want the partial surrender charge and transfer
charge deducted.
DEATH BENEFIT
The Policy offers two death benefit options, Option A and Option B,
which you select on your Policy application.
If you select OPTION A, your death benefit will be the greater of (i)
your Policy's Specified Amount or (ii) the Minimum Amount Insured (which is a
specified percentage of your cash value based on the Insured's age). SEE
"Minimum Amount Insured."
If you select OPTION B, your death benefit will be the greater of (i)
your Policy's Specified Amount PLUS your cash value or (ii) the Minimum Amount
Insured. SEE "Minimum Amount Insured."
Under either option, we will reduce the amount of death benefit we pay
by the amount of any outstanding Indebtedness and any due and unpaid Monthly
Deductions. SEE "Payment of Policy Benefits." Please note that partial
surrenders and related surrender charges also will reduce the amount of your
death benefit. SEE "Changing Your Policy's Specified Amount."
The death benefit payment will be increased by any applicable optional
insurance benefits provided by rider. SEE "Optional Insurance Benefits."
CHOOSING BETWEEN OPTION A AND OPTION B.
Both Option A and Option B provide insurance protection and the
opportunity to build your cash value. When choosing between Option A and
Option B, one way to differentiate the two may be to think of Option A as
emphasizing potential cash value growth and Option B as emphasizing potential
death benefit growth, as explained below.
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Under Option A, any cash value you build will decrease the net amount at
risk to us relative to the amount of death benefit we must pay if the Insured
dies. As a result, all other things being equal, your cost of insurance
charges generally will be lower under Option A than under Option B for the
same Specified Amount. Lower monthly cost of insurance charges may enable you
to build cash value faster than if you were paying higher cost of insurance
charges under Option B. There is, however, no minimum guaranteed cash value,
which means you bear the entire investment risk that your cash value could
fall to zero. SEE "Cash Value."
Under Option B, unlike Option A, any cash value you build will increase
the amount of your death benefit. As a result, all other things being equal,
your death benefit under Option B generally will be greater than your death
benefit under Option A for the same Specified Amount.
ILLUSTRATIONS OF OPTION A AND OPTION B
To illustrate the differences between Option A and Option B, let's
assume that the Insured is less than 40 years old, that your Policy's
Specified Amount is $100,000, that you have no loan or outstanding Monthly
Deductions, and that your Policy cash value is $25,000.
Under Option A, your death benefit would be the greater of $100,000 and
the Minimum Amount Insured. Under Option B, your death benefit would be the
greater of $125,000 ($100,000 plus $25,000) and the Minimum Amount Insured.
Under both Options, the death benefit would be higher than the Minimum
Amount Insured, which would be $62,500, in this example. (The Minimum Amount
Insured is calculated by multiplying the cash value (ignoring the amount of
any outstanding Indebtedness) by a specific percentage which is based on the
Insured's age. In this example, the prescribed percentage would be 250%.
Different percentages apply at different ages, and generally decline as you
get older. SEE "Minimum Amount Insured.")
Now let's assume that instead of $25,000 your cash value is $50,000. The
Minimum Insured Amount would be $125,000 (250% times $50,000). Under Option A,
your Minimum Insured Amount would be greater than the Specified Amount. As a
result, your death benefit would be $125,000. On the other hand, under Option
B, your death benefit ($150,000) would be higher than the Minimum Amount
Insured ($125,000).
CHANGING YOUR DEATH BENEFIT OPTION
After the death benefit option you selected on your application has been
in effect for one Policy Year, you may change it by sending Notice to Us. The
new death benefit option also must remain in effect for one Policy Year before
we will allow another change. There is no charge or fee for changing the death
benefit option. The change will become effective on the Monthly Anniversary on
or following the date we approve the change.
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If you change your death benefit from Option A to Option B, your
Policy's new Specified Amount will be the old Specified Amount DECREASED by
your Policy's cash value (ignoring the amount of any outstanding Indebtedness)
as determined on the Date of Receipt of your Notice to Us. We will not allow
this change if it would result in a Specified Amount that is less than the
minimum Specified Amount of $50,000 ($25,000 for Insureds less than 18 years
of age). Changing from Option A to Option B will require proof of
insurability, if you wish your Policy's new Specified Amount under Option B to
be the same as the old Specified Amount under Option A.
If you change your death benefit option from Option B to Option A, your
Policy's new Specified Amount will be the old Specified Amount INCREASED by
your Policy's cash value (ignoring the amount of any outstanding Indebtedness)
next determined on the Date of Receipt of your Notice to Us. Changing from
Option B to Option A does not require proof of insurability, unless you make
changes in your Policy's Specified Amount or elect optional benefits available
by rider.
A change in death benefit option will affect your cost of insurance. SEE
"Calculating Your Cost of Insurance." We will recalculate the maximum premium
limitation following a change in death benefit option. SEE "Minimum Amount
Insured" under "Calculating Your Cost of Insurance."
CHANGING YOUR POLICY'S SPECIFIED AMOUNT
Within certain limits, you may increase or reduce your Policy's
Specified Amount. A change in Specified Amount may increase or decrease your
cost of insurance charges. SEE "Calculating Your Cost of Insurance." A change
in the Specified Amount also may have tax consequences. SEE "Tax Matters."
Changes in Specified Amount do not necessarily require changes in planned
periodic premiums. SEE "Planned Periodic Premium Payments." However, any
increase or decrease in Specified Amount will require us to declare a new
Annual Target Premium Payment for the new Specified Amount. SEE "Annual Target
Premium Payment." Whether the premium charge applies will be determined using
the new Annual Target Premium Payment. SEE "Premium Charge." We will
recalculate the maximum premium limitation following an increase or decrease
in Specified Amount. SEE "Premium Payments" and "Tax Matters."
The minimum amount by which you can increase your Policy's Specified
Amount is $25,000, unless such increase is made in conjunction with a change
in death benefit Option or to satisfy Internal Revenue Code requirements. For
any increase, you must apply in writing and we will require satisfactory proof
of insurability. The increase will become effective on the Monthly Anniversary
on or following the date we approve the increase. Your rights to cancel your
Policy do not apply to increases in Specified Amount.
We will not allow a reduction in your Policy's Specified Amount (other
than that resulting from a partial surrender of cash value under Option A)
that results in a Specified Amount that is less than $50,000 ($25,000 if the
Insured is less than 18 years of age), nor will we allow a reduction that
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would cause your Policy not to qualify as life insurance for federal tax law
purposes. Requests for reduction must be in writing. For purposes of
determining your cost of insurance charge, we will apply any decrease in
Specified Amount against the most recent increase in Specified Amount. The
decrease will become effective on the Monthly Anniversary on or following the
Date of Receipt of your Notice to Us.
Partial surrenders will reduce your Policy's death benefit on a dollar
for dollar basis unless the death benefit is the Minimum Amount Insured, in
which case your death benefit will be reduced by a multiple of the amount
surrendered. Under death benefit Option A, the Specified Amount and the cash
value will be reduced by the amount of the partial surrender. Under death
benefit Option B, only the cash value portion of the death benefit will be
reduced by the amount of the partial surrender.
OTHER POLICY BENEFITS
OPTIONAL INSURANCE BENEFITS
Subject to certain underwriting or issue requirements, you may add one
or more of the following optional insurance benefits to your Policy by rider.
Each rider's description in this Prospectus is subject to the specific terms
of the rider as each contains definitions, contractual limitations, and
conditions. We will deduct the cost of any optional insurance benefits as part
of the Monthly Deduction. SEE "Monthly Deductions."
ACCELERATED BENEFITS FOR TERMINAL ILLNESS RIDER. This rider provides for
an early benefit payment to you upon receipt of proof that the Insured is
terminally ill (as defined in the rider). The rider is not available in all
states. The maximum amount you may receive under the rider prior to the
Insured's death is 50% of the then current death benefit payable under the
Policy (excluding additional benefits payable under other riders) or, if less,
$250,000. We will deduct the amount of any Indebtedness from the amount of the
early payment. The early payment will be treated as a "lien" against Policy
values. The death benefit will be reduced by the amount of the lien and any
Policy loans, plus accrued interest. Monthly Deductions will continue to be
made after the early payment. The Owner's access to the cash value of the
Policy through Policy loans, partial withdrawals, or full surrender is limited
to any excess of the cash value over the amount of the lien. Interest will be
charged on the amount of the early payment and any unpaid Monthly Deductions.
Premium payments required to be made for cost of insurance are still required
to be made after the early payment. If such payment is not paid when due, we
will pay the premium on behalf of the Owner and add that amount to the early
payment amount to be deducted from the death benefit. If the amount of the
early payment plus accrued interest and required unpaid cost of insurance
premiums ever exceed the amount of the death benefit, the Policy terminates
and no additional insurance benefits are payable.
ACCIDENTAL DEATH BENEFIT RIDER. This rider provides an additional life
insurance benefit if the Insured's death results from accidental bodily injury
(as defined in the rider). The selected additional life insurance benefit can
be up to a maximum of $200,000, or the Specified Amount, whichever is less.
The premium for this rider is $.84 per $1,000 of coverage per year.
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CHILDREN TERM LIFE INSURANCE RIDER. This rider provides level term life
insurance on the lives of the Insured's children (as defined in the rider).
The cost for this rider is $6 per $1,000 of coverage per year.
EXTENDED MATURITY DATE RIDER. This rider permits you to extend your
Policy's maturity date up to ten years beyond what it otherwise would be
(I.E., the Monthly Anniversary following the Insured's 100th birthday). The
death benefit during the extended maturity period will be your Policy's cash
value less any Indebtedness. Also during this period, the Policy's cash value
will continue to accrue in the same manner as described in the Policy, and any
Policy loans in effect will continue to accrue interest. We will not deduct
cost of insurance charges or accept additional premium payments during this
period. We will assess a maintenance charge during this period. Extension of
the maturity date is subject to all of the terms and conditions of the Policy,
except where they are inconsistent with the rider. Extending the maturity date
of your Policy beyond the Insured's age 100 may result in the current taxation
of any increases in your Policy's cash value that result from investment
experience in the Variable Fund Accounts. You should consult a qualified tax
adviser before making such an extension.
WAIVER OF MONTHLY DEDUCTION RIDER. This rider waives your Monthly
Deduction during periods of total and permanent disability of the Insured, but
only if the Insured has been totally and permanently disabled (as defined in
the rider) for at least six consecutive months. We will not deduct the amount
of any Monthly Deduction waived under this rider from the cash value proceeds
payable upon maturity of your Policy, or the death benefit proceeds payable if
the Insured dies before the Policy matures. If Option A is in effect when we
approve a claim under the rider, we will change your death benefit option from
Option A to Option B as of the Monthly Anniversary after the disability began.
While we are paying benefits under the rider, you may not increase your
Policy's Specified Amount. Please note that the rider does not apply to
interest under your Policy loans. As a result, it is possible that your Policy
could lapse for nonpayment of loan interest. The premium for this rider varies
based upon the age of the Insured.
If you would like further information about the optional insurance
benefits available under your Policy, please contact us at 1-800-531-8000.
Please note that adding or deleting riders, or increasing or decreasing
coverage under the riders, can have tax consequences. SEE "Tax Matters." You
should consult a qualified tax adviser.
BENEFITS AT MATURITY
If the Insured is living, we will pay the cash value of your Policy,
less any Indebtedness, when your Policy matures. All Policies will mature on
the Monthly Anniversary following the Insured's 100th birthday unless extended
by rider.
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PAYMENT OF POLICY BENEFITS
PAYMENT OF DEATH BENEFIT
As long as your Policy has not terminated due to lapse, maturity, or
full surrender, we will pay your Policy's death benefit to your beneficiary.
We will usually pay the death benefit within seven (7) days after we receive
due proof of death at our Home Office and all other requirements necessary to
make payment. We will determine the cash value portion of the death benefit as
of the Valuation Date immediately following the date of death. We will pay the
death benefit in cash or under one or more of the payment options you have
selected in advance. If you have not selected a payment option, your
beneficiary may select the payment option prior to (or after) the Insured's
death. We may postpone payment of the death benefit in certain circumstances.
SEE "Postponement of Payments."
We will reduce the death benefit by any Indebtedness and any due and
unpaid Monthly Deductions. These proceeds will be increased by any applicable
additional optional insurance death benefits provided by rider.
PAYMENT OF MATURITY BENEFIT
If your Policy matures before the Insured dies, we will normally pay you
the cash value of your Policy (reduced by any Indebtedness and any due and
unpaid Monthly Deductions) within seven (7) days after the Valuation Date on
which the Policy matures. We may postpone payments in certain circumstances.
SEE "Postponement of Payments."
DEATH BENEFIT PAYMENT OPTIONS
We will pay the death benefit in a lump sum or under one of the payment
options below. During the Insured's lifetime, you may select a payment option.
If the Insured dies and you have not chosen a payment option, your beneficiary
can choose a payment option. If you have selected a payment option before the
Insured's death, your beneficiary may not change that option after the
Insured's death. Proceeds applied under a payment option will no longer vary
by the investment experience of the Variable Fund Accounts.
The nature and timing of your choice of payment option can effect the
tax consequences to you or your beneficiary. You should consult your tax
adviser.
INTEREST ONLY OPTION. The Policy's principal amount may be left on
deposit with USAA Life for a mutually determined period, not to exceed 30
years. We will make interest payments at mutually determined regular
intervals. The principal amount will earn interest at a minimum rate of 3%
compounded annually. At the end of the fixed period, we will pay the principal
amount.
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INSTALLMENTS FOR A FIXED PERIOD OPTION. Under this option, we will pay
the principal amount plus interest in equal or unequal installments for a
specified number of years (not more than 30), as mutually agreed upon. The
amount of the installments will not be less than that shown in the Table of
Guaranteed Payments contained in your Policy.
INSTALLMENTS OF A FIXED AMOUNT OPTION. Under this option, we will pay
the principal amount plus interest in equal or unequal installments, as
mutually agreed upon, until the amount applied, together with interest on the
unpaid balance, is paid in full.
OTHER OPTIONS. We will apply the sum under any other option mutually
agreed upon.
Any arrangements involving more than one payment option, or involving a
Beneficiary that is not a natural person (E.G, a corporation) or who is a
fiduciary (E.G., a trustee) are subject to our approval. In addition, the
details of the arrangements are subject to our rules in effect at the time the
arrangements take effect.
The beneficiary may designate a successor payee as to any amount that we
would otherwise pay to the beneficiary's estate. Amounts applied under these
payment options will not be subject to the claims of creditors or to legal
process, to the extent permitted by law.
CASH VALUE
Your Policy's cash value will vary on a daily basis with the investment
experience of the Variable Fund Accounts to which you have allocated your Net
Premium Payments. Your Policy's cash value also will vary to reflect the
effect of various Policy transactions, such as additional premium payments,
partial surrenders, and Policy loans, and to reflect applicable charges and
deductions. YOUR POLICY DOES NOT PROVIDE A MINIMUM GUARANTEED CASH VALUE,
WHICH MEANS YOU BEAR THE ENTIRE INVESTMENT RISK THAT YOUR CASH VALUE COULD
FALL TO ZERO.
On your Policy's Effective Date, your cash value will equal your Net
Premium Payments, less the Monthly Deduction for the following Policy month.
Thereafter, your cash value on any Valuation Date will equal the sum of your
Policy's value in each Variable Fund Account plus, if applicable, any value
held in our general account to secure any Policy loan, plus any interest
earnings credited on the value held in the general account, less the amount of
any outstanding Indebtedness, and less any Monthly Deductions, transfer
charges, and partial surrender charges applied through that date. SEE "Loans."
On each Monthly Anniversary, the Monthly Deduction will reduce your
Policy's cash value.
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CALCULATING YOUR VALUE
IN THE VARIABLE FUND ACCOUNTS
When you invest in a Variable Fund Account, you are purchasing units of
interest or "Accumulation Units" ("units") of that Account. You purchase units
at their price next determined on any given Valuation Date following the
receipt of your payment. Therefore, on any given Valuation Date, you can
calculate the value of your investment in a Variable Fund Account by
multiplying the number of units of each Variable Fund Account credited to your
Policy by the price of the units on that Date.
We determine the number of units to credit to you by dividing (i) the
Net Premium Payment you allocate to a Variable Fund Account by (ii) that
Variable Fund Account's price per unit or "unit value" next computed on the
Date of Receipt of the premium payment. Certain transactions will affect the
number of units in a Variable Fund Account credited to you. Net Premium
Payments will increase the number of full or fractional units. Loans, partial
or full surrenders, partial surrender charges, transfer charges, and Monthly
Deductions involve redemption of full or fractional units and will decrease
the number of units. In addition, Transfer of Value among Variable Fund
Accounts will decrease the number of units in the Variable Fund Accounts from
which value is transferred and increase the number of units in the Variable
Fund Accounts to which value is transferred.
Each Variable Fund Account's units are valued separately. The unit value
of a Variable Fund Account on any Valuation Date is calculated by adjusting
the unit value from the previous Valuation Date for: (1) the investment
performance of the corresponding Fund, (2) any dividends or distributions paid
by that Fund, and (3) the Separate Account charges that we assess (SEE
"Separate Account Charges").
To find out daily what your cash value is, including the value and
number of units of each Variable Fund Account credited to your Policy, please
call us at 1-800-531-8000.
TRANSFER OF VALUE
Except during the first 30 days after your Policy becomes effective, you
may transfer all or part of the value in any Variable Fund Account to any
other Variable Fund Account of the Separate Account, up to six (6) times per
Policy Year, without charge. Each transfer thereafter is subject to a $25
charge.
The minimum amount you can transfer from any Variable Fund Account is
$250 (or the remaining Account value if less). A transfer will result in the
redemption or purchase (or both) of units of the Variable Fund Accounts
involved. You may request a transfer by telephone or by Notice to Us. A
request for transfer must clearly state the amount to be transferred, the
Variable Fund Account from which it is to be withdrawn, and the Variable Fund
Account to which it is to be credited. We will effect the transfer using the
Variable Fund Account unit values next computed on the Date of Receipt of your
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request, unless a postponement of payments is in effect. SEE "Postponement of
Payments."
We reserve the right, at any time and without prior notice, to
terminate, suspend, or modify these transfer privileges.
LOANS
After your first Policy Year, you may borrow money from USAA Life by
using your Policy as the sole security for the loan. The amount that you may
borrow is the "loan value." The maximum loan value is 85% of your cash
surrender value.
You may request a loan by telephone or by Notice to Us, but you must
obtain the written consent of all assignees and irrevocable beneficiaries, if
any, before we can make the loan.
We will usually pay you the loan proceeds within seven (7) days after
the Date of Receipt of your loan request, unless a postponement of payments is
in effect. SEE "Postponement of Payments."
LOAN COLLATERAL
When you take a loan, we will transfer an amount equal to the loan from
your value in the Variable Fund Accounts to our general account. We make this
transfer of "loan collateral" to secure your loan. You may specify the
Variable Fund Accounts from which you want us to withdraw the loan collateral.
If you do not so specify, we will withdraw the loan collateral from the
Variable Fund Accounts in the same proportion as each Account's value has to
the total Policy cash value. While a loan is outstanding, we will credit the
loan collateral on a daily basis with interest at an effective annual rate of
4%.
LOAN INTEREST
We will charge you interest on your loan at a maximum annual rate of 6%
payable in advance. We have the option of charging less. For Policies that
have been in effect more than 10 Policy Years and if the Insured is age 55 or
older, we charge interest at a maximum annual "preferred loan" rate of 4.5%
payable in advance. We have the option of charging less for a preferred loan.
The entire amount of interest on your loan balance for each Policy Year is
payable in advance at the commencement of the loan and at the beginning of
each Policy Year thereafter. We will automatically deduct the interest from
the Variable Fund Accounts in the same proportion as the loan amount was
withdrawn from the Accounts. If you have insufficient value in the Variable
Fund Accounts to pay the interest, we will add the amount of any unpaid
interest to your loan principal, and subject it to the same rate of interest
as the principal. Because interest is paid in advance, loan repayments during
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a Policy Year may result in an overpayment of interest. We will credit any
overpayment of interest to you on the date of any loan repayment.
REPAYMENT OF INDEBTEDNESS
You may repay your Indebtedness (I.E., loans and any unpaid interest) in
full or in part at any time before the Insured's death and while the Policy is
in effect. If not repaid, we will deduct the Indebtedness from any death
benefit, maturity benefit, or full surrender proceeds. Loans and unpaid loan
interest in existence at the end of the grace period may not be repaid until
the Policy is reinstated.
You must designate any loan repayment as such. Otherwise, we will treat
it as a premium payment instead. You may direct how you want your loan
repayment to be allocated among the Variable Fund Accounts. If you do not
specify an allocation, we will allocate your loan repayment to the Variable
Fund Accounts in the same proportion as Net Premium Payments are being
allocated to the Accounts.
EFFECT OF POLICY LOANS
A loan will reduce the value of the Variable Fund Accounts from which it
is deducted. Thus, the amount loaned will not share in the investment
experience of the Variable Fund Accounts. Therefore, a loan, whether repaid or
not, will have a permanent effect on the cash value of the Policy.
Loan values will be determined as of the Date of Receipt of the loan
request. For situations where a Policy loan may be treated as a taxable
distribution, SEE "Tax Matters."
SURRENDERS
You may fully or partially surrender your Policy for all or part of its
cash value to the extent described below. We will usually pay full or partial
surrenders of cash value within seven (7) days after we receive your written
request at our Home Office. We will determine the cash value of the
surrendered amount as of the Date of Receipt of your request for surrender.
There may be tax consequences in connection with a full or partial surrender.
SEE "Tax Matters." You must obtain the written consent of all assignees or
irrevocable beneficiaries, if any, before we will process any request for
surrender.
We will effect any surrenders using the Variable Fund Account unit
values next computed on the Date of Receipt of your Notice to Us or, in the
case of partial surrenders, your Notice to Us or telephone request. In certain
circumstances, we may postpone the payment of surrenders. SEE "Postponement of
Payments."
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FULL SURRENDERS
At any time before the Insured's death and while the Policy is still in
effect, you may surrender your Policy for its entire cash surrender value by
sending Notice to Us. We may require the return of the Policy. We also may
assess a surrender charge. SEE "Surrender Charges." We sometimes refer to the
net amount you would receive as the Policy's "cash surrender value." Your
Policy and all insurance will terminate on the Date of Receipt of your Notice
to Us.
PARTIAL SURRENDERS
After your first Policy Year and while your Policy is still in effect,
but before the Insured's death, you may surrender a portion of your Policy for
cash. We will assess an administrative processing fee equal to the lesser of
$25 or 2% of the amount withdrawn. You may direct how you would like us to
withdraw a partial surrender and the administrative processing fee from your
current value in the Variable Fund Accounts. If you do not specify a
withdrawal allocation, we will withdraw the partial surrender and the
administrative processing fee from the Variable Fund Accounts in the same
proportion as each Account's value has to the total Policy cash value. SEE
"Surrender Charges" and "Deduction of Charges." You may request a partial
surrender by telephone or by Notice to Us.
Your Policy's remaining cash value after a partial surrender may not be
less than an amount equal to the then current surrender charge for a full
surrender.
Partial surrenders and related surrender charges will reduce your death
benefit. SEE "Changing Your Policy's Specified Amount" under "Death Benefit."
TELEPHONE TRANSACTIONS
You may submit requests to change your premium payment allocation,
requests for partial surrenders, requests for loans, and requests for Transfer
of Value among Variable Fund Accounts by telephone. We will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine,
and only if we do not, will we be liable for any losses because of
unauthorized or fraudulent instructions. We will obtain information prior to
any discussion regarding your Policy including, but not limited to: (i) your
USAA number or Policy number, (ii) your name, and (iii) your social security
number. In addition, we will record all telephone communications with you and
will send confirmations of all transactions to your address. Your Policy
automatically authorizes you to make telephone transactions, subject to our
right to modify, suspend, or discontinue this telephone transaction privilege
at any time without prior notice. You may decline the option of utilizing the
telephone transaction privilege when filling out your Policy application.
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FREE LOOK RIGHT
You may cancel your Policy within 10 days after receiving it, or such
longer period as state law may require, by returning the Policy to us along
with a written request for cancellation. Upon its return, we will refund the
greater of your premium payments or the value of the Variable Fund Accounts as
of the Date of Receipt of your written request to cancel, plus any premium
charge, Monthly Deduction, and mortality and expense charge that we deducted.
POSTPONEMENT OF PAYMENTS
We may postpone payments of partial surrenders, full surrenders, Policy
loans, maturity benefits, death benefits, and Variable Fund Account transfers
beyond seven (7) days whenever:
1. the New York Stock Exchange is closed,
2. the SEC, by order, permits postponement for the protection of
Policy Owners, or 3. the SEC requires trading to be restricted or
declares an emergency.
We reserve the right to defer payment of any partial surrenders, full
surrenders, Policy loans or refunds that would be derived from a premium
payment made by a check until the check has cleared the banking system.
MORE POLICY INFORMATION
OWNERS AND BENEFICIARIES
OWNERS
If you are the Owner of the Policy, the rights and privileges of the
Policy during the lifetime of the Insured belong to you. Generally, the Owner
is also the Insured, unless a different Owner is designated in the application
or at a later date.
SUCCESSOR OWNER. As Owner, you may designate a successor Owner. If you
die without designating a successor Owner, ownership of the Policy will pass
to your estate.
CHANGE OF OWNERSHIP. As Owner, you may change ownership of your Policy,
at any time, during the Insured's lifetime, by submitting Notice to Us. The
change will take effect on the Date of Receipt of the request. A change of
ownership is subject to the rights of an assignee of record and those of any
irrevocable beneficiary. We are not responsible for any payments made or
actions taken before we receive your Notice to Us.
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COLLATERAL ASSIGNMENT. As Owner, you may assign the Policy as collateral
security by submitting a Notice to Us. You will need to obtain the written
consent of any irrevocable beneficiaries and assignees of record before we
recognize any assignment; however, a collateral assignment takes precedence
over the interest of a revocable beneficiary. The assignment will take effect
as of the date we receive your Notice to Us. We are not responsible for the
validity or effect of any collateral assignment, nor are we responsible for
any payment or other action taken before we receive the Notice to Us. We are
not bound by an assignment until we receive it at our Home Office.
We will pay any death benefit payable to an assignee in one lump sum. We
will pay any remaining proceeds to the designated beneficiary or
beneficiaries. A collateral assignee is not an Owner. A collateral assignment
is not a transfer of ownership, unless it is an absolute assignment. All
collateral assignees of record must consent to any full surrender, partial
surrender, loan or payment from a Policy under an Accelerated Benefits for
Terminal Illness Rider. There may be unfavorable tax consequences, including
recognition of taxable income and the loss of income tax-free treatment for
any death benefit payable to the beneficiary. Therefore, you should consult a
qualified tax adviser prior to making an assignment.
BENEFICIARIES
You may name one or more beneficiaries in your Policy application. You
may classify beneficiaries as primary, contingent, revocable, or irrevocable.
If no primary beneficiary survives the Insured, we will pay the Policy
proceeds to the contingent beneficiaries. Beneficiaries in the same class will
receive equal payments unless you direct otherwise. A beneficiary must survive
the Insured in order to receive his or her share of the death benefit
proceeds. If a beneficiary dies before the Insured dies, his or her unpaid
share is divided among the remaining beneficiaries of the same class who
survive the Insured. If no beneficiary survives the Insured, we will pay the
proceeds to you, if you are alive, or, if not, to your estate.
CHANGE OF BENEFICIARY. You may change the beneficiary while the Insured
is living, by submitting a Notice to Us. You must obtain the written consent
of any irrevocable beneficiaries before we will accept any change in
beneficiary. A change in beneficiary will take effect on the Date of Receipt
of the request. We will not be responsible for any payment or other action
taken before receipt of your Notice to Us. If we make a payment of death
benefits in good faith before receiving the Notice to Us, we will receive
credit for the payment against our liability under the Policy. A change of
Beneficiary is subject to the rights of an assignee of record.
CALCULATING YOUR COST OF INSURANCE
For each Monthly Anniversary, we determine your monthly cost of
insurance by multiplying (i) the net amount at risk under your Policy by (ii)
your cost of insurance rate and (iii) dividing the resulting amount by 1000.
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<PAGE>
NET AMOUNT AT RISK
We determine the net amount at risk by subtracting your Policy's cash
value on any Monthly Anniversary from your Policy's current death benefit
(divided by a factor that discounts the death benefit to the beginning of the
month). Your Policy's death benefit may be the death benefit required to
qualify the Policy as life insurance. SEE "Minimum Amount Insured."
The net amount at risk may be greater if you have selected death benefit
Option B rather than death benefit Option A. SEE "Death Benefits." Since the
death benefit payable under Option B is the Specified Amount plus the cash
value, the difference between the death benefit and the cash value will be
greater under Option B than under Option A (unless the Minimum Amount Insured
applies). As the net amount at risk will be greater, so the cost of insurance
also will be greater. The net amount at risk also may be affected by changes
in your Policy's cash value or in the Specified Amount. SEE "Cash Value" and
"Death Benefits."
The net amount at risk for each Policy continues to be determined
generally by subtracting the Policy's cash value from the Policy's death
benefit (divided by a factor that discounts the death benefit to the beginning
of the month), regardless of whether the death benefit is the Policy's current
Specified Amount or the Minimum Amount Insured. The cost of insurance rate
applied against the net amount at risk will continue to increase as the
Insured's age increases.
NET AMOUNT AT RISK - MORE THAN ONE RATE CLASS
If you increase the Specified Amount and the rate class applicable to
the increase is different from that of the initial Specified Amount, then, in
determining the cost of insurance charge, the net amount at risk will be
calculated separately for each rate class. The method of determining the net
amount at risk for each rate class will differ between Option A and Option B.
If Option A is in effect, the cash value will be apportioned among the initial
Specified Amount and any increases in Specified Amount. The cash value will
first be considered a part of the initial Specified Amount. If the cash value
is greater than the initial Specified Amount, the balance of the cash value
will then be considered a part of each increase in Specified Amount, beginning
with the first increase.
If Option B is in effect, the net amount at risk will be determined by
the proportional relationship of the initial Specified Amount and the
Specified Amount increases for each new rate class to the total Specified
Amount.
Because the method of calculating the net amount at risk is different
between Option A and Option B when more than one rate class is in effect, a
change in the death benefit option may result in a different net amount at
risk for each rate class than would have occurred had the death benefit option
not been changed. Thus, the total cost of insurance will be increased or
decreased.
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<PAGE>
COST OF INSURANCE RATES
Your cost of insurance rates are based on your Insured's age, sex, and
rate class. Generally, we set cost of insurance rates based on our
expectations as to future mortality experience. We apply any changes to cost
of insurance rates to all persons of the same age, sex, and rate class. We
will give you 30 days' notice before any increase in your current cost of
insurance rates becomes effective. We guarantee that your cost of insurance
rates will never be greater than the maximum cost of insurance rates shown in
your Policy. These guaranteed rates are based on the 1980 Commissioners
Standard Ordinary Mortality Table, and age on the Insured's last birthday.
The rate class of the Insured will affect your cost of insurance rate.
USAA Life currently places Insureds into one of three preferred rate classes
or into one of two standard rate classes involving higher mortality risks. In
an otherwise identical Policy, Insureds in the preferred rate class will have
a lower cost of insurance rate than those in a standard rate class. We make
all final determinations of an Insured's rate class.
MINIMUM AMOUNT INSURED
If higher than the death benefit under Option A or Option B, we will pay
you the Minimum Amount Insured. The Minimum Amount Insured is the amount of
insurance proceeds that the Internal Revenue Code requires for your Policy to
qualify as life insurance and to exclude the death benefit from your
beneficiary's taxable income. You can determine the Minimum Amount Insured by
multiplying your Policy's cash value (ignoring the amount of any outstanding
loan and any unpaid loan interest) by a specified percentage based on the
Insured's age. The specified percentages, which generally decline as the
Insured gets older, are:
<TABLE>
MINIMUM INSURED AMOUNT AS A PERCENTAGE OF CASH VALUE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INSURED'S 40 or 95 and
AGE* Under 45 50 55 60 65 70 75 to 95 older
PERCENTAGE 250% 215% 185% 150% 130% 120% 115% 105% 100%
<FN>
* Last birthday at the beginning of the Policy Year. A more complete table
appears in your Policy.
</FN>
</TABLE>
If, prior to the Insured's death, unexpected increases in your Policy's
cash value would cause your Policy not to satisfy Internal Revenue Code
requirements, we will increase the death benefit to the Minimum Amount Insured
so that the death benefit will be excluded from the beneficiary's taxable
income.
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<PAGE>
THE CONTRACT
The Policy is a legal contract between you and us. The consideration for
issuing the Policy is:
1. completion of the application, and
2. payment of the first full premium.
Your Policy, your Policy application, any supplemental applications,
riders, endorsements, and amendments form the entire contract. We will
consider statements in the application as representations and not warranties.
We will not use any representation to void your Policy or defend a claim under
your Policy unless it is contained in your written application or supplemental
application. Only the president or secretary of USAA Life has authority to
change or waive a provision of your Policy, and then only in writing.
All requests for changes to your Policy must be clear and in writing,
and must be received by our Home Office.
This Policy is subject to the laws of the state where it is issued. To
the extent that the Policy may not comply, it will be interpreted and applied
to comply.
INCONTESTABILITY
We will not contest a Policy, or any increase in Specified Amount,
except for lapse or fraud, after the Policy or increase has been in effect
during the Insured's lifetime for two years. Any increase in the Specified
Amount will have its own two-year contestable period beginning with the
Effective Date of the increase. During any two-year contestable period, we
have the right to contest the validity of your Policy based on material
misstatements made in the application or any supplemental application. The
two-year contestable period begins on the Effective Date of your Policy, or,
in the case of an increase, on the date the increase is approved and made
effective.
If your Policy is reinstated after lapse, it will have a two-year
contestable period beginning with the date of reinstatement. If the Policy has
been in force for two years during the lifetime of the Insured, it will be
contestable only as to statements made in the reinstatement application. If
the Policy has been in force for less than two years, it will be contestable
as to statements made in any reinstatement applications as well as the initial
application.
The incontestability provisions do not apply to optional insurance
benefits added to your Policy by rider. Each rider contains its own
incontestability provision.
If we contest and rescind your Policy, you will receive your premiums
paid, less any Indebtedness and any previous partial surrenders.
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<PAGE>
MISSTATEMENT OF AGE OR SEX
Age means the Insured's age on his or her last birthday. If the
Insured's age or sex has been misstated on the application or any supplemental
application, we will adjust the cash value and death benefit to those based on
the correct Monthly Deductions since the Policy's Effective Date.
SUICIDE EXCLUSION
Your Policy does not cover suicide by the Insured, while sane or insane,
during the first two years after the Policy's Effective Date. If the Insured
commits suicide during this period, our sole liability will be to refund all
premiums paid, less any Indebtedness and previous partial surrenders. We will
not pay any death benefit in those circumstances.
If your Policy lapses and is later reinstated, we will measure the
two-year suicide exclusion period from the Effective Date of reinstatement. If
you increase your Policy's Specified Amount, we will measure the two-year
suicide exclusion period for the increase from the increase's Effective Date.
If the Insured dies as a result of suicide (whether sane or insane) during the
separate two-year suicide exclusion period, we will only pay the death benefit
attributable to the initial Specified Amount (on which the two-year suicide
exclusion period has expired). We will refund the premium payments less any
Indebtedness and any partial surrenders attributable to the increase in the
Specified Amount.
NON-PARTICIPATING POLICY
Your Policy is "non-participating," which means you will not share in
any of our profits or surplus earnings. We will not pay dividends on your
Policy.
REPORTS AND RECORDS
We will maintain all records relating to the Policy and the Separate
Account. We will mail to you a Policy annual statement showing:
(1) the amount of death benefit;
(2) the cash value;
(3) any Indebtedness;
(4) any loan interest charge;
(5) any loan repayment since the last annual statement;
(6) any partial surrender since the last annual statement;
(7) all premium payments since the last annual statement;
44
<PAGE>
(8) all deductions and charges since the last annual statement; and,
(9) other pertinent information required by any applicable law or
regulation, or that we deem helpful to you.
We will mail the statement within 30 days after the Policy's
anniversary, or, at our discretion, within 30 days after the end of each
calendar year showing information as of a date not more than 60 days prior to
the mailing of the annual statement. We also will send you periodic reports
for the Funds that correspond to the Variable Fund Accounts, periodic reports
for the Separate Account, and any other information, as required by state and
federal law.
We will mail confirmation notices (or other appropriate notification)
promptly at the time of the following transactions:
(1) Policy issue;
(2) receipt of premium payments;
(3) transfers among Variable Fund Accounts;
(4) change of premium allocation;
(5) change of death benefit option;
(6) increases or decreases in Specified Amount;
(7) partial surrenders;
(8) receipt of loan repayments; and,
(9) reinstatement.
PERFORMANCE INFORMATION
From time to time, we may quote performance information for the Variable
Fund Accounts of the Separate Account in advertisements, sales literature, or
reports to Owners or prospective investors.
We may quote performance information in any manner permitted under
applicable law. We may, for example, present such information as a change in a
hypothetical Owner's cash value or death benefit. We also may present the
yield or total return of the Variable Fund Accounts based on a hypothetical
investment in a Policy. The performance information shown may cover various
periods of time, including periods beginning with the commencement of the
operations of the Variable Fund Account or the Fund in which it invests. The
performance information shown may reflect the deduction of only some of the
applicable charges to the Policy. We may, for example, exclude the deduction
of one or more charges, such as the premium charge or surrender charge, and we
generally expect to exclude cost of insurance charges because of the
individual nature of these charges.
We may compare a Variable Fund Account's performance to that of other
variable life separate accounts or investment products, as well as to
generally accepted indices or analyses, such as those provided by research
firms and rating services. In addition, we may use performance ratings that
45
<PAGE>
may be reported periodically in financial publications, such as MONEY
MAGAZINE, FORBES, BUSINESS WEEK, FORTUNE, FINANCIAL PLANNING, and THE WALL
STREET JOURNAL. We also may advertise ratings of USAA Life's financial
strength or claims-paying ability as determined by firms that analyze and rate
insurance companies and by nationally recognized statistical rating
organizations.
Performance information for any Variable Fund Account reflects the
performance of a hypothetical Policy and are not illustrative of how actual
investment performance would affect the benefits under your Policy. Therefore,
you should not consider such performance information to be an estimate or
guarantee of future performance.
OTHER INFORMATION
USAA LIFE
USAA Life is a stock insurance company incorporated in the State of
Texas in June 1963. USAA Life is principally engaged in writing life insurance
policies, health insurance policies, and annuity contracts. USAA Life is
authorized to transact insurance business in all states of the United States
(except New York) and the District of Columbia. USAA Life on a consolidated
basis prepared in accordance with Generally Accepted Accounting Principles
("GAAP") had total assets of $7,174,411,000 on December 31, 1997. USAA Life is
a wholly-owned stock subsidiary of USAA. The commitments under the Policies
are USAA Life's, and USAA has no legal obligation to back those commitments.
USAA Life is the depositor administering the Separate Account. USAA
Life's obligations as depositor of the Separate Account may not be transferred
without notice to and consent of the Owners. USAA Life also issues variable
annuity contracts through another separate account, which is also a registered
investment company. In addition, USAA Life serves as transfer agent of the
USAA Life Investment Trust.
DIRECTORS OF USAA LIFE. USAA Life is managed by its Board of Directors,
described below, all of whom are also officers of either USAA or USAA Life and
have the same principal business address as USAA Life, as shown on the front
cover page of this Prospectus.
<TABLE>
<CAPTION>
Name Principal Occupation (Past Five Years)
---- -------------------------------------
<S> <C>
Edwin L. Rosane Vice Chairman, Chief Executive
Officer/President.
Robert G. Davis Chairman since June 1997; prior thereto,
Director since December 1996; Chief
Executive Officer and President of USAA
CAPCO since December 1996; prior thereto,
46
<PAGE>
Special Assistant to CEO, USAA, since June
1996; prior thereto, Chief Executive
Officer and President of Bank One,
Columbus, since 1991.
Bradford W. Rich Director, General Counsel & Secretary;
Senior Vice President, USAA, since January
1996; prior thereto, Senior Vice President
and Special Assistant to CEO, USAA, since
December 1995; prior thereto, Executive
Vice President and General Counsel, ACE
Limited.
Josue Robles, Jr. Director; Senior Vice President, Chief
Financial Officer/Treasurer, USAA, since
August 1995; prior thereto, Senior Vice
President, Chief Financial
Officer/Controller, USAA, since September
1994; prior thereto, Special Assistant to
Chairman, USAA, since July 1994; prior
thereto, Active Service with U.S. Army
since 1966.
Michael J.C. Roth Director; Chief Executive Officer and
President, USAA IMCO, since October 1993
and January 1990, respectively.
Janice E. Marshall Director since June 1997; President, USAA
Buying Services, since March 1996, prior
thereto, Senior Vice President, Central
Region & Regional Services, USAA P&C,
since November 1994, prior thereto,
Regional Vice President, USAA P&C, since
January 1993.
William B. Tracy Director since June 1997; Senior Vice
President, Human Resources, USAA, since
June 1988.
Donald R. Walker Director since June 1997; Chief
Information Officer, USAA, and President &
CEO, USAA ITCO, since January 1996; prior
thereto, Special Assistant to Chairman,
USAA, since November 1995; prior thereto,
Active Duty with U.S. Air Force since
1966.
</TABLE>
OFFICERS (OTHER THAN DIRECTORS). The senior officers of USAA Life, other
than the Directors named above, and the officers responsible for variable life
operations are described below. The principal business address of each person
listed is same as the address of USAA Life, as shown on the cover page of this
Prospectus.
<TABLE>
<CAPTION>
Name Principal Occupation (Past Five Years)
---- -------------------------------------
<S> <C>
John W. Douglas Senior Vice President, Life & Health
Operations, since January 1997; prior
thereto, Senior Vice President, Life &
Health Marketing, since January 1995;
prior thereto, Senior Vice President, Life
& Health Marketing, since 1990.
47
<PAGE>
Kenneth A. McClure Senior Vice President, Life & Health
Marketing, since January 1997; prior
thereto, Senior Vice President, Life &
Health Operations, since January 1995;
prior thereto, Senior Vice President, Life
& Health Operations, since August 1992.
James A. Robinson Treasurer/Senior Vice President, Finance,
since April 1992.
Edward R. Dinstel Vice President, Life & Health
Underwriting/Issue, since July 1991.
Larkin W. Fields Vice President, Life Marketing Services,
since November 1995; prior thereto, Vice
President, Corporate Actuary, since
September 1994; prior thereto, Vice
President, Accounting, August 1993; prior
thereto, Assistant Vice President,
Operating Accounting, since May 1990.
Robert J. Flannery Vice President, Actuarial Valuation, since
January 1998; Vice President,
Actuary-Annuities & Life Products, since
March 1997; prior thereto, Vice President,
Actuary, since March 1994; prior thereto,
Assistant Vice President, Life Products
Actuary, since September 1988.
Richard T. Halinski, Jr. Assistant Secretary; Vice President and
Managing Attorney of Life & Health, USAA,
since November 1994; prior thereto,
Assistant Vice President and Managing
Attorney of Life & Health, USAA, since
November 1990.
Ronald W. Holtkamp Vice-President-Assistant Treasurer; Senior
Vice President-Senior Financial Officer,
Financial Service Center, USAA, since
December 1997; prior thereto Senior Vice
President, Controller, USAA, since June
1989.
King Mawhinney Vice President, Life Sales since May 1997;
prior thereto, Vice President, Health
Insurance, since September 1994; prior
thereto, Assistant Vice President, Health
Insurance, since December 1992.
Pattie S. McWilliams Vice President, Life/Annuity Service &
Claims, since September 1993; prior
thereto, Assistant Vice President, Policy
Owner Services, since May 1988.
James M. Middleton Vice President, Systems Integration &
Program Control, since September 1997;
prior thereto, Assistant Vice President,
48
<PAGE>
Systems Integration & Analysis, since
March 1994; prior thereto, Executive
Director, Systems Integration & Program
Control, since 1992.
Stephen N. Patzman Vice President, Corporate Actuary since
November 1995; prior thereto, Vice
President, Operational Accounting, since
September 1994; prior thereto, Assistance
Vice President, Actuary, since July 1979.
Leldon W. (Jack) Ward Vice President, Health Insurance since May
1997; prior thereto, Vice President, Life
Sales, Life & Health Marketing, since
January 1996; prior thereto, Assistant
Vice President, USAA Life General Agency,
since December 1992.
Dwain A. Akins Assistant Secretary; Assistant Vice
President and Managing Attorney of Life &
Health Insurance Counsel, USAA, since
November 1994; prior thereto, Executive
Director and Managing Attorney, Life &
Health Insurance Counsel, USAA, since
February 1991.
Bruce W. Clements Assistant Vice President-Deputy General
Counsel and Assistant Secretary; Senior
Vice President for P&C Counsel, USAA,
since September 1997; prior thereto, Vice
President-Deputy General Counsel, USAA,
since June 1991.
Allen R. Pierce Assistant Vice President, Actuary -
reinsurance, Specialty Markets and Life
Insurance, since January 1998; Assistant
Vice President, Actuarial Support &
Management Accounting Products and other
related departments, since September 1994;
prior thereto, Executive Director, since
1992.
Michael A. Moczygemba Assistant Vice President, Market Planning,
since May 1998; prior thereto, Executive
Director, Market Planning, since June
1996; prior thereto, Director, Market
Planning & Analysis, Corporate Plans,
since October 1991.
Layne C. Reotzel Assistant Vice President, Plans &
Administration, since May 1998; prior
thereto, Executive Director/Controller, La
49
<PAGE>
Cantera Development Company, since March
1997; prior thereto, Director, Financial
Statement Reporting, USAA Life, since
September 1995; prior thereto, Co-Project
Manager, CLAS/LIS Project, since October
1995; prior thereto, Director, Management
Accounting, since December 1992.
</TABLE>
You should also review the accompanying Fund prospectuses for a
description of the management of the Funds.
SEPARATE ACCOUNT
The Separate Account was established by a resolution of the Board of
Directors of USAA Life as a separate account on January 20, 1998. The Separate
Account is organized as a unit investment trust and registered with the SEC
under the Investment Company Act of 1940. Registration does not involve
supervision of the management of the Separate Account by the SEC.
The assets of the Separate Account are the property of USAA Life and are
held for the benefit of the Owners and other persons entitled to payments
under Policies issued through the Separate Account. The assets of the Separate
Account equal to the reserves and other liabilities of the Separate Account
are not chargeable with liabilities that arise from any other business which
USAA Life may conduct.
The Separate Account is divided into Variable Fund Accounts, each
representing a different investment objective. Net Premium Payments are
allocated to the Variable Fund Accounts in accordance with your instructions.
SEE "Investment Options." Each Variable Fund Account invests exclusively in
the shares at the net asset value of a Fund. Income and gains and losses from
assets in each Variable Fund Account are credited to, or charged against, that
Variable Fund Account without regard to income, gains, or losses in the other
Variable Fund Accounts.
POLICY DISTRIBUTION
We intend to sell the Policy in all states in which we are licensed and
the District of Columbia. USAA IMCO, located at 10750 Robert F. McDermott
Freeway, San Antonio, Texas 78288, is the principal underwriter distributing
the Policy. USAA IMCO, a Texas corporation organized in May 1970, is
registered with the SEC under the Securities Exchange Act of 1934 as a
broker-dealer and is an active member of the National Association of
Securities Dealers, Inc.
The Policy will be sold by licensed life insurance sales representatives
who are also registered representatives of USAA IMCO. These licensed insurance
sales representatives are salaried employees and receive neither direct nor
50
<PAGE>
indirect commissions nor any renewal commissions from the sale of the
policies.
USAA IMCO serves as principal underwriter for the Policies pursuant to
an amended and restated Distribution and Administration Agreement with USAA
Life dated March 30, 1998. Pursuant to this agreement, USAA Life bears the
cost of the salaries of the sales representatives who sell the policies and
substantially all other distribution expenses of the Policies. The agreement
terminates upon its assignment or upon at least ninety days' notice by either
party. USAA IMCO also serves as principal underwriter and investment adviser
for the following other registered investment companies: USAA Tax Exempt Fund,
Inc., USAA Investment Trust, USAA State Tax-Free Trust, USAA Mutual Fund,
Inc., USAA Life Investment Trust. In addition, USAA IMCO serves as principal
underwriter for the Separate Account of USAA Life, a registered investment
company.
TAX MATTERS
The following is a discussion of certain federal income tax matters. We
do not intend this to be tax advice, nor does the following summary purport to
be complete or to cover all situations. You should consult your counsel and
other competent advisers for more complete information.
The individual situation of each Owner or beneficiary will determine how
ownership or receipt of Policy proceeds will be treated for purposes of the
federal estate tax, the state inheritance tax and other taxes.
TAXATION OF POLICY PROCEEDS
The following discussion is based on current federal income tax law and
interpretations. It assumes that the Owner is a natural person who is a U.S.
citizen and resident. The tax effects on non-U.S. residents or non-U.S.
citizens may be different. The discussion is general in nature, and should not
be considered tax advice, for which you should consult a qualified tax
adviser.
GENERAL. A Policy will be treated as "life insurance" for federal income
tax purposes (a) if it meets the definition of life insurance under Section
7702 of the Internal Revenue Code (the "Code") and (b) for as long as the
investments made by the underlying Mutual Funds satisfy certain investment
diversification requirements under Section 817(h) of the Code. We believe that
the Policies will meet these requirements and that:
o the death benefit received by the beneficiary under your Policy will
not be subject to federal income tax; and
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<PAGE>
o increases in your Policy's cash value as a result of investment
experience will not be subject to federal income tax unless and
until there is a distribution from your Policy, such as a surrender
or a partial surrender.
The federal income tax consequences of a distribution from your Policy
can be affected by whether your Policy is determined to be a "modified
endowment contract" (which is discussed below). In all cases, however, the
character of all income that is described below as taxable to the payee will
be ordinary income (as opposed to capital gain).
TESTING FOR MODIFIED ENDOWMENT CONTRACT STATUS. Your Policy will be a
"modified endowment contract" if, at any time during the first seven Policy
Years, you have paid a cumulative amount of premiums that exceeds the premiums
that would have been paid by that time under a similar fixed-benefit insurance
policy that was designed (based on certain assumptions mandated under the
Code) to provide for paid-up future benefits after the payment of seven level
annual premiums. This is called the "seven-pay" test.
Whenever there is a "material change" under a Policy, the Policy will
generally be (a) treated as a new contract for purposes of determining whether
the Policy is a modified endowment contract and (b) subjected to a new
seven-pay period and a new seven-pay limit. The new seven-pay limit would be
determined taking into account, under a prescribed formula, the accumulation
value of the Policy at the time of such change. A materially changed Policy
would be considered a modified endowment if it failed to satisfy the new
seven-pay limit. A material change for these purposes could occur as a result
of a change in death benefit option, the selection of additional rider
benefits, an increase in your Policy's Specified Amount of coverage, and
certain other changes.
If your Policy's benefits are reduced during the first seven Policy
Years (or within seven years after a material change), the calculated
seven-pay premium limit will be redetermined based on the reduced level of
benefits and applied retroactively for purposes of the seven-pay test. (Such a
reduction in benefits could include, for example, a decrease in Specified
Amount you request or, in some cases, a partial surrender or termination of
additional benefits under a rider.) If the premiums previously paid are
greater than the recalculated seven-payment premium level limit, the Policy
will become a modified endowment contract. A life insurance policy that is
received in exchange for a modified endowment contract will also be considered
a modified endowment contract.
OTHER EFFECTS OF POLICY CHANGES. Changes made to your Policy (for
example, a decrease in benefits or a lapse or reinstatement of your Policy)
may also have other effects on your Policy. Such effects may include impacting
the maximum amount of premiums that can be paid under your Policy, as well as
the maximum amount of accumulation value that may be maintained under your
Policy.
TAXATION OF PRE-DEATH DISTRIBUTIONS IF YOUR POLICY IS NOT A MODIFIED
ENDOWMENT CONTRACT. As long as your Policy remains in force during the
Insured's lifetime as a non-modified endowment contract, a Policy loan will be
treated as indebtedness, and no part of the loan proceeds will be subject to
52
<PAGE>
current federal income tax. Interest on the loan generally will not be tax
deductible.
After the first 15 Policy Years, the proceeds from a partial surrender
will not be subject to federal income tax except to the extent such proceeds
exceed your "basis" in your Policy. (Your basis generally will equal the
premiums you have paid, less the amount of any previous distributions from
your Policy that were not taxable.) During the first 15 Policy Years, the
proceeds from a partial surrender or a reduction in insurance coverage could
be subject to federal income tax, under a complex formula, to the extent that
your cash value exceeds your basis in your Policy.
On the maturity date or upon full surrender, any excess in the amount of
proceeds we pay (including amounts we use to discharge any Policy loan) over
your basis in the Policy, will be subject to federal income tax. In addition,
if a Policy terminates after a grace period while there is a Policy loan, the
cancellation of such loan and accrued loan interest will be treated as a
distribution and could be subject to tax under the above rules. Finally, if
you make an assignment of rights or benefits under your Policy you may be
deemed to have received a distribution from your Policy, all or part of which
may be taxable.
TAXATION OF PRE-DEATH DISTRIBUTIONS IF YOUR POLICY IS A MODIFIED
ENDOWMENT CONTRACT. If your Policy is a modified endowment contract, any
distribution from your Policy during the Insured's lifetime will be taxed on
an "income-first" basis. Distributions for this purpose include a loan
(including any increase in the loan amount to pay interest on an existing loan
or an assignment or a pledge to secure a loan) or partial surrender. Any such
distributions will be considered taxable income to you to the extent your cash
value exceeds your basis in the Policy. (For modified endowment contracts,
your basis is similar to the basis described above for other Policies, except
that it also would be increased by the amount of any prior loan under your
Policy that was considered taxable income to you.) For purposes of determining
the taxable portion of any distribution, all modified endowment contracts
issued by the same insurer (or its affiliate) to the same owner (excluding
certain qualified plans) during any calendar year are aggregated. The U.S.
Treasury Department has authority to prescribe additional rules to prevent
avoidance of "income-first" taxation on distributions from modified endowment
contracts.
A 10% penalty tax also will apply to the taxable portion of most
distributions from a Policy that is a modified endowment contract. The penalty
tax will not, however, apply to distributions (i) to taxpayers 59 1/2 years of
age or older, (ii) in the case of a disability (as defined in the Code) or
(iii) received as part of a series of substantially equal periodic annuity
payments for the life (or life expectancy) of the taxpayer or the joint lives
(or joint life expectancies) of the taxpayer and his or her beneficiary. If
your Policy terminates after a grace period while there is a Policy loan, the
cancellation of such loan will be treated as a distribution to the extent not
previously treated as such and could be subject to tax, including the 10%
penalty tax, as described above. In addition, on the maturity date and upon a
full surrender, any excess of the proceeds we pay (including any amounts we
use to discharge any loan) over your basis in the Policy, will be subject to
federal income tax and, unless an exception applies, the 10% penalty tax.
53
<PAGE>
Distributions that occur during a Policy Year in which your Policy
becomes a modified endowment contract, and during any subsequent Policy Years,
will be taxed as described in the two preceding paragraphs. In addition,
distributions from a Policy within two years before it becomes a modified
endowment contract also will be subject to tax in this manner. This means that
a distribution made from a Policy that is not a modified endowment contract
could later become taxable as a distribution from a modified endowment
contract. The Treasury Department has been authorized to prescribe rules which
would treat similarly other distributions made in anticipation of a Policy
becoming a modified endowment contract.
POLICY LAPSES AND REINSTATEMENTS. A Policy which has lapsed may have the
tax consequences described above, even though you may be able to reinstate
that Policy. For tax purposes, some reinstatements may be treated as the
purchase of a new insurance contract.
TERMINAL ILLNESS RIDER. Amounts received under an insurance policy on
the life of an individual who is terminally ill, as defined by the tax law,
are generally excludable from the payee's gross income. We believe that the
benefits provided under our terminal illness rider meet the law's definition
of terminally ill and can qualify for this income tax exclusion. This
exclusion does not apply, however, to amounts paid to someone other than the
Insured, if the payee has an insurable interest in the Insured's life because
the Insured is a director, officer or employee of the payee or by reason of
the Insured being financially interested in any trade or business carried on
by the payee.
DIVERSIFICATION. Under Section 817(h) of the Code, the Treasury
Department has issued regulations that implement investment diversification
requirements. Failure by us to comply with these regulations would disqualify
your Policy as a life insurance policy under Section 7702 of the Code. If this
were to occur, you would be subject to federal income tax on the income under
the Policy for the period of the disqualification and for subsequent periods.
Our Separate Account, through the Mutual Funds, intends to comply with these
requirements.
In connection with the issuance of then temporary diversification
regulations, the Treasury Department stated that it anticipated the issuance
of guidelines prescribing the circumstances in which the ability of a Policy
Owner to direct his or her investment to particular Mutual Funds within a
Separate Account may cause the Owner, rather than the insurance company, to be
treated as the owner of the assets in the account. If you were considered the
owner of the assets of the Separate Account, income and gains from the account
would be included in your gross income for federal income tax purposes. USAA
Life reserves the right to amend the Policies in any way necessary to avoid
any such result. As of the date of this Prospectus, no such guidelines have
been issued, although the Treasury Department has informally indicated that
any such guidelines could limit the number of investment funds or the
frequency of transfers among such funds. These guidelines may apply only
prospectively, although retroactive application is possible if such standards
are considered not to embody a new position.
54
<PAGE>
ESTATE AND GENERATION SKIPPING TAXES. If the Insured is the Policy
Owner, the death benefit under a Policy will generally be includable in the
Owner's estate for purposes of federal estate tax. If the Owner is not the
insured person, under certain conditions, only an amount approximately equal
to the cash surrender value of the Policy would be includable. Federal estate
tax is integrated with federal gift tax under a unified rate schedule. In
general, estates less than $625,000 (increasing annually, beginning in 1999,
to $1 million in 2006 and thereafter) will not incur a federal estate tax
liability. In addition, an unlimited marital deduction may be available for
federal estate tax purposes.
As a general rule, if a "transfer" is made to a person two or more
generations younger than the Policy's Owner, a generation skipping tax may be
payable at rates similar to the maximum estate tax rate in effect at the time.
The generation skipping tax provisions generally apply to "transfers" that
would be subject to the gift and estate tax rules. Individuals are generally
allowed an aggregate generation skipping tax exemption of $1 million. Because
these rules are complex, you should consult with a qualified tax adviser for
specific information, especially where benefits are passing to younger
generations.
If the Owner of the Policy is not the Insured, and the Owner dies before
the Insured, the value of the Policy, as determined under Internal Revenue
Service regulations, is includable in the federal gross of the Owner for
federal estate tax purposes. Whether a federal estate tax is payable depends
on a variety of factors, including those listed in the preceding paragraph.
The particular situation of each Owner, Insured or beneficiary will
determine how ownership or receipt of Policy proceeds will be treated for
purposes of federal estate and generation skipping taxes, as well as state and
local estate, inheritance and other taxes.
PENSION AND PROFIT-SHARING PLANS. If Policies are purchased by a trust
or other entity that forms part of a pension or profit-sharing plan qualified
under Section 401(a) of the Code for the benefit of participants covered under
the plan, the federal income tax treatment of such Policies will be somewhat
different from that described above.
If purchased as part of a pension or profit-sharing plan, the reasonable
net premium cost for such amount of insurance is required to be included
annually in the plan participant's gross income. This cost (generally referred
to as the "P.S. 58" cost) is reported to the participant annually. If the plan
participant dies while covered by the plan and the Policy proceeds are paid to
the participant's beneficiary, then the excess of the death benefit over the
Policy's cash value will not be subject to federal income tax. However, the
Policy's cash value will generally be taxable to the extent it exceeds the
participant's cost basis in the Policy. The participant's cost basis will
generally include the costs of insurance previously reported as income to the
participant. Special rules may apply if the participant had borrowed from the
Policy or was an owner-employee under the plan.
There are limits on the amounts of life insurance that may be purchased
on behalf of a participant in a pension or profit-sharing plan. Complex rules,
in addition to those discussed above, apply whenever life insurance is
55
<PAGE>
purchased by a tax qualified plan. You should consult a qualified tax adviser.
OTHER EMPLOYEE BENEFIT PROGRAMS. Complex rules may also apply when a
Policy is held by an employer or a trust, or acquired by an employee, in
connection with the provision of other employee benefits. These Policy Owners
must consider whether the Policy was applied for by or issued to a person
having an insurable interest under applicable state law and with the insured
person's consent. The lack of an insurable interest or consent may, among
other things, affect the qualification of the Policy as life insurance for
federal income tax purposes and the right of the beneficiary to receive a
death benefit.
ERISA. Employers and employer-created trusts may be subject to
reporting, disclosure and fiduciary obligations under the Employee Retirement
Income Security Act of 1974. You should consult a qualified legal adviser.
WHEN WE WITHHOLD INCOME TAXES. Generally, unless you provide us with an
election to the contrary before we make the distribution, we are required to
withhold income tax from any proceeds we distribute as part of a taxable
transaction under your Policy. In some cases, where generation skipping taxes
may apply, we may also be required to withhold for such taxes unless we are
provided satisfactory written notification that no such taxes are due.
TAX CHANGES. The U.S. Congress frequently considers legislation that, if
enacted, could change the tax treatment of life insurance policies. In
addition, the Treasury Department may amend existing regulations, issue
regulations on the qualification of life insurance and modified endowment
contracts, or adopt new interpretations of existing law. State and local tax
law or, if you are not a U.S. citizen and resident, foreign tax law, may also
affect the tax consequences to you, the Insured, or your beneficiary, and are
subject to change. Any changes in federal, state, local or foreign tax law or
interpretation could have a retroactive effect. We suggest you consult a
qualified tax adviser.
TAXATION OF USAA LIFE
USAA Life is taxed as a life insurance company under federal income tax
laws. USAA Life does not initially expect to incur any income tax on the
earnings or the realized capital gains attributable to the Separate Account.
If, in the future, USAA Life determines that the Separate Account may incur
federal income taxes, then it may assess a charge against the Separate Account
Variable Fund Accounts for those taxes. Any charge will reduce the Policy's
cash value.
We may have to pay state, local or other taxes in addition to applicable
taxes based on premiums. At present, these taxes are not substantial. If they
increase, charges may be made for such taxes when they are attributable to our
Separate Account or allocable to the Policies.
Certain Mutual Funds in which your cash value is invested may elect to
pass through to USAA Life taxes withheld by foreign taxing jurisdictions on
foreign source income. Such an election will result in additional taxable
income and income tax to USAA Life. The amount of additional income tax,
56
<PAGE>
however, may be more than offset by credits for the foreign taxes withheld
which are also passed through. These credits may provide a benefit to USAA
Life.
STATE REGULATION OF USAA LIFE
USAA Life, a stock life insurance company organized under the laws of
Texas, is subject to regulation by the Texas Department of Insurance. An
annual statement is filed with the Texas Department of Insurance on or before
March 1st of each year covering the operations and reporting on the financial
condition of USAA Life as of December 31 of the preceding year. Periodically,
the Commissioner of Insurance examines the liabilities and reserves of USAA
Life and the Separate Account and certifies their adequacy.
In addition, USAA Life is subject to the insurance laws and regulations
of all other states and jurisdictions where it is licensed. Generally, the
Insurance Department of any other state applies the laws of the state of Texas
in determining USAA Life's permissible investments.
LEGAL MATTERS
Freedman, Levy, Kroll, and Simonds, Washington, D.C., has advised USAA
Life on certain federal securities law matters. All matters of Texas law
pertaining to the Policy, including the validity of the Policy and USAA Life's
right to issue the Policy under Texas insurance law, have been passed upon by
Dwain A. Akins, Assistant Vice President and Assistant Secretary of USAA Life.
We are not involved in any legal proceedings that may involve the assets
of the Separate Account nor are we involved in any legal proceedings of a
material nature involving our own assets.
EXPERTS
The consolidated financial statements of USAA Life as of December 31,
1997 and 1996, and for each of the years in the three-year period ended
December 31, 1997, have been included in this Prospectus in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
included elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
57
<PAGE>
REGISTRATION STATEMENT
USAA Life has filed a registration statement under the Securities Act of
1933 with the SEC relating to the offering described in this Prospectus. This
Prospectus does not contain all the information set forth in the registration
statement and amendments thereto and the exhibits filed as part thereof, to
all of which reference is hereby made for additional information concerning
the Separate Account, USAA Life and the Policies.
The exhibits to the registration statement include a form of
hypothetical illustration of the Policy that shows how cash value, cash
surrender value, and the death benefit could vary over an extended period of
time assuming hypothetical gross rates of return (I.E., investment income and
capital gains and losses, realized or unrealized) for the Funds equal to
annual rates of 0%, 6%, and 12%, Insureds in the rate class illustrated, and
based on current and guaranteed Policy charges.
The additional information contained in the registration statement may
be obtained at the SEC's main office in Washington, D.C., upon payment of the
prescribed fees.
FINANCIAL STATEMENTS
You should consider the consolidated financial statements of USAA Life
only as bearing on the ability of USAA Life to meet its contractual
obligations under the Policies. They do not bear on the investment performance
of the Separate Account. This Prospectus contains no financial statements for
the Separate Account, which commenced operations as of the date of this
Prospectus.
58
<PAGE>
KPMG Peat Marwick LLP
112 East Pecan, Suite 2400
San Antonio, TX 78205-1585
Independent Auditors' Report
The Board of Directors
USAA LIFE INSURANCE COMPANY:
We have audited the accompanying consolidated balance sheets of USAA LIFE
INSURANCE COMPANY as of December 31, 1997, and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of USAA LIFE
INSURANCE COMPANY as of December 31, 1997, and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
March 20, 1998 /s/KPMG PEAT MARWICK LLP
<PAGE>
USAA LIFE INSURANCE COMPANY
Consolidated Balance Sheets
December 31, 1997 and 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
ASSETS
Investments:
Debt securities, at amortized cost $ 1,245,257 1,471,707
Debt securities, at fair value 4,869,912 4,119,664
Equity securities, at fair value 352,863 313,068
Mortgage loans 4,462 4,746
Policy loans 130,246 118,683
------------ ------------
Total investments 6,602,740 6,027,868
Cash and cash equivalents 39,642 9,444
Premium balances receivable 2,899 1,655
Accounts receivable - affiliates 50 20
Furniture and equipment 1,403 1,156
Accrued investment income 78,929 71,636
Deferred policy acquisition costs 207,090 189,298
Deferred tax 22,230 28,244
Other assets 34,631 20,712
Separate account assets 184,797 93,804
------------ ------------
Total assets $ 7,174,411 6,443,837
============ ============
LIABILITIES
Insurance reserves $ 992,983 811,413
Funds on deposit 5,097,272 4,763,093
Accounts payable and accrued expenses 87,315 34,295
Accounts payable - affiliates 12,072 13,441
Other liabilities 55,099 57,107
Separate account liabilities 184,797 93,804
------------ ------------
Total liabilities 6,429,538 5,773,153
------------ ------------
STOCKHOLDERS' EQUITY
Preferred capital stock, $100 par value;
1,200,000 shares authorized (600,000 in 1996);
600,000 shares issued and outstanding 60,000 60,000
Common capital stock, $100 par value;
30,000 shares authorized; 25,000 shares
issued and outstanding 2,500 2,500
Additional paid-in capital 51,408 51,408
Net unrealized gains on investments 33,403 22,300
Retained earnings 597,562 534,476
------------ ------------
Total stockholders' equity 744,873 670,684
------------ ------------
Total liabilities
and stockholders' equity $ 7,174,411 6,443,837
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
USAA LIFE INSURANCE COMPANY
Consolidated Statements of Income
Years ended December 31, 1997, 1996, and 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
REVENUES
Premiums $ 355,825 337,442 305,898
Investment income, net 452,104 428,161 406,922
Fees, sales and loan income 9,403 8,752 8,345
Net realized investment gains 43,524 13,773 1,748
Other revenues 31,315 13,335 14,587
---------- ---------- ----------
Total revenues 892,171 801,463 737,500
---------- ---------- ----------
BENEFITS AND EXPENSES
Losses, benefits and settlement expenses 542,880 498,341 462,032
Deferred policy acquisition costs 11,898 6,071 3,915
Dividends to policyholders 53,082 53,691 45,588
Other operating expenses 117,354 122,474 124,318
---------- ---------- ----------
Total benefits and expenses 725,214 680,577 635,853
---------- ---------- ----------
Income before income taxes 166,957 120,886 101,647
---------- ---------- ----------
Federal income tax expense (benefit):
Current 57,799 37,090 38,447
Deferred (1,674) (1,494) (3,107)
---------- ---------- ----------
Total Federal income tax expense 56,125 35,596 35,340
---------- ---------- ----------
Net income $ 110,832 85,290 66,307
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
USAA LIFE INSURANCE COMPANY
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1997, 1996, and 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CAPITAL
Balance at beginning of year $ 113,908 93,908 93,908
Issuance of preferred stock - 20,000 -
---------- ---------- ----------
End of year 113,908 113,908 93,908
---------- ---------- ----------
RETAINED EARNINGS
Beginning of year 534,476 465,016 418,310
Net income 110,832 85,290 66,307
Dividends to stockholders (47,746) (15,830) (19,601)
---------- ---------- ----------
End of year 597,562 534,476 465,016
---------- ---------- ----------
NET UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Beginning of year 22,300 16,446 (38,607)
Increase (decrease) in net unrealized
gains (losses) on investments 11,103 (398) 55,053
Transfer of unrealized capital gains on separate account - 6,252 -
---------- ---------- ----------
End of year 33,403 22,300 16,446
---------- ---------- ----------
NET UNREALIZED GAINS ON SEPARATE ACCOUNT
Beginning of year - 13,072 -
Increase (decrease) in net unrealized
gains on separate account - (6,820) 13,072
Transfer of unrealized capital gains on separate account - (6,252) -
---------- ---------- ----------
End of year - - 13,072
---------- ---------- ----------
Total stockholders' equity $ 744,873 670,684 588,442
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
USAA LIFE INSURANCE COMPANY
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996, and 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash from operating activities:
Net income $ 110,832 85,290 66,307
Adjustments to reconcile net income to net
cash provided by operating activities:
Net realized investment gains (43,524) (13,773) (1,748)
Non-cash investment income (13,148) (5,185) -
(Increase) in deferred policy acquisition costs (19,938) (17,728) (18,993)
Depreciation and amortization (7,951) (5,442) (5,298)
Deferred income tax benefit (1,974) (1,494) (3,107)
(Increase) in premium balances receivable (1,244) (44) (346)
(Increase) in accounts receivable-affiliate (30) (20) -
(Increase) in accrued investment income (7,292) (12,213) (7,171)
(Increase) Decrease in other assets (14,583) (8,495) 6,197
Increase in insurance reserves 102,790 78,926 65,721
Increase (Decrease) in accounts payable and
accrued expense 53,022 (20,126) 8,852
Increase (Decrease) in accounts payable-affiliates (1,370) 3,379 3,394
Increase (Decrease) in other liabilities 432 7,089 (4,712)
Other (3,016) 759 40
------------ ------------ ------------
Net cash provided by operating
activities 153,306 90,923 109,136
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sales and maturities of
available-for-sale securities 370,972 587,945 420,818
Proceeds from maturities of held-to-maturity
securities 117,667 106,504 184,729
Proceeds from principal collections on
investments 271,471 351,540 292,673
Other investments sold 948 1,123 934
Retirement of notes receivable - - 30,000
Securities purchased - available-for-sale (1,181,564) (1,460,349) (1,313,784)
Other investments purchased (165) (451) (1,382)
Investment in variable annuity separate account - 87,280 (81,000)
------------ ------------ ------------
Net cash used in investing activities (420,671) (326,408) (467,012)
------------ ------------ ------------
Cash flows from financing activities:
Deposits and interest credited to funds
on deposit 742,374 571,941 655,626
Withdrawals from funds on deposit (419,611) (362,658) (344,774)
Proceeds from issuance of preferred stock - 20,000 -
Dividends to stockholders (25,200) (15,830) (19,601)
------------ ------------ ------------
Net cash provided by financing activities 297,563 213,453 291,251
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents 30,198 (22,032) (66,625)
Cash and cash equivalents at beginning of year 9,444 31,476 98,101
------------ ------------ ------------
Cash and cash equivalents at end of year $ 39,642 9,444 31,476
============ ============ ============
</TABLE>
Significant Non-Cash Financing Activities:
In 1997, the Company declared and paid a dividend to stockholders by
transferring equity securities with a fair value of $22,546, a cost of
$11,560, and recognized a gain of $10,986.
See accompanying notes to consolidated financial statements.
4
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) ORGANIZATION
USAA LIFE INSURANCE COMPANY (the Company) is a wholly-owned
subsidiary of UNITED SERVICES AUTOMOBILE ASSOCIATION (USAA). The
Company markets individual life insurance policies, annuity
contracts, and individual and group accident and health policies
primarily to individuals eligible for membership in USAA. The
Company is licensed to do business in all states including the
District of Columbia but excluding New York. The Company has a
subsidiary company (USAA Life Insurance Company of New York)
licensed to sell Life and Annuity contracts in that state. The
Company's other business (USAA Life General Agency) offers
additional products of other insurance companies requested by USAA
membership, which are not sold by the Company. The consolidated
financial statements include the accounts of the Company and its
subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
(b) INVESTMENTS
Debt securities, including bonds, mortgage-backed securities
(MBS's), and redeemable preferred stocks, have been classified as
either held-to-maturity or available-for-sale. Debt securities
classified as held-to-maturity are carried at amortized cost.
Securities classified as available-for-sale are carried at fair
value with unrealized gains or losses (net of related deferred
income taxes, deferred policy acquisition costs, and future
policyholder benefits) reflected in stockholders' equity.
Bonds, at amortized cost of approximately $281,206, and $2,876
were on deposit with various state governmental agencies at
December 31, 1997, and 1996 respectively. When the New York
subsidiary was formed in 1997, the Company withdrew its license in
the State of New York. To be in compliance with the New York
Regulation 109, the 1997 deposits include $278,333 held for the
security of the New York policyholders.
Mortgage-backed securities held represent participating interests
in pools of long term first mortgage loans originated and serviced
by the issuers of the securities. Market interest rate
fluctuations can affect the prepayment speed of principal and the
yield on the securities.
All equity securities, which include common and nonredeemable
preferred stocks, have been classified as available-for-sale.
Equity securities are carried at fair value with unrealized gains
or losses (net of related deferred income taxes, deferred policy
acquisition costs, and future policyholder benefits) reflected in
stockholders' equity.
Real estate mortgages and policy loans are carried at their unpaid
principal balances with interest rates ranging from 4.80% to 10.0%
at December 31, 1997.
Short-term securities are carried at cost.
Interest is not accrued on debt securities or mortgage loans for
which principal or interest payments are determined to be
uncollectible.
Realized gains and losses are included in net income based upon
specific identification of the investment sold. When impairment of
the value of an investment is considered to be other than
temporary, a provision for the writedown to estimated net
realizable value is recorded.
(Continued)
5
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
(c) CASH AND CASH EQUIVALENTS
For purposes of the consolidated statement of cash flows, all
highly liquid marketable securities that have a maturity at
purchase of three months or less and money market mutual funds are
considered to be cash equivalents. At December 31, 1997 and 1996,
cash and cash equivalents include $268, and $362, respectively, of
separate account purchases awaiting reinvestment. These funds are
restricted from the Company's use.
(d) FEDERAL INCOME TAXES
The Company and its subsidiaries are included in the consolidated
Federal income tax return filed by USAA. Taxes are allocated to
the separate companies of USAA based on a tax allocation
agreement, whereby companies receive a current benefit to the
extent their losses are utilized by the consolidated group.
Separate company current taxes are the higher of taxes computed at
a 35% rate on regular taxable income or taxes computed at a 20%
rate on alternative minimum taxable income, adjusted for any
consolidated benefits allocated to the companies based on the use
of separate company losses within the group.
Deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates
applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets
and liabilities. The effect on deferred income taxes of a change
in tax rates is recognized in income in the period that includes
the enactment date.
(e) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value estimates of the Company's financial instruments
were made at a point in time, based on relevant market information
about the related financial instrument. These estimates do not
reflect any premium or discount that could result from offering
for sale at one time the Company's entire holding of a particular
financial instrument. In addition, the tax ramifications related
to the effect of fair market value estimates have not been
considered in the estimates.
(f) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
(g) DEFERRED POLICY ACQUISITION COSTS
Policy acquisition costs, consisting primarily of certain
underwriting and selling expenses, are deferred and amortized.
Traditional individual life and health acquisition costs are
amortized in proportion to anticipated premium income after
allowing for lapses and terminations (20 years; but not to exceed
the life of the policy). Acquisition costs for universal life and
annuities are amortized in relation to the present value of
estimated gross profits from surrender charges and investment,
mortality and expense margins (20 years).
Deferred policy acquisition costs are reviewed to determine that
the unamortized portion does not exceed expected future income or
gross profits.
(Continued)
6
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
(h) INSURANCE RESERVES
Included in reserves are traditional life and health products and
payout annuities with life contingencies. Payout annuities without
life contingencies, deferred annuities, and universal life
products are classified as funds on deposit. Traditional life and
individual health reserves are computed using a net level premium
method and are based on assumed or guaranteed investment yields
and assumed rates of mortality, morbidity, withdrawals, expenses
and anticipated future policyholder dividends. These assumptions
vary by such characteristics as plan, year of issue, policy
duration, date of receipt of funds, and may include provisions for
adverse deviation.
(i) INSURANCE REVENUES AND EXPENSES
Premiums on traditional life insurance products are recognized as
revenues as they become due. Benefits and expenses are matched
with premiums in arriving at profits by providing for policy
benefits over the lives of the policies and by amortizing
acquisition costs. For universal life and investment annuity
contracts, revenues consist of investment earnings and policy
charges for the cost of insurance, policy administration, and
surrender charges assessed during the period. Expenses for these
policies include interest credited to policy account balances,
benefit claims incurred in excess of policy account balances, and
administrative expenses. The related deferred policy acquisition
costs are amortized in relation to the present value of expected
gross profits from surrender charges and investment, mortality,
and expense margins.
(j) FUNDS ON DEPOSIT
Funds on deposit are liabilities for universal life and
investment-related products. These liabilities are determined
following the "retrospective deposit" method and consist
principally of policy account balances before applicable surrender
charges.
(k) PARTICIPATING BUSINESS
Certain life insurance policies contain dividend payment
provisions which enable the policyholder to participate in the
earnings of the life insurance operations. The participating
insurance in force accounted for 8% of the total life insurance in
force at December 31, 1997, and 9% of life insurance in force at
December 31, 1996. Participating policies accounted for 13% of the
premium income in 1997, and 15% of the premium income in 1996. The
provision for policyholders' dividends is based on current
dividend scales.
The Company guarantees to pay dividends in aggregate, on all
policies issued after December 31, 1983, in the total amount of
$15,092 in 1998.
Income attributable to participating policies in excess of
policyholder dividends is restricted by several states for
participating policyholders of those states, otherwise income in
excess of policyholder dividends is accounted for as belonging to
the stockholders.
(l) RECLASSIFICATIONS
Certain reclassifications of prior period amounts have been made
to conform with the current year's presentation.
(Continued)
7
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
(2) BASIS OF ACCOUNTING
The Company prepares separate statutory financial statements in
accordance with accounting practices prescribed or permitted by the
Insurance Department of Texas. Prescribed statutory accounting practices
include a variety of publications of the NAIC as well as state laws,
regulations, and general administrative rules. Permitted statutory
accounting practices encompass all accounting practices not so
prescribed. The NAIC is currently undergoing a codification project
whereby a comprehensive accounting and reporting basis may be adopted
which is intended to replace prescribed or permitted accounting
practices.
These consolidated financial statements have been prepared on the basis
of generally accepted accounting principles (GAAP), which differs from
the basis of accounting followed in reporting to insurance regulatory
authorities. Reconciliations of statutory net income and capital and
surplus, as determined using statutory accounting principles, to the
amounts included in the accompanying consolidated financial statements
are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory net income $ 97,588 62,998 55,213
Gain(loss) on sale of investments 980 (6,422) (1,719)
Deferred policy acquisition costs 19,938 17,728 18,993
Tax adjustment 7,253 8,386 397
Participating policyholder earnings 3,294 (787) (40)
Insurance reserves and other (18,221) 3,387 (6,537)
---------- ---------- ----------
GAAP net income $ 110,832 85,290 66,307
========== ========== ==========
Statutory capital and surplus 540,053 470,263 396,676
Increases (decreases):
Deferred policy acquisition costs 207,090 189,298 164,831
Federal income taxes 22,354 28,236 19,974
Asset valuation reserve 99,651 103,482 96,742
Interest maintenance reserve - - 4,894
Participating policyholder liability (4,143) (6,583) (5,398)
Policyholder reserve and funds (91,468) (69,279) (75,052)
Investment unrealized gain (loss) adjustments:
Investment valuation difference 150,686 56,285 145,352
Policyholder accounts and other assets (175,607) (96,828) (155,588)
Other adjustments (3,743) (4,190) (3,989)
---------- ---------- ----------
GAAP capital and surplus $ 744,873 670,684 588,442
========== ========== ==========
</TABLE>
(Continued)
8
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
(3) INVESTMENTS
The amortized cost, estimated fair values and carrying values of
investments in debt and equity securities as of December 31, 1997 were
as follows:
<TABLE>
<CAPTION>
Held-to-Maturity
------------------------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair Carrying
cost gains losses value value
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DEBT SECURITIES
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 11,060 1,912 - 12,972 11,060
Obligations of states and
political subdivisions 5,525 373 (2) 5,896 5,525
Debt securities issued by
foreign governments and
corporations 41,153 1,051 (13) 42,191 41,153
Mortgage backed securities 759,916 26,262 (1,546) 784,632 759,916
Corporate securities 427,603 16,220 (713) 443,110 427,603
------------ ------------ ------------ ------------ ------------
Total debt securities $ 1,245,257 45,818 (2,274) 1,288,801 1,245,257
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Available-for-Sale
------------------------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair Carrying
cost gains losses value value
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DEBT SECURITIES
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 301,875 2,500 (994) 303,381 303,381
Obligations of states and
political subdivisions 66,443 2,933 - 69,376 69,376
Debt securities issued by
foreign governments and
corporations 128,144 4,866 (19) 132,991 132,991
Mortgage backed securities 1,230,196 54,906 (37) 1,285,065 1,285,065
Corporate securities 2,995,524 85,527 (1,952) 3,079,099 3,079,099
------------ ------------ ------------ ------------ ------------
Total debt securities $ 4,722,182 150,732 (3,002) 4,869,912 4,869,912
============ ============ ============ ============ ============
EQUITY SECURITIES
Common stock $ 216,508 82,854 (1,678) 297,684 297,684
Nonredeemable preferred stock 51,696 3,610 (127) 55,179 55,179
------------ ------------ ------------ ------------ ------------
Total equity securities $ 268,204 86,464 (1,805) 352,863 352,863
============ ============ ============ ============ ============
</TABLE>
(Continued)
9
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
The amortized cost, estimated fair values and carrying values of investments
in debt and equity securities as of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Held-to-Maturity
------------------------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair Carrying
cost gains losses value value
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DEBT SECURITIES
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 21,132 1,530 (4) 22,658 21,132
Obligations of states and
political subdivisions 42,844 807 - 43,651 42,844
Debt securities issued by
foreign governments and
corporations 53,333 280 (893) 52,720 53,333
Mortgage backed securities 870,583 24,443 (9,694) 885,332 870,583
Corporate securities 481,906 17,374 (3,517) 495,763 481,906
Redeemable preferred stock 1,909 - - 1,909 1909
------------ ------------ ------------ ------------ ------------
Total debt securities $ 1,471,707 44,434 (14,108) 1,502,033 1,471,707
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Available-for-Sale
------------------------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair Carrying
cost gains losses value value
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
DEBT SECURITIES
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 327,091 885 (4,372) 323,604 323,604
Obligations of states and
political subdivisions 7,848 723 (66) 8,505 8,505
Debt securities issued by
foreign governments and
corporations 127,213 3,619 (425) 130,407 130,407
Mortgage backed securities 1,232,769 38,654 (3,982) 1,267,441 1,267,441
Corporate securities 2,372,767 35,073 (18,133) 2,389,707 2,389,707
------------ ------------ ------------ ------------ ------------
Total debt securities $ 4,067,688 78,954 (26,978) 4,119,664 4,119,664
============ ============ ============ ============ ============
EQUITY SECURITIES
Common stock $ 202,313 70,095 (1,481) 270,927 270,927
Nonredeemable preferred stock 37,298 4,872 (29) 42,141 42,141
------------ ------------ ------------ ------------ ------------
Total equity securities $ 239,611 74,967 (1,510) 313,068 313,068
============ ============ ============ ============ ============
</TABLE>
(Continued)
10
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
The amortized cost and estimated fair values of debt securities classified as
held to maturity and available for sale at December 31, 1997, by contractual
maturity, are shown by category below. Expected maturities may differ from
contractual maturities because borrowers may have the right to prepay
obligations.
<TABLE>
<CAPTION>
Held-to-Maturity
----------------------------------
Estimated
Amortized fair
cost value
----------------------------------
<S> <C> <C>
Due in one year or less $ 108,753 109,699
Due after one year through five years 147,757 153,194
Due after five years through ten years 180,975 187,965
Due after ten years 47,856 53,311
------------ ------------
485,341 504,169
Mortgage-backed securities 759,916 784,632
------------ ------------
$ 1,245,257 1,288,801
============ ============
</TABLE>
<TABLE>
<CAPTION>
Available-for-Sale
----------------------------------
Estimated
Amortized fair
cost value
----------------------------------
<S> <C> <C>
Due in one year or less $ 58,514 58,809
Due after one year through five years 1,666,587 1,694,623
Due after five years through ten years 1,562,265 1,616,995
Due after ten years 204,620 214,420
------------ ------------
3,491,986 3,584,847
Mortgage-backed securities 1,230,196 1,285,065
------------ ------------
$ 4,722,182 4,869,912
============ ============
</TABLE>
Proceeds from sales of available-for-sale securities during 1997, 1996, and
1995 were $317,851, $495,039, and $416,071, respectively. Gross gains and
losses of $29,049 and $2,913 respectively for 1997, and $25,566 and $18,317
respectively for 1996, and $7,820 and $9,268 respectively for 1995, were
realized on those sales.
Gross investment income during 1997, 1996, and 1995 was $456,322, $431,893,
and $410,912, respectively and consists primarily of interest income on fixed
maturity securities. Investment expenses were $4,218, $3,732, and $3,990 for
1997, 1996, and 1995, respectively.
(Continued)
11
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
(4) FEDERAL INCOME TAXES
The expected statutory Federal income tax amounts for the years ended
December 31, 1997, 1996, and 1995 differ from the effective tax amounts
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income before income taxes $ 166,957 120,886 101,647
========== ========== ==========
Federal income tax expense at 35% statutory rate 58,435 42,310 35,577
Increase (decrease) in tax resulting from:
Dividends received deduction (604) (660) (536)
Tax credits - R&E (548) (6,188) -
Other, net (1,158) 134 299
---------- ---------- ----------
Federal income tax expense $ 56,125 35,596 35,340
========== ========== ==========
</TABLE>
Deferred income tax benefit for the years ended December 31, 1997, 1996,
and 1995 was primarily attributable to differences between the valuation
of assets and insurance liabilities for financial reporting and tax
purposes.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31 are presented below:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Insurance reserves $ 70,361 62,358
Accounts payable and accrued expenses 1,497 1,612
Policyholder dividends 6,778 6,738
Other, net 3,686 6,929
---------- ----------
Total gross deferred tax assets 82,322 77,637
---------- ----------
Deferred tax liabilities:
Investments 7,590 2,641
Depreciable assets 39 1
Deferred policy acquisition costs 34,517 37,025
Other, net 9 331
---------- ----------
Total gross deferred tax liabilities 42,155 39,998
---------- ----------
Deferred tax liability on net
unrealized gains on investments (17,937) (9,395)
---------- ----------
Net deferred tax asset $ 22,230 28,244
========== ==========
</TABLE>
Management believes that the realization of the deferred tax asset is
more likely than not based on the expectation that such benefits will be
utilized in the future consolidated tax returns of the USAA group.
(Continued)
12
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
At December 31, 1997, and 1996, the Company had the following Federal
income tax payable/receivable amounts:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current Net Federal income taxes payable (receivable) $ (1,552) 3,157
</TABLE>
Aggregate cash payments to (receipts from) USAA for income taxes were
$62,345, $38,064, and $44,965 for USAA Life Insurance Company and $163,
$(155), and $126 for its subsidiaries during the years ended December
31, 1997, 1996, and 1995, respectively.
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following tables present the carrying amounts and estimated fair
values of the Company's financial instruments at December 31. Financial
Accounting Statement No. 107, "Disclosures about Fair Value of Financial
Instruments", defines the fair value of a financial instrument as the
amount at which the instrument could be exchanged in a current
transaction between willing parties.
<TABLE>
<CAPTION>
1997 1996
---------------------------- ----------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 39,642 39,642 9,444 9,444
Debt securities 6,115,169 6,158,713 5,591,371 5,621,697
Equity securities 352,863 352,863 313,068 313,068
Mortgage loans 4,462 5,114 4,746 5,232
Other invested assets 2,352 2,736 2,373 2,828
Policy loans 130,246 130,246 118,683 118,683
Premium balances receivable 2,899 2,899 1,655 1,655
Accrued investment income 78,929 78,929 71,636 71,636
Separate Account 184,797 184,797 93,804 93,804
Financial liabilities:
Deferred annuities and annuities without
life contingencies 3,787,507 3,787,507 3,720,373 3,720,373
Policyholder dividend accumulations 28,593 28,593 23,191 23,191
Policy dividends declared but unpaid 31,081 31,081 29,415 29,415
Accounts payable and accrued expenses 87,315 87,315 34,295 34,295
Separate Account 184,797 184,797 93,804 93,804
</TABLE>
The carrying amounts of financial assets and liabilities shown in the
above table are included in the balance sheet under the indicated
captions with the following exceptions: other invested assets are
included in other assets, deferred annuities and annuities without life
contingencies are included in funds on deposit, policyholder dividend
accumulations are included in funds on deposit, and policy dividends
declared and unpaid are included in other liabilities.
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Cash and cash equivalents: Cash and cash equivalents approximate fair
value because of the short maturity of these instruments.
Debt and equity securities: Fair market values for bonds and stocks are
determined using quoted market prices from Merrill Lynch Pricing
Services, Bloomberg Services or individual brokers.
(Continued)
13
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
Mortgage loans: The fair value of mortgage loans and the mortgage loan
component of other assets are estimated by discounting the future cash
flows using interest rates currently being offered for mortgage loans
with similar characteristics and maturities.
Policy loans: In the Company's opinion, the book value of the policy
loans approximates their fair value. Policy loans are shown on the
financial statements at face value, and carry interest rates ranging
from 4.8% to 7.4% in advance.
Premiums receivable: The recorded amount for premiums receivable
approximates fair value because only a slight percentage of total
policies issued by the Company lapse.
Accrued investment income: The accrued amount of investment income
approximates its fair value because of the quality of the Company's
investment portfolio combined with the short term nature of the
collection period.
Deferred annuities and annuities without life contingencies: The fair
value of the deferred annuities is estimated as the aggregate cash value
of the annuity, which approximates the carrying value. The fair value of
annuities without life contingencies is estimated as the commuted value
of the annuity.
Policyholder dividend accumulations: The fair value of policyholder
dividend accumulations is estimated using the book value less a
percentage of accrued interest anticipated to be forfeited as a result
of policy cancellations. Estimated annual interest to be forfeited is
not significant.
Policy dividends declared but unpaid: The carrying value of policy
dividends declared but unpaid approximates the fair value because the
carrying value reflects anticipated forfeitures as a result of policy
cancellations. Estimated annual interest to be forfeited is not
significant.
Accounts payable and accrued expenses: The fair value of accounts
payable and accrued expenses approximates its carrying value because of
the short term nature of the obligations.
Separate account assets and liabilities: The separate account assets
reflect the net asset value of the underlying mutual funds, therefore
carrying value is considered fair value. The separate account
liabilities are reflected at the underlying balances due to the contract
holders, excluding seed money, without consideration for applicable
surrender charges, if any.
(6) BORROWINGS
The Company has no borrowing activity outside of the agreements
described in Note 7 "Transactions with affiliates."
(7) TRANSACTIONS WITH AFFILIATES
Certain services have been contracted from USAA and its affiliates, such
as rental of office space, utilities, mail processing, data processing,
printing, and employee benefits. The Company allocates these and other
expenses to affiliates for administrative services performed by the
Company. The contracted services and allocations are based upon various
formulas or agreements with the net amounts included in expenses. The
aggregate amount of such contracted services was $73,136, $70,713, and
$66,787 for 1997, 1996, and 1995, respectively. The aggregate amount of
the Company's allocations to affiliates was $4,376, $4,742, and $3,910
for 1997, 1996, and 1995, respectively.
(Continued)
14
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
The Company has an agreement with USAA Investment Management Company
regarding the reimbursement of costs for investment services provided.
The aggregate amount of the USAA Investment Management Company
contracted services was $3,037, $2,793, and $2,941 for 1997, 1996 and
1995, respectively.
The Company also received premium and annuity considerations from USAA
of $4,201, $4,093, and $6,145 in 1997, 1996, and 1995, respectively,
representing amounts received for structured settlements issued to
claimants of USAA and for group insurance on USAA employees.
The Company has intercompany funding agreements with USAA Capital
Corporation (CAPCO) and USAA Funding Company (FUNDCO) for unsecured
borrowings up to $150,000 in the aggregate, at an interest rate based
upon CAPCO's or FUNDCO's cost of funding. As of December 31, 1997, 1996,
and 1995 the Company had no liability for borrowed money. The Company
borrowed $3,598,125 during 1997, $2,566,042 during 1996, and $1,809,466
during 1995, through the use of these funding agreements. The interest
associated with these intercompany funding agreements was $855, $660,
and $898 in 1997, 1996, and 1995, respectively.
In 1996, the Company exercised a put option on a $20,000 medium term
note from CAPCO.
(8) REINSURANCE
The Company is party to several reinsurance agreements. The Company's
general policy is to reinsure that portion of any risk in excess of $600
with a $100 corridor on the life of any one individual. However in 1997
the Company entered into certain reinsurance treaties which are based on
a first dollar quota share pool. The Company retains 10% of the risk on
each life up to the normal $600 retention and the remaining 90% goes to
a coinsurance pool which is placed with a number of reinsurers on a
quota share basis.
Additionally, the Company's entry into the Bank Owned Life Insurance
(BOLI) business resulted in two reinsurance treaties, one Yearly
Renewable Term (YRT) and one Coinsurance treaty, both of which are with
one reinsurer on a first dollar basis, with the Company retaining 50% of
the business in the coinsurance arrangement.
Although the ceding of reinsurance does not discharge the Company from
its primary legal liability to a policyholder, the reinsuring company
assumes the related liability.
Life insurance in force in the amounts of $4,077,094, $3,595,801 and
$3,690,040 is ceded on a yearly renewable term basis; $4,684,726,
$939,290, and $716,596 is ceded on a coinsurance basis; and $957,267,
$952,599, and $1,000,581 is ceded in accordance with a stop loss
agreement at December 31, 1997, 1996, and 1995, respectively.
Reinsurance amounts related to insurance reserves, funds on deposit, and
paid losses totaled $204,607, and $13,023 at December 31, 1997 and 1996,
respectively. Premium revenues and interest credited to policyholders
were reduced by $204,109, $11,837, and $11,072 for reinsurance premiums
ceded during the years ended December 31, 1997, 1996, and 1995,
respectively. Benefits were reduced by $196,062, $7,838, and $7,435 for
reinsurance recoverables during the years ended December 31, 1997, 1996,
and 1995, respectively. One reinsurer accounts for 90% of the amount
recoverable from reinsurers at December 31, 1997.
Reinsurance amounts related to accident and health insurance reserves
and paid losses totaled $17,981 and $15,786 at December 31, 1997 and
1996, respectively. Premium revenues were reduced by $3,297, $3,117, and
$3,134 for reinsurance premiums ceded during the years ended December
31, 1997, 1996, and 1995, respectively. Benefits were reduced by $3,268,
$3,604, and $3,299 for reinsurance recoverables during the years ended
December 31, 1997, 1996, and 1995, respectively.
(Continued)
15
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
(9) DEFERRED POLICY ACQUISITION COSTS AND FUTURE POLICY BENEFITS
Deferred policy acquisitions costs and premiums are summarized below:
<TABLE>
<CAPTION>
Accident
Life Annuity and health Total
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at
January 1, 1995 $ 122,138 28,115 11,608 161,861
---------- ---------- ---------- ----------
Additions 15,676 4,498 2,658 22,832
Amortization (4,375) 1,926 (1,466) (3,915)
FAS 115 DAC (2,051) (13,896) - (15,947)
---------- ---------- ---------- ----------
Net change 9,250 (7,472) 1,192 2,970
---------- ---------- ---------- ----------
Balance at
December 31, 1995 $ 131,388 20,643 12,800 164,831
---------- ---------- ---------- ----------
Additions 18,436 2,999 2,364 23,799
Amortization (5,006) 634 (1,699) (6,071)
FAS 115 DAC 141 6,598 - 6,739
---------- ---------- ---------- ----------
Net change 13,571 10,231 665 24,467
---------- ---------- ---------- ----------
Balance at
December 31, 1996 $ 144,959 30,874 13,465 189,298
---------- ---------- ---------- ----------
Additions 24,674 3,942 3,073 31,689
Amortization (7,764) (2,373) (1,761) (11,898)
FAS 115 DAC 1,201 (3,200) - (1,999)
---------- ---------- ---------- ----------
Net change 18,111 (1,631) 1,312 17,792
---------- ---------- ---------- ----------
Balance at
December 31, 1997 $ 163,070 29,243 14,777 207,090
========== ========== ========== ==========
1997 Premiums $ 277,631 8,143 70,051 355,825
========== ========== ========== ==========
1996 Premiums $ 264,382 7,792 65,268 337,442
========== ========== ========== ==========
1995 Premiums $ 240,234 4,630 61,034 305,898
========== ========== ========== ==========
</TABLE>
The liabilities for future policy benefits and related insurance in
force at December 31, 1997, and 1996 are summarized below:
<TABLE>
<CAPTION>
Future Policy
Benefits
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
Life and annuity:
Individual $ 948,565 775,659
Group 2,792 1,449
---------- ----------
Total life and annuity 951,357 777,108
========== ==========
Accident and health $ 41,626 34,305
========== ==========
</TABLE>
<TABLE>
<CAPTION>
Insurance in force
-------------------------------
1997 1996
---------- ----------
<S> <C> <C>
Life and annuity:
Individual $ 69,540,314 67,650,451
Group 1,870,085 1,659,106
------------- -------------
Total life and annuity $ 71,410,399 69,309,557
============= =============
</TABLE>
(Continued)
16
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
Life Insurance and Annuities:
Interest assumptions used in the calculation of future policy benefits
for Traditional Life policies are as follows:
Participating term 9.28%
Participating permanent 8.68% to 9.28%
Non - Participating term 6.00% to 8.91%
Future policy benefits for Universal Life and Deferred Annuities are
equal to the current account value without anticipation of any
applicable surrender charges.
Future policy benefits for Payout Annuities use the original pricing
interest rates.
Mortality and withdrawal assumptions are based on the Company's
experience.
Health Insurance:
Interest assumptions used for future policy benefits on health policies
are calculated using a level interest rate of 6%.
Morbidity for Income Replacement policies are based on the 1985 CIDA
table. Morbidity for In Hospital Cash policies are based on 1966-67
Intercompany Experience table.
Termination assumptions are based on the Company and industry
experience.
(10) CAPITAL STOCK
The Company has outstanding 600,000 shares of Annually Adjustable
Cumulative Perpetual Preferred Stock; 100,000 shares each of Series A,
Series B, Series C, Series D, Series E, and Series F. All preferred
stock is owned by FUNDCO. No other stock ranks Senior to the Series A-F
preferred stock. The dividend rate will be 65% of the cost of the funds
for CAPCO on Commercial paper having a 180-day maturity on the first
business day of each Dividend Period. The preferred stock has a par
value of $100 and a liquidation value of $100 per share. The preferred
stock shares are redeemable at the option of the Company for cash, in
whole or in part, on the 15th day of each December for Series A and
Series B and on the 15th day of each June for Series C, Series D, Series
E, and Series F at par value plus accrued and unpaid dividends.
Preferred stock dividends of $2,200, $1,830, and $1,601 were paid in
1997, 1996, and 1995 respectively, and $94 has accrued since the last
payment on December 15, 1997.
The Company has authorized 30,000 shares of common capital stock, $100
par value, of which 25,000 shares were issued and outstanding at
December 31, 1997, 1996, and 1995. Dividends of $45,546, $14,000, and
$18,000 were paid on the common stock during 1997, 1996, and 1995,
respectively. The 1997 dividend was paid in cash and equity securities.
The equity securities transferred had an original cost of $11,560, a
fair value of $22,546, and the Company recognized gain of $10,986.
(11) UNASSIGNED SURPLUS AND DIVIDEND RESTRICTIONS
Texas law limits the payment of dividends to shareholders. The maximum
dividend that may be paid without prior approval of the Insurance
Commissioner is limited to the greater of net gain from operations of
the preceding calendar year or 10% of capital and surplus as of the
prior December 31. As a result, dividend payments to shareholders were
limited to approximately $47,976 in 1997 and are limited to $66,872 in
1998. Dividends are paid as determined by the Board of Directors and at
its discretion.
(Continued)
17
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
The Texas Department of Insurance imposes minimum risk-based capital
requirements on insurance companies that were developed by the National
Association of Insurance Commissioners (NAIC). The formulas for
determining the amount of risk-based capital (RBC) specify various
weighting factors that are applied to statutory financial balances or
various levels of activity based on the perceived degree of risk.
Regulatory compliance is determined by a ratio of the Company's
regulatory total adjusted capital to its authorized control level RBC,
as defined by the NAIC. Companies below specific trigger points or
ratios are classified within certain levels, each of which requires
specified corrective action. The Company's current statutory capital and
surplus is significantly in excess of the threshold RBC requirements.
(12) EMPLOYEE BENEFIT PLANS
(a) PENSION PLAN
Substantially all employees are covered under a pension plan
administered by USAA which is accounted for on a group basis. The
benefits are determined based on years of service and the
employee's salary at date of retirement. The total net pension
cost allocated to the Company on the basis of salary expense was
$3,746, $4,847, and $1,913 in 1997, 1996 and 1995, respectively.
At December 31, 1997 and 1996, a liability of $899 and $1,612,
respectively, has been recorded which represents the excess of net
periodic pension cost allocated to the Company over its allocated
funding requirements.
(b) POSTRETIREMENT BENEFIT PLAN
Substantially all employees may become eligible for certain
medical and life insurance benefits provided for retired employees
under a plan administered by USAA, if they meet minimum age and
service requirements and retire while working for USAA. The total
postretirement benefit cost allocated to the Company was
approximately $737, $682, and $843 in 1997, 1996, and 1995,
respectively. At December 31, 1997 and 1996, a liability of $974
and $186, respectively, was recorded which represents the excess
of the net periodic postretirement benefit cost allocated to the
Company over its allocated funding requirements.
(c) POSTEMPLOYMENT BENEFITS
All employees of the Company who suffer total disability as a
result of illness or injury are eligible for long-term disability
benefits under a plan administered by USAA.
The postemployment benefit cost allocated to the Company is not
significant.
(13) SEPARATE ACCOUNT
The Separate Account is a segregated asset account established under
Texas law through which USAA Life Insurance Company invests the premium
payments received from Contract Owners. The assets of the Separate
Account are the property of the Company. However, only the assets of the
Separate Account in excess of the reserves, and other Contract
liabilities with respect to the Separate Account, are chargeable with
liabilities arising out of any other business the Company may conduct.
Income, gains and losses, whether or not realized, are, in accordance
with the Contracts, credited to or charged against the Separate Account
without regard to other income, gains or losses of the Company. The
Company's obligations arising under the Contracts are general corporate
obligations.
(Continued)
18
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
The Separate Account currently is divided into nine Variable Annuity
Fund Accounts, each of which invests in a corresponding Fund. The Funds
that are available under this Contract include seven funds of USAA Life
Investment Trust, the Capital Growth Portfolio of the Scudder Variable
Life Investment Fund, and the Growth Portfolio of The Alger American
Fund. The Accumulated Unit Value of the Contract in a Variable Fund
Account will vary, primarily based on the investment experience of the
Fund in whose shares the Variable Fund Account invests. The value of the
Funds' securities are carried at market value, or, in the case of the
USAA Life Variable Annuity Money Market Fund, at amortized cost, which
approximates market value.
The Company incurs mortality and administrative expenses on behalf of
Separate Account contract holders. The Company collects fees for these
expenses from contract holders at set amounts. In addition, the Company
incurs various expenses related to conducting the business or operations
of the USAA Life Investment Trust (Trust) as outlined by an underwriting
and administrative services agreement. The Company, out of its general
account, has agreed to pay directly or reimburse the Trust for Trust
expenses exceeding established limits. Such reimbursements were not
significant in 1997 and 1996.
(14) COMMITMENTS AND CONTINGENCIES
The Company is required by law to participate in the guaranty
associations of the various states in which it does business. The state
guaranty associations ensure payment of guaranteed benefits, with
certain restrictions to policyholders of impaired or insolvent insurance
companies, by assessing all other companies involved in similar lines of
business.
There are currently several insurance companies which had substantial
amounts of annuity business, in the process of liquidation or
rehabilitation. The Company paid $1,953, $2,437 and $4,823 to various
state guaranty associations during the years ended December 31, 1997,
1996, and 1995, respectively. The Company accrues its best estimate for
known insolvencies. At December 31, 1997 and 1996 accounts payable and
accrued expenses include $8,931 and $9,292, respectively, related to
estimated assessments.
(15) SUBSEQUENT EVENT
In January 1998, the Company declared and paid a dividend to
stockholders of $33,928. The dividend was paid in equity securities with
an original cost of $21,951, resulting in a realized gain of $11,977.
19
<PAGE>
We have not authorized anyone to give any information or make any
representations other than those contained in this Prospectus (or any sales
literature we approve) in connection with the offer of the Policies described
herein. You may not rely on any such information or representations, if made.
This Prospectus does not constitute an offer in any jurisdiction to any person
to whom such offer would be unlawful. This Prospectus is valid only when
accompanied or preceded by the current prospectuses for the Funds described
herein.
[BACK COVER PAGE]
<PAGE>
PART II
INFORMATION NOT REQUIRED TO BE FILED IN A PROSPECTUS
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file
with the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
UNDERTAKING PURSUANT TO RULE 484(b)(1)
UNDER THE SECURITIES ACT OF 1933
Rule 484(b)(1) under the Securities Act of 1933 requires a description
of "[a]ny provision or arrangement . . . whereby the registrant may indemnify
a director, officer or controlling person of the registrant against
liabilities arising under the [Securities] Act." Registrant, the Life
Insurance Separate Account of USAA Life Insurance Company, does not, as a
technical matter, have any directors or officers. Nevertheless, Registrant,
pursuant to Section 13 of the Amended and Restated Distribution and
Administration Agreement, may indemnify, albeit indirectly, directors and/or
officers of its depositor, USAA Life Insurance Company ("USAA Life"), as
follows. Section 13 of such Agreement provides that Registrant shall indemnify
the employees of USAA Investment Management Company ("IMCO"), Registrant's
principal underwriter. To whatever extent any director or officer of USAA Life
may be deemed to be an "employee" of IMCO, Registrant may be deemed to be
permitted to indemnify such person pursuant to such Agreement, which is filed
as Exhibit 1.(3)(a) to this Registration Statement and is herein incorporated
by reference.
Additionally, there are certain other provisions or arrangements whereby
USAA Life, and/or certain of its affiliated persons, may be indemnified by
parties or entities other than Registrant. Such provisions or arrangements are
incorporated herein by reference, as follows: to Article IX of the By-Laws of
USAA Life, filed as Exhibit 1.6(b) to this Registration Statement; to Section
9 of the Amended and Restated Underwriting and Administrative Services
Agreement, filed as Exhibit 1.(8)(a) to this Registration Statement; to
Section 12 of the Transfer Agent Agreement, as amended, filed as Exhibit
1.(8)(c) to this Registration Statement; to Section 6(b) of the Reimbursement
Agreement, filed as Exhibit 1.8(d)(iii) to this Registration Statement; to
Section 12.2 of the Amended Participation Agreement, filed as Exhibit
1.8(e)(i) to this Registration Statement; to Section 7 of the Participation
Agreement, filed as Exhibit 1.8(f)(i) to this Registration Statement; and to
the Expense Allocation Agreement, filed as Exhibit 1.8(f)(ii) to this
Registration Statement.
<PAGE>
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrant of expenses
incurred or paid by a director, officer or controlling person of Registrant in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, 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.
REPRESENTATION REGARDING THE REASONABLENESS OF AGGREGATE FEES AND CHARGES
DEDUCTED UNDER THE POLICIES PURSUANT TO SECTION 26(e)(2)(A) OF THE INVESTMENT
COMPANY ACT OF 1940
USAA Life Insurance Company ("USAA Life") represents that the fees and
charges deducted under the Policies, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and
the risks assumed by the Company under the Policies. USAA Life bases its
representation on its assessment of all of the facts and circumstances,
including such relevant factors as: the nature and extent of such services,
expenses and risks; the need for USAA Life to earn a profit; the degree to
which the Policies include innovative features; and the regulatory standards
for exemptive relief under the Investment Company Act of 1940 used prior to
October 1996, including the range of industry practice. This representation
applies to all Policies sold pursuant to this Registration Statement,
including those sold on the terms specifically described in the prospectus
contained herein, or any variations therein, based on supplements,
endorsements, or riders to any Policies or prospectus, or otherwise.
S-2
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following papers and documents:
The facing sheet.
Reconciliation and tie between items in Form N-8B-2 and the Prospectus.
Prospectus consisting of 79 pages.
Undertaking, pursuant to Section 15(d) of the Securities Exchange Act of 1934
to file reports.
Undertaking pursuant to Rule 484(b)(1) under the Securities Act of 1933,
regarding indemnification.
Representation regarding the reasonableness of aggregate fees and charges.
The signatures.
Written consents of the following persons:
Dwain A. Akins, Esq., Assistant Vice President and Assistant Secretary,
USAA Life Insurance Company (see Exhibit 2). (Filed herewith.)
KMPG Peat Marwick LLP, Independent Auditors (see Exhibit 6). (Filed
herewith.)
Stephen N. Patzman, FSA, MAAA, Vice President and Corporate Actuary,
USAA Life Insurance Company (see Exhibit 9). (Filed herewith.)
The following exhibits:
1. Exhibits required by Article IX, paragraph A, of Form N-8B-2:
(1) Resolution of Board of Directors of USAA Life
Insurance Company establishing Life Insurance
Separate Account of USAA Life Insurance Company.
(The resolution is filed in lieu of a trust or
indenture creating a unit investment trust.)(1)
(2) Not applicable.
(3)(a) Amended and Restated Distribution and Administration
Agreement by and between USAA Life Insurance Company
and USAA Investment Management Company, dated
December 16, 1994 and amended and restated, to
S-3
<PAGE>
encompass variable universal life insurance, March
30, 1998. (Filed herewith.)
(3)(b) Not applicable.
(3)(c) Not applicable.
(4) Not applicable.
(5) Revised Form of Variable Universal Life Insurance
Policy (Policy Form No. VUL 31891TX), including
riders. (Filed herewith.)
(6)(a) Articles of Incorporation of USAA Life Insurance
Company, as amended. (Filed herewith.)
(6)(b) Bylaws of USAA Life Insurance Company. (Filed
herewith.)
(7) Not applicable.
(8)(a) Amended and Restated Underwriting and Administrative
Services Agreement by and between USAA Life
Insurance Company, USAA Life Investment Trust and
USAA Investment Management Company, dated December
16, 1994, amended February 7, 1997, and amended and
restated, to encompass variable universal life
insurance, February 26, 1998.(2)
(8)(b)(i) Investment Advisory Agreement by and between USAA
Life Investment Trust and USAA Investment Management
Company, dated December 16, 1994.(2)
(8)(b)(ii) Amendment to Investment Advisory Agreement by and
between USAA Life Investment Trust and USAA
Investment Management Company, with respect to Funds
added to Trust, dated February 7, 1997.(3)
(8)(b)(iii) Second Amendment to Investment Advisory Agreement by
and between USAA Life Investment Trust and USAA
Investment Management Company, to encompass variable
life insurance, dated February 18, 1998.(2)
(8)(c)(i) Transfer Agent Agreement by and between USAA Life
Investment Trust and USAA Life Insurance Company,
dated December 15, 1994.(2)
(8)(c)(ii) Letter Agreement by and between USAA Life Investment
Trust and USAA Life Insurance Company, appointing
USAA Life as the Transfer Agent and Dividend
S-4
<PAGE>
Disbursing Agent for Funds added to Trust, dated
February 7, 1997.(2)
(8)(c)(iii) Amendment to Transfer Agent Agreement by and between
USAA Life Investment Trust and USAA Life Insurance
Company, to encompass variable universal life
insurance, dated February 18, 1998.(2)
(8)(d)(i) Form of Participation Agreement by and between
Scudder Variable Life Investment Fund and USAA Life
Insurance Company. (Filed herewith.)
(8)(d)(ii) Form of Participating Contract and Policy Agreement
by and between Scudder Investor Services, Inc. and
USAA Investment Management Company. (Filed
herewith.)
(8)(d)(iii) Form of Reimbursement Agreement by and between
Scudder Kemper Investments, Inc. and USAA life
Insurance Company. (Filed herewith.)
(8)(d)(iv) Form of Letter Agreement by and between Scudder
Kemper Investments, Inc., Scudder Investor Services,
Inc., Scudder Variable Life Investment Fund, USAA
Life Insurance Company and USAA Investment
Management Company. (Filed herewith.)
(8)(e)(i) Amended Participation Agreement by and between The
Alger American Fund, Fred Alger Management, Inc.,
Fred Alger & Company, Incorporated, and USAA Life
Insurance Company, dated December 16, 1994, as
amended March 16, 1998. (Filed herewith.)
(8)(e)(ii) Amended Expense Allocation Agreement by and between
Fred Alger Management, Inc., Fred Alger & Company,
Incorporated, and USAA Life Insurance Company, dated
December 16, 1994 as amended March 16, 1998. (Filed
herewith.)
(8)(f)(i) Participation Agreement by and between BT Insurance
Funds Trust, Bankers Trust Company and USAA Life
Insurance Company, dated April 30, 1998. (Filed
herewith.)
(8)(f)(ii) Expense Allocation Agreement by and between Bankers
Trust Company and USAA Life Insurance Company, dated
April 30, 1998. (Filed herewith.)
(10)(a)(i) Revised Form of Application for the Variable
Universal Life Insurance Policy filed as Exhibit
1.(5). (Filed herewith.)
S-5
<PAGE>
(10)(a)(ii) Form of Application for Variable Universal Life
Insurance Policy Change. (Filed herewith.)
(10)(b) Proposed Section 1035 Exchange Form. (Filed
herewith.)
Other Exhibits
2. Opinion and Consent of Dwain A. Akins, Esq. Assistant Vice
President and Assistant Secretary, USAA Life Insurance Company, as
to the legality of the Policy interests being registered. (Filed
herewith.)
3. Not applicable.
4. Not applicable.
5. Financial Data Schedule. (See Exhibit 27 below.)
6. Consent of KPMG Peat Marwick LLP, Independent Auditors. (Filed
herewith.)
7. Powers of Attorney for: Edwin L. Rosane, Robert G. Davis, Bradford
W. Rich, Josue Robles, Jr., Michael J.C. Roth, Janis E. Marshall,
William B. Tracy, Donald R. Walker, and James A. Robinson.(1)
8. Form of illustration showing cash values, cash surrender values,
and death benefits, based on annualized rates of return of 0%, 6%,
and 12%, and based on current and guaranteed Policy charges.
(Filed herewith.)
9. Opinion and Consent of Stephen N. Patzman, FSA, MAAA, Vice
President and Corporate Actuary, USAA Life Insurance Company, as
to the methodology for computing cash values, cash surrender
values, and death benefits as described in the form of
illustration filed as Exhibit 8. (Filed herewith.)
27 Financial Data Schedule. (Inapplicable, because, notwithstanding
Instruction 5 as to Exhibits, the Commission staff has advised
that no such Schedule is required.)
(1) Previously filed on January 30, 1998, with the initial filing of
this Registration Statement.
(2) Incorporated herein by reference to Post-Effective Amendment No. 6,
filed on March 2, 1998, to the Form N-1A Registration Statement (File No.
33-82270) of USAA Life Investment Trust.
(3) Incorporated herein by reference to Post-Effective Amendment No. 3,
filed on February 14, 1997, to Form N-1A Registration Statement (File No.
33-82270) of USAA Life Investment Trust.
S-6
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, the
Registrant, Life Insurance Separate Account of USAA Life Insurance Company,
has duly caused this amended Registration Statement to be signed on its behalf
by the undersigned thereunto duly authorized, and its seal to be hereunto
fixed and attested, all in the City of San Antonio, and State of Texas, on
this 15th day of May, 1998.
Signature: Life Insurance Separate Account of
USAA Life Insurance Company
(Registrant)
By: USAA Life Insurance Company
(On behalf of Registrant and itself)
By: /s/EDWIN L. ROSANE
------------------
Edwin L. Rosane
Vice Chairman, Chief Executive Officer and
President
Attest: /s/DWAIN A. AKINS
-----------------
Dwain A. Akins
Assistant Vice President and
Assistant Secretary
S-7
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed below by the following person in the
capacity and on the date indicated.
Signature Title Date
--------------------
Robert G. Davis Chairman
S-8
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed below by the following person in the
capacity and on the date indicated.
Signature Title Date
/s/EDWIN L. ROSANE
------------------
Edwin L. Rosane Director May 15, 1998
S-9
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed below by the following person in the
capacity and on the date indicated.
Signature Title Date
/s/BRADFORD W. RICH
-------------------
Bradford W. Rich Director May 15, 1998
S-10
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed below by the following person in the
capacity and on the date indicated.
Signature Title Date
/s/JOSUE ROBLES, JR.
--------------------
Josue Robles, Jr. Director May 15, 1998
S-11
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed below by the following person in the
capacity and on the date indicated.
Signature Title Date
--------------------
Michael J.C. Roth Director
S-12
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed below by the following person in the
capacity and on the date indicated.
Signature Title Date
/s/JANIS E. MARSHALL
--------------------
Janis E. Marshall Director May 15, 1998
S-13
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed below by the following person in the
capacity and on the date indicated.
Signature Title Date
/s/WILLIAM B. TRACY
-------------------
William B. Tracy Director May 15,1998
S-14
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed below by the following person in the
capacity and on the date indicated.
Signature Title Date
-------------------
Donald B. Walker Director
S-15
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed below by the following person in the
capacity and on the date indicated.
Signature Title Date
/s/JAMES A. ROBINSON
--------------------
James A. Robinson Senior Vice President and May 15, 1998
Treasurer (Principal Financial
and Accounting Officer)
S-16
<PAGE>
EXHIBIT INDEX
1.(3)(a) Amended and Restated Distribution and Administration
Agreement by and between USAA Life Insurance Company and
USAA Investment Management Company, dated December 16, 1994
and amended February 7, 1997, and amended and restated, to
encompass variable universal life insurance, March 30, 1998.
(Filed herewith.)
1.(5) Revised Form of Variable Universal Life Insurance Policy
(Policy Form No. 31747), including riders.
1.(6)(a) Articles of Incorporation of USAA Life Insurance Company, as
amended. (Filed herewith.)
1.(6)(b) Bylaws of USAA Life Insurance Company. (Filed herewith.)
1.(8)(d)(i) Form of Participation Agreement by and between Scudder
Variable Life Investment Fund and USAA Life Insurance
Company. (Filed herewith.)
1.(8)(d)(ii) Form of Participating Contract and Policy Agreement by and
between Scudder Investor Services, Inc. and USAA Investment
Management Company. (Filed herewith.)
1.(8)(d)(iii) Form of Reimbursement Agreement by and between Scudder,
Kemper Investments Inc.and USAA life Insurance Company.
(Filed herewith.)
1.(8)(d)(iv) Form of Letter Agreement by and between Scudder, Kemper
Investments Inc., Scudder Investor Services, Inc., Scudder
Variable Life Investment Fund, USAA Life Insurance Company
and USAA Investment Management Company. (Filed herewith.)
1.(8)(e)(i) Amended Participation Agreement by and between The Alger
American Fund, Fred Alger Management, Inc., Fred Alger &
Company, Incorporated, and USAA Life Insurance Company,
dated December 16, 1994, as amended March 16, 1998. (Filed
herewith.)
S-17
<PAGE>
1.(8)(e)(ii) Amended Expense Allocation Agreement by and between Fred
Alger Management, Inc., Fred Alger & Company, Incorporated,
and USAA Life Insurance Company, dated December 16, 1994 as
amended March 16, 1998. (Filed herewith.)
1.(8)(f)(i) Participation Agreement by and between BT Insurance Funds
Trust, Bankers Trust Company and USAA Life Insurance
Company, dated April 30, 1998. (Filed herewith.)
1.(8)(f)(ii) Expense Allocation Agreement by and between Bankers Trust
Company and USAA Life Insurance Company, dated April 30,
1998. (Filed herewith.)
1.(10)(a)(i) Revised Form of Application for the Variable Universal Life
Insurance Policy filed as Exhibit 1.(5).
1.(10)(a)(ii) Form of Application for Variable Universal Life Insurance
Policy Change.
1.(10)(b) Proposed Section 1035 Exchange Form.
2. Opinion and Consent of Dwain A. Akins, Esq. Assistant Vice
President and Assistant Secretary, USAA Life Insurance
Company, as to the legality of the Policy interests being
registered.
6. Consent of KPMG Peat Marwick LLP, Independent Auditors.
8. Form of illustration showing cash values, cash surrender
values, and death benefits based on an annualized rates of
return of 0%, 6%, and 12%, and based on current and
guaranteed Policy charges.
9. Opinion and Consent of Stephen N. Patzman, FSA, MAAA, Vice
President and Corporate Actuary, USAA Life Insurance
Company, as to the methodology for computing cash values,
cash surrender values, and death benefits as described in
the form of illustration filed as Exhibit 8.
<PAGE>
EXHIBIT 1.(3)(a)
AMENDED AND RESTATED AND RESTATED
DISTRIBUTION AND ADMINISTRATION AGREEMENT
BY AND BETWEEN
USAA LIFE INSURANCE COMPANY
AND
USAA INVESTMENT MANAGEMENT COMPANY
<PAGE>
AMENDED AND RESTATED AND RESTATED
DISTRIBUTION AND ADMINISTRATION AGREEMENT
This Distribution and Administration Agreement (the "Agreement") made on
the 16th day of December, 1994, and amended March 30, 1998, by and between
USAA Life Insurance Company, ("USAA LIFE" or the "Company"), a Texas insurance
corporation on its own behalf and on behalf of the Separate Account of USAA
Life Insurance Company (the "Separate Account") and The Life Insurance
Separate Account of USAA Life Insurance Company (the "Life Insurance Separate
Account") as to each of which the Company is the depositor, and USAA
Investment Management Company, a registered broker-dealer and registered
investment adviser organized as a corporation under the laws of Delaware
("USAA IMCO" or the "Distributor").
RECITALS
WHEREAS, the Company has established and maintains the Separate Account,
a separate investment account pursuant to the laws of Texas, for the purpose
of funding flexible premium variable annuity contracts (the "Contract" or
1
<PAGE>
"Contracts") offered pursuant to a Registration Statement relating thereto
filed with the Securities and Exchange Commission (the "SEC" or the
"Commission") pursuant to the Securities Act of 1933, as amended (the "1933
Act"); and
WHEREAS, the Company also has established and maintains the Life
Insurance Separate Account, a separate investment account pursuant to the laws
of Texas, for the purposes of funding flexible premium variable universal life
insurance policies (the "Policy" or "Policies") to be offered after the
effectiveness of the Registration Statement relating thereto filed with the
SEC pursuant to the 1933 Act; and
WHEREAS, the Separate Account will be registered as a unit investment
trust under the Investment Company Act of 1940 (the "1940 Act"); and
WHEREAS, the Life Insurance Separate Account will be registered as a
unit investment trust under the Investment Company Act of 1940 (the "1940
Act"); and
WHEREAS, the Distributor is an affiliate of the Company, is registered
as a broker-dealer under the Securities Exchange Act of 1934 (the "1934 Act")
and under the securities laws in all 50 states, is a member of the National
2
<PAGE>
Association of Securities Dealers, Inc. ("NASD") and is authorized to offer
and sell mutual funds and variable insurance products, and is the principal
underwriter and distributor of the USAA Life Investment Trust (the "Trust"), a
Delaware business trust registered as an investment company under the 1940
Act; and
WHEREAS, the Company has extensive experience in the operation of its
insurance business and has trained personnel, equipment, and facilities for
conducting its present and future insurance operations; and
WHEREAS, the Distributor has extensive experience in the operation of
its business as registered broker-dealer and has trained (and NASD-registered)
personnel, equipment, and facilities for conducting its present and future
broker-dealer operations (the term "broker-dealer" as hereinafter used shall
include the offering, solicitation, and sale of registered securities,
broker-dealer compliance monitoring activities, and procedures associated
therewith and all activities incidental, ancillary, or complementary to the
business of a securities broker-dealer); and
3
<PAGE>
WHEREAS, premiums received from owners of Contracts ("Contractowners")
will be deposited at the Contractowner's designation in the Separate Account
and/or in the Company's general account, and the Separate Account will invest
in shares of the Trust; and
WHEREAS, premiums received from owners of Policies ("Policyowners") will
be deposited at the Policyowner's designation in the Life Insurance Separate
Account, and the Separate Account will invest in shares of the Trust; and
WHEREAS, certain personnel of the Company or its affiliates may engage,
or be deemed to be engaged, directly or indirectly, in the offering, selling,
advertising or marketing of Contracts and Policies, including without
limitation, such activities as confirming transactions as required by 1934 Act
Rule 10b-10 and maintenance of records required by 1934 Act Rules 17a-3 and
17a-4 or other SEC or NASD rules applicable to registered broker-dealers (all
Company personnel engaged in these activities, as well as all other persons
whom Section 3(a)(18) of the 1934 Act defines as associated persons of the
Distributor, are referred to herein as "Associated Persons"); and
4
<PAGE>
WHEREAS, USAA IMCO also serves as the Investment Adviser (the "Adviser")
to the Trust, the Trust is the investment medium for the Separate Account and
the Life Insurance Separate Account, USAA Life is the depositor and
administrator of the Separate Account and the Life Insurance Separate Account,
and USAA IMCO receives, as Adviser to the Trust, an advisory fee that is
detailed in a separate Investment Advisory Agreement between the Trust and
USAA IMCO; and
WHEREAS, the Company and the Distributor desire to enter into an
agreement to have the Distributor, which shall at all times function and be
deemed to be an independent contractor, act as the Company's principal
underwriter for the sale of the Contracts and Policies funded through the
Separate Account and the Life Insurance Separate Account, respectively; and
WHEREAS, the Distributor and the Company acknowledge the Company's
operations as being the best-suited to provide certain administrative
functions in connection with the Contracts and Policies, subject at all times
to the control and direction of the Distributor with respect to broker-dealer
operations.
5
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and of the mutual expectations of benefit occurring from the
activities herein contemplated, the parties hereto agree as follows:
1. APPOINTMENT OF THE DISTRIBUTOR
The Company shall during the term of this Agreement take all action
which is required to cause the Contracts and Policies to comply as insurance
products, interests thereunder to comply as registered securities, and the
Separate Account and the Life Insurance Separate Account to qualify as
registered investment companies, under all applicable federal and state laws
and regulations. The Company shall immediately notify the Distributor of any
failure to comply or qualify or of any order or instruction of any regulatory,
judicial or governmental authority to cease or limit the offer or sale of the
Contracts or Policies or any of the Company's operations related thereto.
The Company appoints the Distributor and the Distributor shall act as
the exclusive principal underwriter for the sale of the Contracts and Policies
to the public, during the term of this Agreement, in each state and other
jurisdictions in which such Contracts and Policies may lawfully be sold. The
Distributor shall offer the Contracts and Policies for sale and distribution,
6
<PAGE>
but shall be under no obligation to effectuate any particular amount of sales
of Contracts or Policies. In this connection, the Distributor shall distribute
prospectuses of the Trust together with prospectuses of the Separate Account
for the Contracts and the prospectuses of the Life Insurance Separate Account,
as required by the SEC.
The Distributor in its capacity as broker-dealer will be solely
responsible for monitoring and controlling the activities of all Associated
Persons involved in the distribution and sale of the Contracts and Policies.
Applications for the Contracts and Policies shall be solicited only by
Associated Persons who are registered with the NASD as representatives of the
Distributor ("Registered Representatives"), and who are duly and appropriately
licensed or otherwise qualified to sell such Contracts and Policies in each
state or other jurisdiction. The Company shall undertake to appoint the
Distributor's Registered Representatives as life insurance agents of the
Company, which agents will be salaried employees of the Company. Completed
applications for the Contracts or Policies shall be transmitted directly to
the Company or to an appointed Third Party Administrator or other designated
agent (each a "TPA").
Initial and subsequent premium payments under the Contracts or Policies
7
<PAGE>
shall be made payable to the Company or its designee and any such payments
which come into the possession of the Distributor shall be immediately
delivered to the Company or its designee. The Company and any TPA shall
provide all Contract and Policy issue services at their own expense. Anything
in this Agreement to the contrary notwithstanding, the Company retains the
ultimate right to control the sale of the Contracts and Policies, including
the right to suspend sales in any jurisdiction or jurisdictions, and to
appoint and discharge insurance agents of the Company. The Company shall,
however, cooperate with and assist USAA IMCO to insure that USAA IMCO as
broker-dealer controls the manner and whether or not the Contracts and
Policies are sold for purposes of compliance with federal and state securities
law. The Distributor and the Company shall be held to the exercise of
reasonable care in carrying out the provisions of this Agreement.
2. REGISTRATION OF REPRESENTATIVES
The Distributor shall be responsible for ensuring that the individual
Registered Representatives offering or selling the Contracts and Policies are
duly registered and qualified pursuant to the 1934 Act, NASD regulations, and
any other required securities regulatory body.
8
<PAGE>
3. LIFE INSURANCE LICENSING
The Company shall be responsible for ensuring that the Registered
Representatives are duly qualified, under the insurance laws of the applicable
jurisdictions, to sell the Contracts and Policies.
4. SUITABILITY
The Company desires to ensure that Contracts and Policies sold by the
Distributor will be issued to purchasers for whom the Contracts or Policies
will be suitable. The Distributor shall establish written procedures which
will require Registered Representatives to review all applications to
determine that the Contracts or Policies are a "suitable" investment vehicle
for the applicant. While not limited to the following, a determination of
suitability shall be based on information furnished to a Registered
Representative after reasonable inquiry of such applicant concerning the
applicant's investment objectives and financial situation and needs, including
the likelihood that the applicant will make sufficient premium payments to
derive the benefits thereof. Registered Representatives of USAA IMCO will
review every application for the Contracts or Policies to insure that it meets
the "suitability requirement" detailed in the NASD's Conduct Rules.
9
<PAGE>
5. SALES AIDS; PROMOTIONAL MATERIAL
The Company shall have responsibility for furnishing to the
Distributor's Registered Representatives all sales aids, and promotional
material related to the solicitation and sale of the Contracts and Policies,
all at the Company's expense, and the Distributor shall not use any other such
aids, or material without the specific advance approval of the Company. Such
material shall have been approved in advance by the Distributor. The
Distributor, at its discretion, directly or through the Company as its agent,
shall cause such material to be filed with and reviewed by the NASD, the SEC,
or any other required securities regulatory body, as appropriate. The Company,
at its expense, shall make timely filings of all such aids, material, or
proposals with any insurance regulatory authorities, as required.
No person shall, in connection with the offer or sale of the Contracts
or Policies, make any representations or communicate any information regarding
the Contracts, Policies or the Company which are not contained in materials
approved pursuant to this Section 5 or in the then-effective 1933 Act
Registration Statement for the Separate Account and the Life Insurance
Separate Account, respectively.
10
<PAGE>
6. COMPENSATION
The Company shall pay the salaries and employee fringe benefits of the
Registered Representatives of the Distributor. Such salaries and benefits
shall be their sole compensation and shall not be related to the volume of the
sales of the Contracts or Policies made during a specified time period.
The Company will receive all amounts charged as the Fixed Fund Account
Withdrawal Charge under the Contracts. The parties understand that the Company
is charging the Fixed Fund Account Withdrawal Charge to help enable the
Company to declare higher rates of interest than it could otherwise declare,
is deducting no specific charge for the cost of distributing the Contracts,
and is assuming the risk that the charges under the Contract may be
insufficient to cover the Company's actual expenses and costs assumed in
connection with the Contracts.
7. ADMINISTRATION, RECORDS AND CONFIRMATIONS
The Company shall be primarily responsible for the internal
record-keeping and general office administration necessary for the sale of the
Contracts and Policies subject to the Distributor's review and approval. The
Company in its discretion and with the understanding of the Distributor, may
11
<PAGE>
delegate some or all of its record keeping functions to a TPA pursuant to a
separate written agreement. The books and records maintained by the Company or
TPA as agent for the benefit of the Distributor will conform to the
requirements of Rule 17a-3 and Rule 17a-4 under the 1934 Act, and as further
amplified in SEC Release 34-8389. Furthermore, such books and records shall
remain the property of the Distributor, shall be surrendered promptly to the
Distributor at its request without charge, and shall at all times be subject
to inspection by the Distributor, the SEC pursuant to Section 17(a) of the
1934 Act and any other appropriate governmental agency.
The Distributor shall have responsibility for maintaining the records
required of it by applicable law or regulations with respect to broker-dealer
operations, although, in the Distributor's discretion and at the Company's
expense, the Distributor may use the Company or any TPA as its agent for this
purpose, as described in the preceding paragraph.
Any and all books, accounts, and records of the Company, the Separate
Account, the Life Insurance Separate Account, and the Distributor as may
pertain to the Contracts, Policies and this Agreement shall be maintained so
as to clearly and accurately disclose the nature and details of Contract and
12
<PAGE>
Policy transactions or any transactions related thereto. The Distributor shall
keep confidential any information obtained pursuant to this Agreement and
shall disclose such information only if the Company has authorized such
disclosure, or if such disclosure is expressly required by applicable federal
or state authorities.
The Distributor, directly or through the Company or any TPA as the
Distributor's agent (at the Company's expense), shall, upon or prior to the
completion of each Contract or Policy transaction for which a confirmation is
legally required, send a written confirmation to the Contractowner or
Policyowner for each such respective transaction, in a form and manner that
complies with the requirements of the 1934 Act, state laws and regulations,
and the disclosure requirements of the NASD. Such confirmations will be
furnished to all Contractowners or Policyowners in accordance with securities
laws, will reflect the facts of the transaction, and will show that they are
being sent by the Company on behalf of the Distributor. The parties agree that
the form and the manner of use of confirmations in connection with
transactions occurring in Contract or Policy accounts shall be supervised by
the Distributor. The Company shall prepare and distribute such confirmations
in accordance with the Distributor's instructions. The Company shall make no
changes or variations in either the form or the manner of distribution of such
13
<PAGE>
confirmations without the written approval of the Distributor and shall cause
such confirmations to be issued as directed by the Distributor and on behalf
of the Distributor.
8. EXAMINATION AND PROCEEDINGS
The Distributor and the Company shall cooperate fully in any insurance
regulatory examination, investigation, or proceeding or any judicial
proceeding arising in connection with the Contracts and Policies distributed
under this Agreement. The Distributor and the Company shall cooperate fully in
any securities regulatory examination, investigation or proceeding or any
judicial proceeding with respect to the Company, the Distributor, and their
respective affiliates, agents and representatives to the extent that such
examination, investigation, or proceeding is in connection with Contracts and
Policies distributed under this Agreement. The Distributor shall furnish
applicable federal and state regulatory authorities with any information or
reports in connection with its services under this Agreement, which
authorities may request in order to ascertain whether the Company's operations
are being conducted in a manner consistent with any applicable law or
regulations.
14
<PAGE>
In the case of an oral or written consumer or regulatory agency
complaint, the Distributor and the Company shall promptly notify the other and
shall coordinate and fully cooperate in responding to such complaints. The
Distributor and the Company shall develop procedures to coordinate,
investigate and respond to such complaints.
9. OTHER COMPLIANCE REQUIREMENTS
The Distributor shall be responsible for the securities activities of,
and for securities law compliance by, any Associated Person engaged directly
or indirectly in the flexible premium variable annuity operation or the
flexible premium variable universal life insurance operation. This shall
include (i) compliance with NASD Conduct Rules and with federal and state laws
and regulations, and (ii) the appropriate training and qualification of
Associated Persons, at the Company's expense. The Distributor, in order to
discharge its duties under this provision of the Agreement, shall be
authorized to and shall designate such Company personnel as it deems necessary
to qualify as limited or general securities principals ("Limited Principals"
or "General Principals"), which individuals shall supervise the securities
activities of, and securities law compliance by, those Registered
Representatives selling the Contracts and Policies, all in accordance with
applicable laws, regulations and NASD requirements. Further, the Distributor
15
<PAGE>
shall have the authority to require such written compliance procedures as it
deems advisable to be established by the Company with respect to any aspect of
the Company's business that affects broker-dealer operations with respect to
the Contracts and Policies and, through the Limited and General Principals,
monitor and enforce compliance with said procedures. The Company shall
cooperate and provide any assistance required by the Distributor in order to
insure that the Distributor and Associated Persons engaged directly or
indirectly in the sale of the Contracts and Policies remain in compliance with
any such compliance procedures and appropriate securities laws, regulations
and the NASD's General Rules and Conduct Rules.
The Distributor will execute such papers and do such acts and things as
shall from time to time be reasonably requested by the Company for the purpose
of (a) maintaining the registration of the Contract interests and Policy
interests under the 1933 Act and the Separate Account and the Life Insurance
Separate Account under the 1940 Act, and (b) qualifying and maintaining
qualification of the Contracts and Policies for sale under the applicable laws
of any state.
Upon the completion of each transaction for which a confirmation is
16
<PAGE>
legally required, the Company or a TPA shall, on behalf of the Distributor,
send a written confirmation of such transaction reflecting the facts of the
transaction.
10. CONTRACT PAYMENTS
The Company shall provide payment services, with respect to the
Contracts and Policies, including payments representing Contract or Policy
loans, full and partial surrenders, and amounts paid under Contract or Policy
settlement options.
11. COMPANY SERVICES
The Company shall provide or arrange to provide, at its expense, all
necessary services in connection with the operational aspects of the Contracts
and Policies. These services shall include, but are not limited to, actuarial,
accounting, data processing, legal, regulatory, Contractowner and Policyowner
service and any other actions required by the Company in its discretion. In
addition to these services, or other services provided hereunder, the Company
shall provide such executive, clerical, and other personnel related services
as may be required to carry out the Company's obligations under this
Agreement, including its obligation to perform certain functions on the
Distributor's behalf.
17
<PAGE>
12. EXPENSE ALLOCATION
Expenses under this Agreement are allocated in this Section 12. If, at a
later time, the Agreement gives rise to other expenses, they shall be
allocated as the parties may decide in writing at that time. The Company
hereby agrees that it will bear the cost of the Associated Persons' salaries
and securities licensing fees; securities registration expenses and filing
fees with respect to the Contracts and the Separate Account and the Policies
and the Life Insurance Separate Account; costs of preparing, printing and
distributing all prospectuses, statements of additional information, notices,
periodic reports, and proxy solicitation material with respect to the
Contracts and Policies, costs of sales literature and other promotional
material, applications for exemptions, requests for no-action letters, and all
amendments to any of the above; costs of preparing, printing, and filing
Contract and Policy forms; and direct legal and accounting expenses in
connection with any of the foregoing. Any of these expenses which may be
initially assumed by the Distributor will be reimbursed to it by the Company
upon presentation of the appropriate documentation in writing evidencing such
expenditures. Nothing in this Agreement shall be deemed to allocate any
operational or organizational expense of the Trust, or the offer and sale of
its shares, which expense shall be allocated pursuant to a separate agreement
or agreements pertaining to that entity
18
<PAGE>
13. INDEMNIFICATION
a) Whenever the Company is referred to in this Section (13), it is to
be construed to specifically also refer to and include the Separate Account
and the Life Insurance Separate Account.
b) The Company shall indemnify and hold harmless the Distributor, its
agents, employees and each person, if any, who controls the Distributor
against any loss, liability, claim, damage or expense (including the
reasonable cost of investigating or defending any alleged loss, liability,
claim, damage or expense and reasonable counsel fees incurred in connection
therewith) arising by reason of any person's acquiring any Contract or Policy,
which may be based upon any federal or state securities act, or on any other
statute or at common law, (i) on the ground that the registration statement or
related prospectus, as from time to time amended and supplemented, or the
annual or interim reports to Contractowners or Policyowners, any published
marketing materials or communications with any Contractowner or Policyowners
or prospective Contractowner or Policyowner concerning the Contract or Policy,
respectively, include an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in order to make
the statements therein not misleading, unless such statement or omission was
made in reliance upon, and in conformity with, information furnished to the
Company in connection therewith by or on behalf of the Distributor; or (ii) on
19
<PAGE>
the ground that a TPA (other than a TPA controlled by Distributor) failed to
comply with any applicable securities law and regulations in connection with
its rendering of Contract or Policy issue, recordkeeping, or confirmation
services under this Agreement; provided, however, that in no case (a) is the
indemnity of the Company in favor of the Distributor and any such controlling
persons to be deemed to protect the Distributor or any such controlling
persons thereof against any liability to the Company or its Contractowners or
Policyowners to which the Distributor or any such controlling persons would
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of reckless disregard
of its obligations and duties under this Agreement, or (b) is the Company to
be liable under its indemnity agreement contained in this paragraph with
respect to any claim made against the Distributor or any such controlling
persons, unless the Distributor or such controlling persons, as the case may
be 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 the Distributor or such controlling
persons (or after the Distributor or such controlling persons 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 the Company may have to the person against whom such action is
20
<PAGE>
brought otherwise than on account of the Company indemnity agreement contained
in this paragraph. The Company will be entitled to participate at its own
expense in the defense, or, if it so elects, to assume the defense of any suit
brought to enforce any such liability, but if the Company elects to assume the
defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Distributor or such controlling person or persons,
defendant or defendants in the suit. In the event the Company elects to assume
the defense of any such suit and retain such counsel, the Distributor or such
controlling person or persons, defendant or defendants in the suit, shall bear
the fees and expense of any additional counsel retained by the Distributor or
such controlling person or persons, but, in case the Company does not elect to
assume the defense of any such suit, it will reimburse the Distributor or such
controlling person or persons, defendant or defendants in the suit, for the
reasonable fees and expense of any counsel retained by them. The Company shall
promptly notify the Distributor of the commencement of any litigation or
proceedings against the Company or any of its officers, directors, employees
or agents in connection with the issuance or sale of the Contracts or
Policies.
c) The Distributor shall indemnify and hold harmless the Company, its
agents, employees and each person, if any, who controls the Company against
any loss, liability, claim, damage or expense (including the reasonable cost
21
<PAGE>
of investigating or defending any alleged loss, liability, claim, damage or
expense and reasonable counsel fees incurred in connection therewith) arising
by reason of any person's acquiring any Contract or Policy, which may be based
upon any federal or state securities act, or on any other statute or at common
law, on the ground that the registration statement or related prospectus, as
from time to time amended and supplemented, or the annual or interim reports
to Contractowners or Policyowners, any published marketing materials or
communications with any Contractowner or Policyowner or prospective
Contractowner or Policyowner concerning the Contract or Policy, respectively,
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein not misleading, unless such statement or omission was made
in reliance upon, and in conformity with, information furnished in connection
therewith by or on behalf of the Company; provided, however, that in no case
(a) is the indemnity of the Distributor in favor of the Company and any such
controlling persons to be deemed to protect the Company or any such
controlling persons thereof against any liability to the Distributor to which
the Company or any such controlling persons would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of reckless disregard of its
22
<PAGE>
obligations and duties under this Agreement, or (b) is the Distributor to be
liable under its indemnity agreement contained in this paragraph with respect
to any claim made against the Company or any such controlling persons, unless
the Company or such controlling persons, as the case may be 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 the Company or such controlling persons (or after
the Company or such controlling persons shall have received notice of such
service on any designated agent), but failure to notify the Distributor of any
such claim shall not relieve the Distributor from any liability which the
Distributor may have to the person against whom such action is brought
otherwise than on account of the Distributor indemnity agreement contained in
this paragraph. The Distributor will be entitled to participate at its own
expense in the defense, or, if it so elects, to assume the defense of any suit
brought to enforce any such liability, but if the Distributor elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Company or such controlling person or persons, defendant
or defendants in the suit. In the event the Distributor elects to assume the
defense of any such suit and retain such counsel, the Company or such
controlling person or persons, defendant or defendants in the suit, shall bear
the fees and expense of any additional counsel retained by the Company or such
controlling person or persons, but, in case the Distributor does not elect to
23
<PAGE>
assume the defense of any such suit, it will reimburse the Company or such
controlling person or persons, defendant or defendants in the suit, for the
reasonable fees and expense of any counsel retained by them. The Distributor
shall promptly notify the Company of the commencement of any litigation or
proceedings against the Distributor or any of its officers, directors,
employees or agents in connection with the issuance or sale of the Contracts
or Policies.
14. TERMINATION
This Agreement shall be effective as of the date first above written and
shall remain in full force and effect thereafter, provided, however, that
either party may terminate this Agreement without penalty, with or without
cause, on not less than sixty (60) days' written notice to the other party.
15. AMENDMENT
This Agreement may be amended at any time by a writing executed by the
parties.
24
<PAGE>
16. NON-ASSIGNMENT
This Agreement shall not be assigned by either party without the prior
written consent of the other party.
17. GOVERNING LAW
This Agreement shall be interpreted in accordance with and governed by
the laws of the State of Texas.
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
USAA LIFE INSURANCE COMPANY, USAA INVESTMENT
on its own behalf and on behalf of MANAGEMENT COMPANY
SEPARATE ACCOUNT OF
USAA LIFE INSURANCE COMPANY
BY: /s/ EDWIN L. ROSANE BY: /s/ MICHAEL J.C. ROTH
------------------- ---------------------
Edwin L Rosane Michael J.C. Roth
President & CEO President
ATTEST: /s/ DWAIN A. AKINS ATTEST:/s/ MICHAEL D. WAGNER
------------------ ---------------------
Dwain A. Akins Michael D. Wagner
Assistant Secretary Secretary
26
EXHIBIT 1.(5)
[USAA LOGO]
USAA LIFE INSURANCE COMPANY
9800 Fredericksburg Road - San Antonio, TX 78288
(A Stock Company)
VARIABLE UNIVERSAL LIFE INSURANCE POLICY
THE INSURING AGREEMENT
USAA LIFE INSURANCE COMPANY will pay the beneficiary the death benefit of this
policy upon receiving due proof that the death of the insured occurred while
this policy was in effect.
This policy is a flexible premium variable life insurance policy. The
specified amount of insurance may be increased or decreased by the owner.
THE DEATH BENEFIT OF THIS POLICY MAY BE VARIABLE AS TO THE AMOUNT OR DURATION,
OR BOTH, DEPENDING UPON THE DEATH BENEFIT OPTION SELECTED AND THE INVESTMENT
EXPERIENCE OF THE LIFE INSURANCE SEPARATE ACCOUNT OF USAA LIFE INSURANCE
COMPANY ("SEPARATE ACCOUNT"), BUT SHALL NEVER BE LESS THAN THE SPECIFIED
AMOUNT (SUBJECT TO ANY POLICY INDEBTEDNESS AND PARTIAL SURRENDERS) AS LONG AS
THERE IS SUFFICIENT CASH VALUE TO KEEP THE POLICY IN EFFECT. See Section 8
(Death Benefit Provisions). THE CASH VALUE OF THIS POLICY WILL VARY FROM DAY
TO DAY. IT MAY INCREASE OR DECREASE DEPENDING ON THE INVESTMENT EXPERIENCE OF
THE SEPARATE ACCOUNT. IT IS NOT GUARANTEED AS TO DOLLAR AMOUNT.
FLEXIBLE PREMIUMS PAYABLE DURING LIFETIME OF INSURED OR UNTIL MATURITY DATE.
VARIABLE DEATH BENEFIT PAYABLE PRIOR TO MATURITY DATE. CASH VALUE PAYABLE ON
MATURITY DATE.
INVESTMENT EXPERIENCE REFLECTED IN BENEFITS.
NON-PARTICIPATING POLICY.
This policy is issued by USAA LIFE INSURANCE COMPANY on the Effective Date
shown on the Policy Information Page.
We have tried to make this policy readable. However, there still may be some
technical terms and concepts that are difficult to understand. Should you need
help in understanding your policy, please call us at our toll-free number.
FREE LOOK PERIOD - RIGHT TO RETURN
You may cancel this contract within 10
days* after you receive it by returning
it to the Company or the representative
/s/ EDWIN L. ROSANE who sold you the contract with your
------------------- written request for cancellation. With
Edwin L. Rosane respect to the Variable Fund Accounts,
President we will refund the greater of the
premium payment made or the value of the
Variable Fund Account as of the Date of
Receipt of the request to cancel plus
/s/ BRADFORD W. RICH any premium charge, monthly deduction
-------------------- and mortality and expense risk charge
Bradford W. Rich that had been deducted. The contract
Secretary will be deemed void as if it had never
been issued. *A longer Free Look Period
may be required by law in some states.
The exact number of days in your Free
Look Period is shown on the Policy
Information Page.
READ YOUR POLICY CAREFULLY!
VUL31891TX 2-98 31891-0298
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VUL200TX
Page 1
<PAGE>
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TABLE OF CONTENTS
-----------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Section 1. Policy Information Page Page 4
Section 2. Table of Monthly Guaranteed Cost of Page 5
Insurance Rates
Section 3. Introduction Page 6
Section 4. Definitions Page 7
Section 5. Ownership and Beneficiary Provisions Page 10
Section 6. General Provisions Page 10
Section 7. Premium Provisions Page 12
Section 8. Death Benefit Provisions Page 14
Section 9. Cash Value and Policy Charges Page 17
Section 10. Availability of Funds and Voting Rights Page 21
Section 11. Policy Surrender and Partial Surrenders Page 22
Section 12. Grace and Reinstatement Periods Page 23
Section 13. Loan Provisions Page 24
Section 14. Settlement Options Page 25
Section 15. Table of Guaranteed Payments Page 27
</TABLE>
VUL31891TX 2-98 31891-0298
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VUL200TX
Page 2
<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
Page 3
<PAGE>
SECTION 2. POLICY INFORMATION PAGE
USAA NUMBER -
CONTRACT NUMBER -
EFFECTIVE DATE -
SPECIFIED AMOUNT -
PLAN OF INSURANCE -
DEATH BENEFIT OPTION -
MATURITY DATE* -
ISSUE AGE SEX
BENEFICIARY -
INSURED -
OWNER -
FREE LOOK PERIOD -
*IT IS POSSIBLE THAT COVERAGE WILL EXPIRE PRIOR TO THE MATURITY DATE SHOWN
EVEN IF SCHEDULED PREMIUMS ARE PAID IN A TIMELY MANNER OR IF THE CASH VALUE IS
INSUFFICIENT TO CONTINUE COVERAGE TO SUCH DATE.
VUL31747ST 01-98 SAMPLEVUL
Page 4
<PAGE>
SECTION 2. POLICY INFORMATION PAGE
USAA NUMBER -
CONTRACT NUMBER -
PLANNED PERIODIC PREMIUM -
MONTHLY TARGET PREMIUM PAYMENT -
INITIAL PREMIUM RECEIVED -
PREMIUM DEDUCTIONS - 3.0% PREMIUM CHARGE CALCULATED AS DEFINED IN SECTION 7 OF
THE CONTRACT.
FIRST YEAR ADMINISTRATIVE CHARGE OF $10.00 PER MONTH
MAINTENANCE CHARGE OF $5.00 PER MONTH EACH YEAR
TYPE OF COVERAGE
FORM NUMBERS *BENEFITS
*SEE FOLLOWING PAGES FOR MONTHLY COST OF INSURANCE RATES.
INSURANCE AMOUNTS BELOW ARE STILL CONTESTABLE
VUL31747ST 01-98 SAMPLEVUL
Page 4A
<PAGE>
USAA NUMBER - CONTRACT NUMBER -
SECTION 3.
TABLE OF GUARANTEED MONTHLY COST OF INSURANCE
(THE COMPANY HAS THE RIGHT TO CHARGE LESS THAN THE GUARANTEED RATES
REPRESENTED BELOW.)
RATES PER $1000
<TABLE>
<S> <C> <C> <C>
POLICY POLICY
YEAR YEAR
BEGINNING RATE BEGINNING RATE
</TABLE>
THESE RATES ARE FOR THE BASE POLICY.
VUL31747ST 01-98 SAMPLEVUL
Page 5
<PAGE>
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SECTION 3. INTRODUCTION
-----------------------------------------------------------------------------
This is a Variable Universal Life Insurance Policy also commonly known
as a Flexible Premium Variable Life Insurance policy. The death benefit that
is paid when the Insured dies may vary. After charges as described in this
policy are deducted from the premium paid, your Net Premium Payment is
invested to build the policy's cash value. A Monthly Deduction is subtracted
from the policy's cash value to pay for the cost of insurance and other
charges.
Your Net Premium Payment will be allocated and invested as directed by you. It
will be invested in an Account which does not guarantee the principal or any
earnings (this is known as a Variable Fund Account). There are several
Variable Fund Accounts under this policy which correspond to various Mutual
Funds in which you may choose to invest. Your value in the Variable Fund
Accounts will vary with the investment experience of the corresponding Fund.
The value may rise or it may fall. You have access to the policy's cash value
either through a loan, a partial surrender or a total surrender. A total
surrender results in the termination of the life insurance policy.
This is a brief summary of the life insurance policy. YOU MUST READ THE
REST OF THIS POLICY to understand the details of how this life insurance
policy works.
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SECTION 4. DEFINITIONS
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IN THIS POLICY --
ACCUMULATION UNIT means an accounting unit of measure used to calculate values
in each Variable Fund Account.
ADMINISTRATIVE CHARGE means a monthly charge deducted from the policy's cash
value during the first Policy Year only. It compensates us for the start-up
expenses incurred in issuing this policy. It is shown on the Policy
Information Page.
ANNIVERSARY means the same date each succeeding year as the Effective Date of
the policy.
ANNUAL TARGET PREMIUM PAYMENT means an annual amount of premium payment that we
establish when the policy is issued and that is shown on the Policy
Information Page. It is used to determine whether a Premium Charge will be
deducted from premium payments, whether a surrender charge is imposed on a
full surrender and whether the Guaranteed Death Benefit applies.
BENEFICIARY means the person or entity designated to receive the death benefit
upon the Insured's death.
CASH VALUE - this term is explained in Section 9 of this policy.
COMPANY, WE, OUR, or US means USAA Life Insurance Company.
DATE OF RECEIPT means the date actually received at our Home Office, subject
to two exceptions:
(1) if received on a date other than a Valuation Date, the Date
Of Receipt will be the following Valuation Date; and
(2) if received on a Valuation Date after close of trading of
the New York Stock Exchange, the Date Of Receipt will be the
following Valuation Date.
DEATH BENEFIT - this term is explained in Section 8 of this policy.
EFFECTIVE DATE means the date we approve the application and issue this
policy. The Effective Date is shown on the Policy Information Page.
FREE LOOK PERIOD means the period of time required by state law during which
the owner may return the policy for cancellation and receive a refund. If
cancellation of the policy is requested during the Free Look Period we will
refund the greater of the premium payment or the value of the Variable Fund
Accounts as of the Date of Receipt of the request to cancel plus any Premium
Charge, Monthly Deduction and Mortality and Expense Charge that had been
deducted. The Free Look Period is shown on the Policy Information Page.
FUND means an investment portfolio that has specific investment objectives and
policies and is offered by a Mutual Fund.
GUARANTEED DEATH BENEFIT means that the Company guarantees that the policy
will not lapse during the first five policy years and that a death benefit
will be paid if a sufficient amount of premium has been paid. See the
Guaranteed Death Benefit Provision on page 12.
HOME OFFICE means USAA LIFE INSURANCE COMPANY; USAA BUILDING, 9800
FREDERICKSBURG ROAD, SAN ANTONIO, TEXAS 78288.
INDEBTEDNESS means the sum of all unpaid policy loans and any unpaid accrued
interest due on loans.
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SECTION 4. DEFINITIONS (Cont.)
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INSURED means the person whose life is insured. The insured is identified on
the Policy Information Page. The Insured may or may not be the Owner.
LAPSE means the policy has terminated because of insufficient cash value from
which to deduct the Monthly Deduction and any loan interest then due. No
insurance coverage exists when the policy has Lapsed.
MAINTENANCE CHARGE means a monthly charge deducted from the policy's cash
value. It compensates us for recurring administrative expenses related to the
maintenance of the policy and the Separate Account. It is shown on the Policy
Information Page.
MATURITY DATE means the date that we will pay the policy's cash value, to the
Owner, as long as the policy has not terminated because of Lapse, full
surrender, or the Insured's death. The Maturity Date is shown on the Policy
Information Page.
MONTHLY ANNIVERSARY means the same date of each succeeding month as the
Effective Date of the policy.
MONTHLY DEDUCTION means a charge made under this policy each month against the
policy's cash value. The charge is equal to:
(1) the cost of insurance and any riders; plus
(2) the Administrative Charge that is applied during the
first 12 months that the policy is in effect; plus
(3) the Maintenance Charge.
MINIMUM AMOUNT INSURED means the amount of life insurance required by the
Internal Revenue Code to qualify the policy as life insurance and to exclude
the death benefit from the Beneficiary's taxable income.
MUTUAL FUND means an open-end investment company under federal securities law.
It may offer shares of several different Funds for investment.
NET ASSET VALUE means the current value of each Fund's total assets, less all
liabilities, divided by the total number of shares outstanding.
NET PREMIUM PAYMENT means the amount of a premium payment less the policy's
Premium Charge. See the Premium Charge provision in Section 7.
NOTICE TO US means your signed statement which is received at our Home Office
and is in a form satisfactory to us.
OWNER means the person to whom we owe the rights and privileges of this
policy.
POLICY INFORMATION PAGE means the page that identifies certain information
about this policy and specifies certain terms of the policy. It appears at
page 4.
POLICY YEAR means a period of 12 calendar months starting with the Effective
Date of the policy, and each 12-month period thereafter. For example, if your
policy was issued on July 15, your first Policy Year would end on the
following July 14. Each subsequent Policy Year would start on July 15 and end
on July 14.
PREMIUM CHARGE means an amount that we deduct from premium payments to
compensate us for sales charges and taxes related to the policy.
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SECTION 4. DEFINITIONS (Cont.)
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SEPARATE ACCOUNT means the investment account established under Texas law
through which USAA Life Insurance Company invests the Net Premium Payments
received for investment in the Variable Fund Accounts under this policy. The
Separate Account is divided into subdivisions called the Variable Fund
Accounts under this policy. Each Variable Fund Account invests the Net Premium
Payments allocated to it in a particular Fund. The assets of the Separate
Account are owned by USAA Life Insurance Company. To the extent that the
assets are equal to the reserves and other contractual liabilities, they are
not chargeable with liabilities arising out of any other business of the
Company. The income, gains, and losses, realized or unrealized, from the
assets of the Separate Account are credited or charged against the Separate
Account without regard to other income, gains or losses of the Company. The
Separate Account is registered as an investment company under federal
securities law.
SPECIFIED AMOUNT means the minimum death benefit payable as long as the policy
is in effect. It is also the amount of life insurance issued by the Company.
It is shown on the Policy Information Page.
SURRENDER CHARGE means an amount that may be deducted from the policy's cash
value if the Owner surrenders the policy in full. See the Full Surrender
Charge provision on page 21.
VALUATION DATE means any business day, Monday through Friday, on which the New
York Stock Exchange is open for regular trading, except
(1) Any day on which the value of the shares of a Fund is not
computed.
(2) Any day during which no order for the purchase, redemption,
surrender or transfer of Accumulation Units is received.
VALUATION PERIOD means the period of time from the end of any Valuation Date
to the end of the next Valuation Date.
VARIABLE FUND ACCOUNT means a subdivision of the Separate Account in which
premium payments may be invested. There are several Variable Fund Accounts
under this policy. Each Variable Fund Account corresponds to a particular
Fund. Net Premium Payments allocated to a Variable Fund Account are invested
by the Company in the particular Fund. The Variable Fund Accounts are also
referred to in this policy as Accounts.
YOU, YOUR or YOURS refers to the Owner of the policy.
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SECTION 5. OWNERSHIP AND BENEFICIARY PROVISIONS
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OWNER
The rights and privileges of this policy belong to you, the Owner, during the
Insured's lifetime. The policy names you or someone else as the Insured. If
you are not the Insured, you should name a successor owner who will become the
Owner if you die before the Insured. If you die before the Insured and there
is no successor owner, ownership passes to your estate.
CHANGE OF OWNERSHIP
You may change the ownership of this policy by sending Notice To Us during the
Insured's lifetime. The change will take effect on the date we receive the
request. A change in ownership will not affect actions taken by us before the
request is received. A change of ownership is subject to the rights of an
assignee of record and any irrevocable beneficiary.
ASSIGNMENT
You may collaterally assign this policy subject to the written consent of any
irrevocable beneficiaries and any other assignees of record. We are not bound
by an assignment until it is received at our Home Office. We are not
responsible for determining the validity of an assignment.
BENEFICIARY
The Beneficiary is the person or entity named in the application, unless
changed by you during the Insured's lifetime. If more than one primary
Beneficiary is named, the death benefit will be paid equally to them, unless
you direct otherwise. Benefits payable to a Beneficiary who dies before the
Insured will be paid equally to the remaining Beneficiaries, unless otherwise
directed. If no Beneficiary survives the Insured, the death benefit will be
paid to you, if living, or, if not, to your estate.
CHANGE OF BENEFICIARY
You may change the Beneficiary of this policy by sending Notice To Us during
the Insured's lifetime. The written consent of any irrevocable beneficiaries
must be obtained before any change. The change will take effect on the date we
receive the request. If we make a benefit payment in good faith before
receiving the request, we will receive credit for the payment against our
liability under the policy. A change of Beneficiary is subject to the rights
of an assignee of record.
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SECTION 6. GENERAL PROVISIONS
-----------------------------------------------------------------------------
CONTRACT EXPLANATION
The policy is a legal contract between you and us. The consideration for
issuing this policy is:
(1) Completion of the application, and
(2) Payment of the first premium.
The policy, application, any supplemental applications, riders, endorsements,
and amendments form the entire contract. We will consider statements in the
application as representations and not warranties. Only representations
contained in the application or supplemental application will be used to void
this policy or to defend a claim under this policy.
Only the president or secretary of the Company has authority to waive or
change a provision of this policy, and then only in writing.
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SECTION 6. GENERAL PROVISIONS (Cont.)
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INCONTESTABILITY
We will not contest this policy, or any increase to it, except for Lapse,
after the policy or increase has been in force during the Insured's lifetime
for two years. During any two-year contestable period, we have the right to
contest the validity of this policy based on material misstatements or
omissions made in the application or supplemental application. The two-year
period for the policy begins on the Effective Date and the two-year period for
any increase begins on the date the increase is approved and made effective.
If we rescind the policy we will refund the premiums paid less any
Indebtedness and any previous partial surrenders.
This provision does not apply to optional policy benefits added by rider. Each
rider contains its own incontestability provision.
MISSTATEMENT OF AGE OR SEX
If the Insured's age or sex has been misstated on the application, we will
adjust the cash value and death benefit to those amounts that would be
obtained based on the correct Monthly Deductions since the policy's Effective
Date.
SUICIDE EXCLUSION
If the Insured commits suicide (while sane or insane) during the first two
years the policy is in effect, we will not pay a death benefit. We will refund
the premiums paid less any Indebtedness and any previous partial surrenders.
If the Specified Amount is increased by the Owner, a separate two-year suicide
exclusion period is applied to the amount of the increase. If the Insured dies
as a result of suicide (while sane or insane) during the separate two-year
suicide exclusion period, we will only pay the death benefit attributable to
the initial Specified Amount (on which the two-year exclusion period has
expired). We will refund the premium paid less any Indebtedness and any
partial surrenders attributable to the increase in the Specified Amount.
ANNUAL STATEMENT AND REPORTS
Within 30 days after this policy's Anniversary, we will mail you an annual
statement showing:
(1) the amount of the death benefit;
(2) the cash value;
(3) any Indebtedness;
(4) any loan interest charge;
(5) any loan repayments since the last annual report;
(6) any partial surrenders since the last annual report;
(7) all premium payments since the last annual report;
(8) all deductions and charges since the last annual report; and,
(9) other pertinent information required by any applicable law or
regulation, or that we deem helpful to you.
We may instead, at our discretion, mail you the annual statement within 30
days after December 31 of each year. The information contained in the annual
statement will be computed as of a date not more than 60 days prior to the
mailing of the annual statement. We may at our discretion send you statements
more frequently. As required by state and federal law, we will also send you
semi-annual reports for the Funds that correspond to the Variable Fund
Accounts, semi-annual reports for the Separate Account, and any other
information.
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SECTION 6. GENERAL PROVISIONS (Cont.)
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POLICY SERVICE
All request for changes to this policy must be clear and in writing and must
be received by our Home Office. Requests to change premium payment allocation,
requests for partial surrenders, requests for loans, and requests for
transfers between Accounts may, however, be made by telephone. We will employ
reasonable procedures to confirm that instructions communicated by telephone
are genuine, and only if we do not, will we be liable for any losses because
of unauthorized or fraudulent instructions. Information will be obtained prior
to any discussion regarding the contract including but not limited to: (1)
USAA number or contract number, (2) the name of the Owner, and (3) social
security number of the Owner. In addition, all telephone communications with
an Owner are recorded and confirmations of all transactions are sent to the
Owner's address. We may modify, suspend, or discontinue this telephone
transaction privilege at any time without prior notice.
NON-PARTICIPATING
This is a non-participating policy. This policy will not share in any of the
Company's profits or surplus earnings. We will not pay dividends on this
policy.
CONFORMITY WITH LAW
This policy is subject to the laws of the state where it was issued. To the
extent that the policy may not comply, it will be interpreted and applied to
comply.
BASIS OF RESERVES
All of the reserve values of this policy are the same or more than the
minimums required by the laws of the state where the policy was issued.
Reserves are computed by the Commissioner's Reserve Valuation Method. In the
states which require it, we have filed a detailed statement with the state
insurance department.
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SECTION 7. PREMIUM PROVISIONS
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INITIAL PAYMENT
Any part of the initial Net Premium Payment or any subsequent Net Premium
Payment made during the free look period that is requested to be allocated to
any of the Variable Fund Accounts will be allocated to the Money Market
Variable Fund Account on the Effective Date. The Net Premium Payment will
remain in the Money Market Variable Fund Account for the Free Look Period plus
five days. On the Valuation Date immediately following the end of that period,
the initial Net Premium Payment, together with any subsequent Net Premium
Payments that have been made, plus any earnings will be allocated among the
Variable Fund Accounts in the percentages as directed on the application at
the Accumulation Unit value next computed on that date. The initial and all
subsequent premium payments must be sent to our Home Office and will not be
made effective until the Date Of Receipt by our Home Office.
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SECTION 7. PREMIUM PROVISIONS (Cont.)
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PLANNED PERIODIC PREMIUM PAYMENTS
Planned periodic premium payments may be made at the interval indicated on the
Policy Information Page. The failure to follow a planned periodic premium
schedule will not in itself cause the policy to Lapse. On the other hand,
payment of a planned periodic premium will not guarantee that the policy will
remain in effect except as provided under the section entitled "Guaranteed
Death Benefit" below. The duration of the policy depends upon the policy's
cash value.
We will send premium notices, if you request, at 3, 6, or 12-month intervals.
All planned periodic premium payments must be paid to us at our Home Office.
You may change the amount or frequency of planned periodic premium payments,
subject to the maximum premium limitation.
PREMIUM CHARGE
A Premium Charge is deducted from premium payments to compensate us for sales
charges and taxes. This charge is 3% of the premium payment. The Premium
Charge is deducted from all premium payments until the total amount of premium
paid exceeds the Annual Target Premium Payment multiplied by 10. The Premium
Charge is designed so that it will not be applied if the total amount of
premium paid exceeds the amount of Annual Target Premium Payments for ten
years. If the owner increases or decreases the Specified Amount a new Annual
Target Premium Payment will be declared by us for the new Specified Amount.
Whether or not the Premium Charge applies will be determined using the new
Annual Target Premium Payment.
GUARANTEED DEATH BENEFIT
You have the option to pay planned periodic premium payments based on the
Annual Target Premium Payment. If upon any Monthly Anniversary during the
first five policy years the total planned and unscheduled premium you have
paid, less any partial surrenders, is equal to or greater than the Annual
Target Premium Payment prorated for the number of Monthly Anniversaries that
have occurred since the Policy's Effective Date, then we guarantee that this
policy will not lapse on that Monthly Anniversary, even if the cash value is
insufficient to pay for the Monthly Deduction and any loan interest then due.
This guarantee option is only available during the first five policy years.
If the Specified Amount is increased or decreased within the first 5 Policy
Years a new Annual Target Premium Payment will be declared by us. This new
Annual Target Premium Payment will be used to make the described calculation
to determine whether the Guaranteed Death Benefit applies.
UNSCHEDULED PREMIUM PAYMENTS
Unscheduled premium payments may be made at any time and must be paid to us at
our Home Office, subject to the maximum premium limitation.
MAXIMUM PREMIUM LIMITATION
The sum of premiums paid on this policy, both planned and unscheduled, cannot
exceed the maximum premium allowed by the Internal Revenue Code, unless the
premium is necessary to prevent Lapse. We monitor the amount of the policy's
cash value and the amount of life insurance at risk to the Company that is
required by the Internal Revenue Code to qualify the policy as life insurance
and to exclude the death benefit from the beneficiary's taxable income. If a
premium payment will cause the policy not to satisfy Internal Revenue Code
requirements we will refund the excess premium payment to you and we will
accept no further premium until allowed by the Internal Revenue Code current
maximum premium limitation. We may invite you to apply, subject to proof of
insurability, to increase the Specified Amount.
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SECTION 7. PREMIUM PROVISIONS (Con't)
-----------------------------------------------------------------------------
ALLOCATIONS OF NET PREMIUM PAYMENT
Premium payments that are requested to be allocated among the various Accounts
under this policy must be allocated in amounts no smaller than one-tenth of a
percent, provided that the total amount equals an aggregate of 100 percent.
The allocation of subsequent premium payments among the various Accounts under
this policy will be made to the same Accounts and in the same proportions as
the initial premium payment which is shown on the application. The allocation
of subsequent premium payments may be changed by the Owner at any time by
sending a written request to our Home Office, or by making a request by
telephone. A request to change subsequent premium payment allocations will be
effective with the first premium payment received on or following the Date Of
Receipt of the request.
DATE SUBSEQUENT NET PREMIUM PAYMENTS CREDITED
Net Premium Payments after the initial premium payment will be credited to the
Accounts under this policy on the Date Of Receipt. Payments to the Variable
Fund Accounts under this policy will be credited at the Accumulation Unit
value that is next computed on the Date Of Receipt.
TRANSFERS
You may convey value from one Account to another Account under this policy.
This is known as a transfer. Transfers are also subject to the following
restrictions.
(1) Six free transfers may be made each Policy Year;
(2) Additional transfers may be made each Policy Year but are subject
to a fee of $25.00 per transfer;
(3) The minimum amount that may be transferred from an Account is
$250.00; or the entire Account value if the value is less than
$250.00;
(4) A request for a transfer must clearly state the amount to be
transferred, the Account from which it is to be withdrawn, and the
Account to which it is to be credited;
(5) A transfer may not be made during the first 30 days after the
Effective Date;
(6) A transfer will result in either the redemption or purchase of
Accumulation Units, or both; the transfer will be processed
effective at the Accumulation Unit value next computed on the Date
Of Receipt of the transfer request;
(7) We reserve the right at any time and without prior notice to
terminate, suspend, or modify these transfer privileges.
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SECTION 8. DEATH BENEFIT PROVISIONS
-----------------------------------------------------------------------------
DEATH BENEFIT
We will pay the Death Benefit when we receive due proof of death at our Home
Office that the Insured has died while this policy is in effect.
The Death Benefit will be paid in accordance with the most current Death
Benefit Option selected, reduced by any Indebtedness and any due and unpaid
Monthly Deductions as set forth in the Grace Period Provision. These proceeds
will be increased by any additional optional insurance benefits provided by
rider.
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SECTION 8. DEATH BENEFIT PROVISIONS (Cont.)
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DEATH BENEFIT OPTIONS
The policy provides two Death Benefit Options: Option A and Option B. Both
Options provide life insurance protection combined with the opportunity to
build cash value.
Under Option A, the amount of life insurance at risk to the Company decreases
as the cash value increases. The total Death Benefit remains level (unless the
Minimum Amount Insured applies - see Minimum Amount Insured, below).
Under Option B, the amount of life insurance at risk to the Company remains
level (unless the Minimum Amount Insured applies - see Minimum Amount Insured,
below) but the total Death Benefit includes the cash value. See Section 9 for
an explanation of how cash value is determined. The Death Benefit Options are:
Option A: The Death Benefit is:
(1) The Specified Amount; or
(2) The Minimum Amount Insured, if greater.
Option B: The Death Benefit is:
(1) The Specified Amount, plus the policy's
cash value; or
(2) The Minimum Amount Insured, if greater.
MINIMUM AMOUNT INSURED
The Minimum Amount Insured means the amount of life insurance required by the
Internal Revenue Code to qualify the policy as life insurance and to exclude
the Death Benefit from the Beneficiary's taxable income. It is calculated by
multiplying the policy's cash value (ignoring the amount of any outstanding
loan and any unpaid loan interest) by a specified percentage which is based on
the Insured's age. The specified percentages are:
<TABLE>
<CAPTION>
AGE PERCENTAGE AGE PERCENTAGE
<S> <C> <C> <C>
0-40 250% 61 128%
41 243% 62 126%
42 236% 63 124%
43 229% 64 122%
44 222% 65 120%
45 215% 66 119%
46 209% 67 118%
47 203% 68 117%
48 197% 69 116%
49 191% 70 115%
50 185% 71 113%
51 178% 72 111%
52 171% 73 109%
53 164% 74 107%
54 157% 75-90 105%
55 150% 91 104%
56 146% 92 103%
57 142% 93 102%
58 138% 94 101%
59 134% 95 and older 100%
60 130%
</TABLE>
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SECTION 8. DEATH BENEFIT PROVISIONS (Cont.)
-----------------------------------------------------------------------------
We monitor the amount of the policy's cash value and the amount of life
insurance at risk to the Company that is required by the Internal Revenue Code
to qualify the policy as life insurance and to exclude the Death Benefit from
the beneficiary's taxable income. If, prior to the insured's death, unexpected
increases in the policy's cash value would cause the policy not to satisfy
Internal Revenue Code requirements, we will increase the Death Benefit to the
Minimum Amount Insured so that the Death Benefit will be excluded from the
beneficiary's taxable income.
DEATH BENEFIT OPTION CHANGES
After the first Policy Year, you may change the Death Benefit Option by Notice
To Us. The new Death Benefit Option must also remain in effect for one year
before another change will be allowed. Any change is subject to the following
conditions.
(1) You may change from Death Benefit Option A to Death Benefit Option
B by Notice To Us. The new Specified Amount will be the old
Specified Amount less the policy's cash value (ignoring the amount
of any outstanding loan and any unpaid loan interest) as
determined on the Date Of Receipt of the Notice To Us. If you want
the new Specified Amount to be the same as the old Specified
Amount, the change in Death Benefit Option will be subject to
proof of insurability. A change from Death Benefit Option A to
Option B will be subject to a remaining $50,000 Specified Amount
or $25,000 if the Insured is less than 18 years of age.
(2) You may change from Death Benefit Option B to Death Benefit Option
A by Notice To Us. The new Specified Amount will be the old
Specified Amount increased by the policy's cash value (ignoring
the amount of any outstanding loan and any unpaid loan interest)
next determined on the Date Of Receipt of the Notice To Us.
A Change from Option A to Option B or from Option B to Option A will become
effective on the next Monthly Anniversary on or following the date the change
is approved by us.
SPECIFIED AMOUNT CHANGES
You may change the Specified Amount by Notice To Us. Any change is subject to
the following conditions:
(1) Any increase will require proof of the Insured's insurability and
must be applied for on a written application. The application for
any increase will be attached to and made part of this policy.
(2) Any increase must not be less than $25,000 unless made in
conjunction with a change in death benefit option or to satisfy
Internal Revenue Code requirements.
(3) Any decrease will be applied against the most recent increase.
(4) A decrease will not be allowed that results in a Specified Amount
of less than $50,000 or $25,000 if the Insured is less than 18
years of age, other than a decrease resulting from a partial
surrender of cash value under Option A.
Increases in Specified Amount will become effective on the next Monthly
Anniversary on or following the date the increase is approved by us. Decreases
in Specified Amount will become effective on the next Monthly Anniversary on
or following the Date Of Receipt of the Notice To Us.
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SECTION 9. CASH VALUE AND POLICY CHARGES
-----------------------------------------------------------------------------
GENERAL DESCRIPTION
Net Premium Payments are invested in the Variable Fund Accounts under this
policy to build cash value. The net premium that you allocate to a Variable
Fund Account is invested by the Company through the Separate Account that we
have established to purchase shares of the corresponding Fund at their Net
Asset Value. Your value in the Variable Fund Accounts will fluctuate and vary
based on the investment experience of the corresponding Fund. In addition to
the charges made under this policy that are discussed in this section, there
are expenses that apply at the corresponding Fund level. Please read the Fund
prospectus for a complete understanding of all expenses.
CASH VALUE
The policy's cash value will vary on a daily basis with the investment
experience of the selected Accounts to which you are allocating Net Premium
Payments.
The cash value will also vary to reflect the amount and frequency of Net
Premium Payments, the effect of any partial surrenders, the effect of any
loans, and the charges and deductions made under this policy. There is no
minimum guaranteed cash value.
The cash value of this policy on the Effective Date is the Net Premium Payment
less the Monthly Deduction for the following month. Thereafter, the cash value
on any Valuation Date will equal the sum of the policy's value in each
Variable Fund Account plus any value held in the Company's general account to
secure a loan plus any interest earnings credited on the value held in the
general account less the amount of any outstanding loan including any unpaid
interest and less any Monthly Deductions, transfer charges, and partial
surrender charges applied through that date. (See Section 13 Loan Provisions.)
On each Monthly Anniversary, the Monthly Deduction will reduce the cash value.
The amount of Monthly Deduction taken from the Account(s) will be in the same
proportion as each Account(s) cash value has to the total policy cash value.
THE SEPARATE ACCOUNT
The Separate Account is an investment account established under Texas law
through which USAA Life Insurance Company invests the Net Premium Payments
received for investment in the Variable Fund Accounts under this policy. The
Separate Account is divided into subdivisions called the Variable Fund
Accounts under this policy. Each Variable Fund Account invests the Net Premium
Payments allocated to it in a particular Fund. The assets of the Separate
Account are owned by USAA Life Insurance Company. To the extent that the
assets are equal to the reserves and other contractual liabilities, they are
not chargeable with liabilities arising out of any other business of the
Company. The income, gains, and losses, realized or unrealized, from the
assets of the Separate Account are credited or charged against the Separate
Account without regard to other income, gains or losses of the Company. The
assets of the Separate Account shall be valued at the end of each Valuation
Date. The Separate Account is registered as an investment company under
federal securities law.
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-----------------------------------------------------------------------------
SECTION 9. CASH VALUE AND POLICY CHARGES (Cont.)
-----------------------------------------------------------------------------
YOUR VALUE IN VARIABLE FUND ACCOUNTS
At the end of each Valuation Date, the Accumulation Unit value for each
Variable Fund Account is computed. Your value in a Variable Fund Account is
determined by multiplying the number of Accumulation Units credited to that
Variable Fund Account by the value of the Accumulation Unit as of the end of
any Valuation Date. Accumulation Units are credited to a Variable Fund Account
under this policy when you pay us premium and allocate it to the particular
Variable Fund Account. The number of Accumulation Units credited to a Variable
Fund Account under this policy is determined by dividing the Net Premium
Payment credited to the Account by the Account's Accumulation Unit value next
computed on the Date Of Receipt of the premium payment. Each Variable Fund
Account's Accumulation Units are valued separately. The Accumulation Unit
value of a Variable Fund Account as of the end of any Valuation Date is
calculated as (1) multiplied by (2) where:
(1) Is the Accumulation Unit Value for the Account as of the end of
the immediately preceding Valuation Period; and
(2) Is the Net Investment Factor for the Valuation Period ending on
that Valuation Date.
Your value in a Variable Fund Account is also reduced by any values you have
withdrawn or transferred and less any Monthly Deductions, transfer charges,
and partial surrender charges applied through that date. You may learn what
the daily value of an Accumulation Unit is and the number of units credited to
the Variable Fund Accounts under your policy by contacting our Home Office.
NET INVESTMENT FACTOR
The net investment factor is an index number that reflects charges to this
policy and investment performance during a Valuation Period. The net
investment factor for a Variable Fund Account is determined by dividing (1) by
(2), and then subtracting (3) from the result, where:
(1) Is the net result of:
(a) The Net Asset Value per share of the Fund shares held in the
corresponding Variable Fund Account determined at the end of
the current Valuation Period;
(b) Plus the per share amount of any dividend or capital gain
distributions made on the Fund shares held in the
corresponding Variable Fund Account during the current
Valuation Period;
(c) Plus or minus a per share credit or charge for that current
Valuation Period for any decrease, or increase, in any
income taxes reserved that we determine has resulted from
the investment operations of the particular Variable Fund
Account or any other taxes which are applicable to this
contract.
(2) Is the Net Asset Value per share of the Fund shares held in the
corresponding Variable Fund Account determined at the beginning of
the current Valuation Period.
(3) Is a factor representing the mortality and expense risk. The
annual charge rate is .75%. We may lower this charge at our
discretion but we guarantee that it will not be raised.
VUL31891TX 2-98 31891-0298
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<PAGE>
-----------------------------------------------------------------------------
SECTION 9. CASH VALUE AND POLICY CHARGES (Cont.)
-----------------------------------------------------------------------------
MONTHLY DEDUCTION
The Monthly Deduction on each Monthly Anniversary shall be calculated as (1)
plus (2) plus (3) where:
(1) is the cost of the amount of insurance at risk to the Company and
the cost for any policy riders;
(2) is the Administrative Charge, which is a flat charge per policy
that is applied only during the first 12 months that this policy
is in effect; and
(3) is the Maintenance Charge, which is a flat charge per policy.
The first-year monthly Administrative Charge and the policy Maintenance Charge
are set forth on the Policy Information Page. The Monthly Deduction will be
withdrawn from your Accounts on the Monthly Anniversary in the same proportion
as each Account's value has to the total policy cash value.
PREMIUM CHARGE
A Premium Charge of 3% is deducted from premium payments to compensate us for
sales charges and taxes related to this policy. The resulting Net Premium
Payment is then allocated to the Variable Fund Account(s). See Section 7
Premium Provisions for an explanation of when this charge will not be made.
MORTALITY AND EXPENSE CHARGE
Certain charges are deducted on a daily basis from the net assets of the
Variable Fund Accounts. These charges have an effect on the policy's cash
value:
(1) a daily charge of .00204% (equal to .75% annual rate) for the
mortality and expense risks assumed by us; and,
(2) if necessary, a charge for federal income taxes attributable to
the Separate Account.
FULL SURRENDER CHARGE
While the Insured is living and the policy is in force, the Owner may
surrender the policy in full for its cash value. If the policy is surrendered
in full, the amount payable may reflect a deduction for the Surrender Charge.
The net amount that you would receive is the policy's cash surrender value.
The purpose of the Surrender Charge is to compensate the Company for expenses
incurred in the distribution of the policies. If assessed upon the surrender
of the policy, the Surrender Charge reduces the amount paid to the owner.
The amount of the Surrender Charge is based upon the Specified Amount and the
Annual Target Premium Payment. The Surrender Charge declines each policy year
and is eliminated after the policy has been in effect 10 Policy Years. If the
policy is surrendered during a Policy Year, the Surrender Charge is determined
by multiplying the applicable percentage for a surrender during that Policy
Year times the Annual Target Premium Payment. The Surrender Charge is based
upon the Policy Year in which the policy is surrendered and the amount of the
Annual Target Premium Payment.
VUL31891TX 2-98 31891-0298
----------
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<PAGE>
-----------------------------------------------------------------------------
SECTION 9. CASH VALUE AND POLICY CHARGES (Cont.)
-----------------------------------------------------------------------------
If the Specified Amount is increased or decreased within the first 10 Policy
Years, a new Annual Target Premium Payment will be declared by us. This new
Annual Target Premium Payment will be used to make the described calculation
to determine whether the Surrender Charge applies. The applicable percentage
for a surrender of the policy during a Policy Year is determined as follows:
<TABLE>
<CAPTION>
If the Policy is Surrendered During Applicable Percentage
----------------------------------- ---------------------
<S> <C> <C>
Policy Year 1 50%
Policy Year 2 45%
Policy Year 3 40%
Policy Year 4 35%
Policy Year 5 30%
Policy Year 6 25%
Policy Year 7 20%
Policy Year 8 15%
Policy Year 9 10%
Policy Year 10 5%
Policy Year 11 & thereafter 0%
</TABLE>
For example, if the Annual Target Premium Payment was $2,000 and the policy
was surrendered in full during the first Policy Year, the Surrender Charge
would be determined by multiplying 50% times $2,000 or 50% X 2,000 = $1,000.
Thus, in this example the Surrender Charge would be $1,000.
PARTIAL SURRENDER (WITHDRAWAL) CHARGES
The amount of cash value you may obtain through a partial surrender is
limited. The policy's remaining cash value after a partial surrender may not
be less than an amount equal to the then current Surrender Charge for a full
surrender. For each partial surrender of cash value, there is an
administrative fee equal to the lesser of $25.00 or 2% of the amount
withdrawn.
TRANSFER CHARGE
You may transfer value from a Variable Fund Account to another Variable Fund
Account six times during a Policy Year without a charge. Additional transfers
may be made subject to a charge of $25.00 per transfer.
COST OF INSURANCE
The cost of insurance is calculated on each Monthly Anniversary. First, we
divide the Death Benefit on the Monthly Anniversary by a factor that discounts
the Death Benefit to the beginning of the month, and then we subtract the cash
value. Cash value, in this instance, is cash value at the beginning of the
month prior to deductions for cost of insurance. We divide the resulting
amount by 1000 and multiply that result by the applicable cost of insurance
rate.
VUL31891TX 2-98 31891-0298
----------
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<PAGE>
-----------------------------------------------------------------------------
SECTION 9. CASH VALUE AND POLICY CHARGES (Cont.)
-----------------------------------------------------------------------------
COST OF INSURANCE RATE
The cost of insurance rates for each Specified Amount are based on the
Insured's age, sex and rate class. Current costs of insurance rates are based
on our expectations as to future mortality experience. Any changes to cost of
insurance rates will apply to all persons of the same age, sex and rate class.
We guarantee that the cost of insurance rates will never be greater than those
shown in the Table of Monthly Guaranteed Cost of Insurance Rates in this
policy. These guaranteed rates are based on the 1980 Commissioners Standard
Ordinary Mortality Table.
INSUFFICIENT CASH VALUE
If the cash value, on the Monthly Anniversary is insufficient to cover the
Monthly Deduction for the following month, and any loan interest then due, the
policy and all benefits provided by rider will end as provided in the Grace
Period Provision. Any deduction for the cost of insurance after Lapse shall
not be considered a reinstatement of the policy (or of any benefit provided by
rider) nor a waiver by us of the Lapse.
-----------------------------------------------------------------------------
SECTION 10. AVAILABILITY OF FUNDS AND VOTING RIGHTS
-----------------------------------------------------------------------------
A Fund may, in our judgment, become unsuitable for investment by an Account.
This might happen because of a change in investment policy, because of a
change in laws or regulations, because the shares are no longer available for
investment, or for some other reason. We reserve the right, subject to
compliance with federal and state law, to eliminate or merge any Funds that
are made available through this policy and possibly substitute another Fund
if, in our judgement, further investment in the Fund becomes undesirable in
view of the purposes of this policy. We may add new Variable Fund Accounts
under this policy to permit investment in additional Funds. We will give you
written notice of the addition, elimination, merger or substitution of any
Fund as required by law.
If required we would first notify and receive approval from the United States
Securities and Exchange Commission ("S.E.C.") and the Texas Insurance
Department. This approval process will be on file with our domicile State of
Texas as required by law. If the S.E.C. requires that such action receive
approval from a majority of the policyholders in the Account, then you will be
notified of your right to vote. You will be notified of any material change in
the investment policy of any Fund in which you have an interest.
You have voting rights in relation to your value maintained in the Variable
Fund Accounts. We will vote shares of the underlying Funds in which the
Variable Fund Accounts invest and that are attributable to Owners in the
manner instructed by Owners. Owners may give instructions equal to the number
of shares represented by the Units attributable to their Variable Fund
Accounts. We will vote such shares held by the Variable Fund Accounts that are
either (i) not attributable to Owners, or (ii) attributable to Owners and for
which we have not received instructions, in the same manner and proportion as
such shares for which we have received instructions. However, we may vote any
shares of the underlying Funds without regard to instructions from Owners, and
in our own right, where (i) applicable law specifically permits or (ii) we
determine, based on our interpretation, that applicable law permits. In all
cases, we will vote separately for each Fund that corresponds to a Variable
Fund Account where required by applicable law or appropriate.
VUL31891TX 2-98 31891-0298
----------
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Page 21
<PAGE>
-----------------------------------------------------------------------------
SECTION 10. AVAILABILITY OF FUNDS AND VOTING RIGHTS (Cont.)
-----------------------------------------------------------------------------
The number of votes for an underlying Fund will be determined as of the record
date for such Fund as chosen by its board of trustees or board of directors.
We will furnish Owners with proper forms and voting instruction forms to
enable them to instruct us how to vote.
You may instruct us how to vote on the following matters: (a) election of the
board of trustees or board of directors, as applicable; (b) approval of the
investment advisory agreement; (c) ratification of the independent auditing
firm; (d) any change in the fundamental investment policy; and (e) any other
matter requiring a vote of the shareholders.
-----------------------------------------------------------------------------
SECTION 11. POLICY SURRENDER AND PARTIAL SURRENDERS
-----------------------------------------------------------------------------
FULL SURRENDER
You may surrender this policy for its entire cash value, upon Notice To Us. A
Surrender Charge may be deducted by the Company pursuant to the Full Surrender
Charge provision in Section 9. The net amount that you would receive is the
policy's cash surrender value. We may require the return of your policy. The
policy and all insurance will terminate as of the Date Of Receipt of your
request for full surrender.
PARTIAL SURRENDERS (WITHDRAWALS)
After the first policy year, you may surrender a part of this policy. A fee
for administrative processing equal to the lesser of $25.00 or 2% of the
amount withdrawn will be charged for all partial surrenders. You may direct
how a partial surrender and the administrative fee should be withdrawn from
the current value of the Account(s). If no withdrawal allocation is specified,
the partial surrender and the administrative fee will be withdrawn from the
Account(s) in the same proportion as each Account's value has to the total
policy cash value. Partial surrenders will reduce the policy's death benefit
on a dollar for dollar basis. A partial surrender under Option A reduces the
Specified Amount dollar for dollar and also reduces the cash value dollar for
dollar. Under Option B a partial surrender reduces the cash value dollar for
dollar but the Specified Amount remains constant. In those instances where the
death benefit is the Minimum Amount Insured, the decrease in death benefit
will be equal to the partial surrender multiplied by the appropriate specified
percentage.
DETERMINATION AND PAYMENT OF VARIABLE BENEFITS
We will make payments under this policy as follows:
(1) Full surrenders and partial surrenders of cash value will usually
be paid within seven days after receipt of your written request at
our Home Office. The cash value available will be determined at
the Accumulation Unit value that is next computed on the Date Of
Receipt of the surrender request. Partial surrenders are not
allowed during the first policy year.
(2) Loans will usually be paid within seven days after receipt of your
written request at our Home Office. The loan value available will
be determined as of the Date Of Receipt of your loan request.
Policy loans are not allowed during the first Policy Year.
(3) Benefits at maturity will usually be paid within seven days after
the Valuation Date on which this policy matures.
VUL31891TX 2-98 31891-0298
----------
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<PAGE>
-----------------------------------------------------------------------------
SECTION 11. POLICY SURRENDER AND PARTIAL SURRENDERS (Cont.)
-----------------------------------------------------------------------------
(4) The death benefit will usually be paid within seven days after
receipt at our Home Office of due proof of the Insured's death and
all other requirements necessary to make payment. The cash value
portion of the death benefit will be determined as of the
Valuation Date immediately following the date of death.
POSTPONEMENT OF PAYMENTS
We may not be able to determine the value of assets of the Accounts if: (1)
the New York Stock Exchange is closed; (2) the S.E.C. requires trading to be
restricted or declares an emergency; or (3) the S.E.C., by order, permits us
to defer payments for the protection of our policyowners.
During such times we may defer:
(1) determination of Account values;
(2) payment of such values;
(3) payment of loans;
(4) any requested transfer of Account values; and
(5) use of the death benefit under the Settlement Options.
Requests for partial surrenders, full surrenders, loans or refunds which would
be derived from a premium payment made by a check may be deferred until the
check has cleared the banking system.
-----------------------------------------------------------------------------
SECTION 12. GRACE AND REINSTATEMENT PERIODS
-----------------------------------------------------------------------------
GRACE PERIOD
On any Monthly Anniversary when the cash value, is less than the Monthly
Deduction for the following month and any loan interest then due, a grace
period will begin. During the grace period, you must send us enough premium to
cover three Monthly Deductions and any loan interest due. We will notify you,
and any assignee of record, of the grace period expiration date. The grace
period is 61 days and will begin on the date this notice is mailed to you.
If the premium described above is not paid within the grace period, all
insurance, including benefits provided by rider, terminates, and a Lapse has
occurred. If the Insured dies during the grace period, the death benefit, less
any due and unpaid Monthly Deduction(s) and any loan interest due through the
month of death, will be paid to the Beneficiary.
If you have paid sufficient premium for the Guaranteed Death Benefit to apply
the policy may not necessarily Lapse during the first five Policy Years. See
the Guaranteed Death Benefit provision in Section 7 for an explanation of how
much premium must be paid for the benefit to apply.
REINSTATEMENT
If a Lapse of this policy occurs, you may apply for reinstatement within five
years and before the Maturity Date. We require the following:
(1) proof of insurability satisfactory to us;
(2) a written application for reinstatement;
VUL31891TX 2-98 31891-0298
----------
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<PAGE>
-----------------------------------------------------------------------------
SECTION 12. GRACE AND REINSTATEMENT PERIODS (Cont.)
-----------------------------------------------------------------------------
(3) payment of premium sufficient to pay the Monthly Deductions for at
least three months beginning with the effective date of
reinstatement; and
(4) payment of, or agreement to reinstate, any Indebtedness.
The effective date of the reinstated policy will be the Monthly Anniversary on
or before the approval date of reinstatement.
The Suicide and Incontestability provisions will apply from the effective date
of reinstatement. If the policy has been in force for two years during the
lifetime of the Insured, it will be contestable only as to statements made in
the reinstatement application. If the policy has been in force for less than
two years, it will be contestable as to statements made in any reinstatement
applications as well as the initial application.
-----------------------------------------------------------------------------
SECTION 13. LOAN PROVISIONS
-----------------------------------------------------------------------------
LOANS
This policy may have a cash value. After this policy has been in effect one
year, you may take a loan against the cash surrender value using this policy
as the sole security for the loan. The maximum amount that you may borrow at
any time is the loan value. The maximum loan value is 85% of the cash value
available to you assuming a full surrender of the policy. You may request a
loan at any time by Notice To Us or telephone request.
The portion of the cash value equaling the amount of the loan will be
withdrawn from the Account(s) and transferred to the Company's general account
consisting of all its other assets and liabilities.
LOAN ALLOCATION
You may allocate how an amount equal to the amount of the loan should be
withdrawn from the current value of the Account(s). If no allocation is
specified, the value in the amount of the loan will be withdrawn from the
Account(s) in the same proportion as each Account's value has to the total
policy cash value. Values will be determined as of the Date Of Receipt of the
loan request.
LOAN INTEREST
You are charged interest on the loan at a maximum annual rate of 6% payable in
advance. We have the option of charging less. For policies that have been in
effect more than 10 Policy Years and if the Insured is 55 or older, we charge
a preferred loan interest rate of 4.5%. We have the option of charging less
for a preferred loan. The entire amount of interest on your loan balance for
each Policy Year is payable in advance at the commencement of the loan and at
the beginning of each Policy Year thereafter. We will automatically deduct the
interest from your Account(s) in the same proportion as the loan amount was
withdrawn from the Account(s). If there is insufficient value in your
Account(s) to pay the interest in advance, we will add the amount of any
unpaid interest to the amount of the loan, and will charge the same rate of
interest.
Because interest is paid in advance, loan repayments during a Policy year may
result in an overpayment of interest. We will credit any overpayment of
interest to you on the date of any loan repayment.
VUL31891TX 2-98 31891-0298
----------
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<PAGE>
-----------------------------------------------------------------------------
SECTION 13. LOAN PROVISIONS (Cont.)
-----------------------------------------------------------------------------
LOAN REPAYMENT
A loan may be repaid in full or in part at any time before the Insured's death
and while the policy is in effect. If not repaid, we will deduct the
Indebtedness from the Death Benefit, the benefit at maturity, or a full
surrender. Loans and unpaid loan interest in existence at the end of a grace
period may not be paid until the policy is reinstated. You may direct how a
loan repayment should be allocated among each Account. If no allocation is
specified, the loan repayment will be allocated to the Account(s) in the same
proportion as Net Premium Payments are being allocated to the Account(s).
EFFECT OF LOAN
A loan will reduce the value of the Account(s) from which it is deducted.
Thus, the amount loaned will not share in the investment experience of the
Account(s). The unpaid amount of the loan and any accrued interest withdrawn
from you Account(s) will however earn interest and will be credited on a daily
basis with an effective annual rate of 4%. A loan, whether repaid or not, will
have a permanent effect on the cash value of the policy.
-----------------------------------------------------------------------------
SECTION 14. SETTLEMENT OPTIONS
-----------------------------------------------------------------------------
Instead of having the death benefit paid immediately to the Beneficiary(s) in
one lump sum, you may choose another form of payment for all or part of the
death benefit. If you do not arrange for this before the Insured dies, the
Beneficiary will have this right after the Insured dies. Arrangements made by
you before the Insured's death, however, cannot be changed by the Beneficiary
after the Insured's death. The options are:
(1) INTEREST ONLY OPTION: The principal amount may be left on deposit
with us for a mutually determined period not to exceed 30 years.
Interest payments will be paid at mutually determined regular
intervals. The principal amount will earn interest at a minimum
rate of 3% compounded annually. At the end of the final period,
the principal amount will be paid.
(2) INSTALLMENT OPTIONS:
A. FIXED PERIOD: The principal amount plus interest will be paid
in equal or unequal installments for a specified number of years
(not more than 30). The installments will not be less than those
shown in the Table of Guaranteed Payments. (See Section 15.)
B. FIXED AMOUNT: The principal amount plus interest will be paid
in equal or unequal installments, as mutually agreed upon until
the amount applied, together with interest on the unpaid balance,
has been paid in full.
(3) OTHER: We will apply the sum under any other option requested that
we make available at the time of the Insured's death.
VUL31891TX 2-98 31891-0298
----------
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<PAGE>
-----------------------------------------------------------------------------
SECTION 14. SETTLEMENT OPTIONS (Cont.)
-----------------------------------------------------------------------------
The Beneficiary may designate a successor payee as to any amount that we would
otherwise pay to the Beneficiary's estate.
Any arrangements involving more than one of the options, or involving a
Beneficiary who is not a natural person (for example, a corporation) or who is
a fiduciary (for example, a trustee), must have our approval. Also, details of
all arrangements will be subject to our rules at the time the arrangement
takes effect.
Amounts applied under these options will not be subject to the claims of
creditors or to legal process, to the extent permitted by law.
VUL31891TX 2-98 31891-0298
----------
VUL200T1
Page 26
<PAGE>
-----------------------------------------------------------------------------
SECTION 15. TABLE OF GUARANTEED PAYMENTS
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
(MINIMUM LEVEL AMOUNT FOR EACH $1,000 OF PROCEEDS)
Years Monthly Payment Years Monthly Payment
<S> <C> <C> <C> <C>
1 84.47 16 6.53
2 42.86 17 6.23
3 28.99 18 5.96
4 22.06 19 5.73
5 17.91 20 5.51
6 15.14 21 5.32
7 13.16 22 5.15
8 11.68 23 4.99
9 10.53 24 4.84
10 9.61 25 4.71
11 8.86 26 4.59
12 8.24 27 4.47
13 7.71 28 4.37
14 7.26 29 4.27
15 6.87 30 4.18
</TABLE>
VUL31891TX 2-98 31891-0298
----------
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<PAGE>
THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
[USAA LOGO]
USAA LIFE INSURANCE COMPANY
9800 Fredericksburg Road San Antonio, TX 78288
THE DEATH BENEFIT OF THIS POLICY MAY BE VARIABLE AS TO THE AMOUNT OR DURATION,
OR BOTH, DEPENDING UPON THE DEATH BENEFIT OPTION SELECTED AND THE INVESTMENT
EXPERIENCE OF THE SEPARATE ACCOUNT, BUT SHALL NEVER BE LESS THAN THE SPECIFIED
AMOUNT SUBJECT TO ANY POLICY INDEBTEDNESS AND PARTIAL SURRENDERS AS LONG AS
THERE IS SUFFICIENT CASH VALUE TO KEEP THE POLICY IN EFFECT. See Sections 8 &
9.
THE CASH VALUE OF THIS POLICY WILL VARY FROM DAY TO DAY. IT MAY INCREASE OR
DECREASE DEPENDING ON THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT. IT IS
NOT GUARANTEED AS TO DOLLAR AMOUNT.
VARIABLE UNIVERSAL LIFE INSURANCE PLAN
FLEXIBLE PREMIUMS PAYABLE DURING LIFETIME OF INSURED UNTIL MATURITY DATE.
VARIABLE DEATH BENEFIT PAYABLE PRIOR TO MATURITY DATE. CASH VALUE PAYABLE ON
MATURITY DATE.
INVESTMENT EXPERIENCE REFLECTED IN BENEFITS.
NON-PARTICIPATING POLICY.
VUL31891TX 2-98 31891-0298
----------
VUL200T2
<PAGE>
USAA LIFE INSURANCE COMPANY
ACCELERATED BENEFIT FOR TERMINAL ILLNESS RIDER
-----------------------------------------------------------------------------
RIDER AGREEMENT
-----------------------------------------------------------------------------
NOTICE
The receipt of accelerated benefits under this rider may be taxable. Please
consult your personal tax adviser.
-----------------------------------------------------------------------------
THE BENEFIT
-----------------------------------------------------------------------------
The Company will make an accelerated benefit payment to the Owner of the
policy prior to the Maturity Date upon receipt of proof satisfactory to it
that the Insured is terminally ill as defined below. The accelerated benefit
payment plus accrued interest and any unpaid premium will be treated as a lien
against the Death Benefit and will reduce the amount payable to the
beneficiary at the Insured's death. The maximum accelerated benefit payment
that will be made is the lesser amount of (1) one half of the current Death
Benefit of the policy, excluding additional benefits payable under other
riders, or (2) $250,000. Before this benefit is paid to the Owner, an amount
equal to any outstanding loan and unpaid interest will be deducted from the
benefit amount and applied to pay the Company. We must receive a written
request by the Owner for an accelerated benefit payment.
-----------------------------------------------------------------------------
PROOF OF TERMINAL ILLNESS
-----------------------------------------------------------------------------
A terminal illness is an illness which is expected to result in the Insured's
death within 12 months from the Owner's request for an accelerated benefit
payment. We will require the Owner to provide the certification of a licensed
physician, who is not the Owner, Insured or a member of either's family,
describing the Insured's health condition and stating that the Insured's life
expectancy is 12 months or less. We reserve the right to obtain a second
opinion at our expense.
-----------------------------------------------------------------------------
EFFECT ON YOUR POLICY
-----------------------------------------------------------------------------
The accelerated benefit payment first will be used to repay any outstanding
policy loans and unpaid loan interest. The accelerated benefit payment will be
treated as a lien against your policy values.
Death proceeds which are payable on the death of the Insured will be reduced
by the amount of the lien and any policy loans, plus accrued interest. Monthly
deductions are still required to be made after an accelerated benefit payment.
Your access to the cash value of your policy through policy loans, partial
withdrawals, or full surrender is limited to any excess of the cash value over
the amount of the lien.
-----------------------------------------------------------------------------
INTEREST
-----------------------------------------------------------------------------
Interest will be charged on the amount of the accelerated benefit payment and
any Monthly Deductions paid by the Company accruing daily until the Insured's
death. The interest rate will be the published monthly average for the
calendar month ending two months before the date on which the accelerated
payment is made of Moody's Corporate Bond Yield, as published by Moody's
Investor Service Inc. The interest rate will not exceed the maximum rate
permitted by the laws of the state where this policy is issued. If the Moody's
Corporate Bond Yield is discontinued, we may substitute another method of
determining the interest index that is permitted by the laws of the state
where this policy is issued.
VUL31851ST 2-98 ULife 31851-0298
----------
VUL304ST
<PAGE>
-----------------------------------------------------------------------------
PREMIUMS AND DEATH BENEFIT IN THE EVENT OF AN ACCELERATED
BENEFIT PAYMENT
-----------------------------------------------------------------------------
Premium payments (known as "cost of insurance" payments for universal life
policies) are still required to be made after the accelerated benefit payment.
If a premium payment or cost of insurance is not paid when due, we will pay
the premium on behalf of the Owner and add the premium amount to the
accelerated benefit payment amount to be deducted from the death benefit.
Should the amount of the accelerated benefit payment plus accrued interest and
unpaid premiums (or cost of insurance on universal life policies) ever exceed
the amount of the death benefit, the policy terminates and no additional
insurance benefits are payable.
-----------------------------------------------------------------------------
GENERAL CONDITIONS
-----------------------------------------------------------------------------
An accelerated benefit payment must be approved in writing by any irrevocable
beneficiary and any assignee.
This rider provides for the early, partial payment of the Death Benefit. This
is not meant to cause the Owner to involuntarily access proceeds intended for
payment to the beneficiary. Therefore, the Owner is not eligible for this
benefit:
1) If the Owner is required by law to use this benefit to meet the
claims of creditors, whether in bankruptcy or otherwise; or
2) If the Owner is required by a government agency to use this
benefit in order to apply for, obtain, or otherwise keep a
government benefit or entitlement.
The terms and conditions of the policy apply to this rider. Where the terms or
conditions of the policy are inconsistent with those of this rider, the rider
prevails. This rider is non-participating, does not share in the Company's
profits or surplus earnings, and has no cash value.
-----------------------------------------------------------------------------
TERMINATION
-----------------------------------------------------------------------------
This rider will terminate upon the policy's termination.
This rider is issued and attached to the policy by USAA Life Insurance
Company, San Antonio, Texas.
Effective Date of this rider if other than effective date of policy:_________.
/s/ EDWIN L. ROSANE
-------------------
Edwin L. Rosane - President
VUL31851ST 2-98 ULife 31851-0298
----------
VUL304ST
<PAGE>
USAA LIFE INSURANCE COMPANY
ACCIDENTAL DEATH BENEFIT RIDER
-----------------------------------------------------------------------------
RIDER AGREEMENT
-----------------------------------------------------------------------------
USAA LIFE INSURANCE COMPANY, for consideration received, shall pay the
applicable accidental death benefit, subject to the conditions and limitations
below. This rider is issued in consideration of the application for the rider
and the future payment of the additional cost of insurance for this rider. The
application is attached to and made part of this rider.
-----------------------------------------------------------------------------
RIDER BENEFITS AND EXCLUSIONS
-----------------------------------------------------------------------------
The amount of accidental death benefit is the amount selected by the applicant
and approved by the Company. The company will pay this amount to the
beneficiary upon receipt of due proof that:
1. The death of the Insured resulted directly and independently of
all other causes from bodily injury effected solely through
external, violent, and accidental means as evidenced by a visible
contusion or wound on the exterior of the body (except in case of
drowning or internal injuries revealed by an autopsy); and
2. Death occurred within 90 days of such injury; and
3. Death occurred while the policy and this rider were in force; and
4. Coverage was not excluded under the "Exceptions and Exclusions"
provision below.
BENEFICIARY
Unless otherwise directed in writing this benefit will be paid:
1. To the beneficiary under the policy; and
2. In the same manner as the proceeds of the policy.
EXCEPTIONS AND EXCLUSIONS
This accidental death benefit will not be paid if the Insured's death results
directly or indirectly from, or is contributed to, by any of the following
causes:
1. Intentionally self-inflicted injury or suicide, while sane or
insane; or
2. Bodily or mental infirmity, illness or disease, or medical or
surgical treatment therefor; or
3. Any infection not occurring as a direct consequence of an
accidental bodily injury; or
4. War (declared or not), or any act or incident thereto, while the
Insured is in the armed forces; or
5. Participation in or commission of a felony or an assault; or
6. Participation in a riot; or
7. The unprescribed use of drugs or narcotics; or
8. Travel or flight in or descent from or with any aircraft UNLESS
the Insured is a passenger with no flight duties; or
9. Travel or flight in or descent from or with any spacecraft or
space vehicle of any type.
VUL31839ST 2-98 ULife 31839-0298
----------
VUL302ST
<PAGE>
-----------------------------------------------------------------------------
GENERAL PROVISIONS
-----------------------------------------------------------------------------
COST OF INSURANCE
The cost of insurance for this rider is in addition to the cost of insurance
for the policy and is due on the same date. The cost of insurance for this
rider will be payable until the Expiration Date of this rider unless the death
of the Insured occurs prior to that time. In such event, no further payment is
due.
REINSTATEMENT
This rider may be reinstated under the same terms and conditions as the policy
to which it is attached. The insured must be living on the date the rider is
reinstated.
WAIVER OF MONTHLY DEDUCTION
If the policy provides for the Waiver of Monthly Deduction benefit, such
benefit will also apply to this rider. Otherwise, no such benefit exists under
this rider.
POLICY PROVISIONS
This rider is attached to and is part of the policy. The terms and conditions
of the policy apply to this rider. Where such terms and conditions are
inconsistent, the rider prevails with respect to rider benefits. The policy,
any riders, and the application(s) form the entire contract.
INCONTESTABILITY
The Company will not contest this rider for any reason, other than nonpayment
of the cost therefor or fraud after it has been in force for two years during
the lifetime of the Insured. For any increase in coverage under this rider,
such two-year period begins on the Effective Date of the increase.
MISSTATEMENT OF AGE
If the age of the Insured was not correctly stated when this rider was issued,
the Company will adjust the benefits to the correct amount at the time of
death of the insured. This means that the benefits of this rider will be
changed to that which the premium would have purchased at the correct age.
CHANGE IN COVERAGE
Anytime after the Effective Date of this rider, the amount of the accidental
death benefit may be changed. Any change will be subject to the following
conditions:
1. A written request must be submitted to the Company;
2. The new amount may not exceed the current death benefit of the
policy; and
3. For any increase, an application and evidence of insurability
satisfactory to the Company must be submitted.
DIVIDENDS
This rider will not share in any of the Company's profits or surplus earnings.
VALUES
This rider has no cash value, surrender value, or loan value.
AUTOPSY
Unless prohibited by law, the Company shall have the right to examine the body
and make an autopsy at the Company's expense.
VUL31839ST 2-98 ULife 31839-0298
----------
VUL302ST
<PAGE>
-----------------------------------------------------------------------------
TERMINATION OF RIDER
-----------------------------------------------------------------------------
This rider will terminate on the earliest of:
1. The policy anniversary date after the Insured's 70th birthday; or
2. The rider's Monthly Anniversary date after a written request for
termination is received by the Company; or
3. The date the policy otherwise terminates.
-----------------------------------------------------------------------------
EFFECTIVE DATE
-----------------------------------------------------------------------------
The Effective Date of this rider will be:
1. The Effective Date of the policy, unless a later date is shown
below; or
2. The date of any approved increase in the accidental death benefit
amount; or
3. The Monthly Anniversary date after written request to decrease
benefits is received by the Company.
This rider is issued and attached to the policy by USAA Life Insurance
Company, San Antonio, Texas.
Effective Date of this rider if other than effective date of policy:
_____________.
/s/ EDWIN L. ROSANE
-------------------
Edwin L. Rosane - President
VUL31839ST 2-98 ULife 31839-0298
----------
VUL302ST
<PAGE>
USAA LIFE INSURANCE COMPANY
CHILDREN TERM LIFE INSURANCE RIDER
-----------------------------------------------------------------------------
RIDER AGREEMENT
-----------------------------------------------------------------------------
USAA LIFE INSURANCE COMPANY, for consideration received, will provide level
term life insurance on any Insured Child and shall pay the amount of life
insurance, subject to the conditions and limitations below. This rider is
issued in consideration of the application and the future deduction of cost
for this rider.
-----------------------------------------------------------------------------
DEFINITIONS
-----------------------------------------------------------------------------
For purposes of this rider, the following definitions apply:
1) The Insured is the person insured under the policy to which this
rider is attached.
2) An Insured Child is:
a) Any child, stepchild, or legally adopted child of the
Insured, provided such individual is listed in the
application for this rider, and also provided that the child
is under 18 years of age at the time of application;
b) Any child subsequently born of the marriage of the Insured,
provided the child is born alive;
c) Any child subsequently adopted by the Insured, provided the
child is under 18 years of age at the time of adoption.
3) The Expiration Date is the rider anniversary following the
Insured's 70th birthday, or the rider anniversary following the
youngest Insured Child's 25th birthday, whichever is earlier.
-----------------------------------------------------------------------------
BENEFITS
-----------------------------------------------------------------------------
USAA LIFE INSURANCE COMPANY will provide the following benefits upon receipt
of due proof that death occurred while this rider is in force.
BENEFIT A. ON DEATH OF AN INSURED CHILD
If any Insured Child dies during the first 13 days of life, we will pay the
sum of $2,000.00. This benefit is not payable for a stillbirth or a fetus that
is aborted.
If an Insured Child dies on the 14th day of life or later, and during the term
of this insurance, we will pay the Amount of Insurance that has been selected
and approved.
We will pay the benefit to:
1) The Insured, if living; otherwise
2) The estate of the Insured Child; or
3) As otherwise stated in the application.
BENEFIT B. ON DEATH OF INSURED
Upon death of the Insured, coverage will continue as paid-up level term life
insurance on any living Insured Child until the rider anniversary following
the child's 25th birthday. This paid-up term life insurance may be converted
as provided in this rider.
The paid-up term life insurance provided under this benefit will have cash
value. If this insurance is surrendered, we will pay the cash value. The cash
value is equal to the Net Single Premium for the paid-up insurance.
Calculations are based on the Commissioner's 1980 Standard Ordinary Mortality
Table with interest at 4-1/2% per year. The cash value of the paid-up term
insurance, on the rider anniversary and 30 days thereafter, will not be less
than the present value (on the anniversary) of the future benefits provided by
the rider.
VUL31838ST 2-98 ULife 31838-0298
----------
VUL301ST
<PAGE>
-----------------------------------------------------------------------------
TERM OF INSURANCE
-----------------------------------------------------------------------------
The insurance on an Insured Child will end on the rider anniversary following
the child's 25th birthday.
-----------------------------------------------------------------------------
PREMIUM PROVISIONS
-----------------------------------------------------------------------------
COST FOR RIDER
Thecost for this rider is in addition to the cost for the policy. The cost for
this rider will be deducted from the cash value of the policy on the same
dates as the monthly deduction for the policy. The cost for the rider will be
deducted until the Expiration Date of the rider unless the death of the
Insured occurs prior to that time. In such event, no further cost for this
rider is due.
REINSTATEMENT
This rider may be reinstated under the same terms and conditions as the policy
to which it is attached. All persons to whom the reinstated coverage applies
must be living on the date the rider is reinstated.
WAIVER OF MONTHLY DEDUCTION
If the policy provides for a Waiver of Monthly Deduction Benefit, it will also
apply to this rider. Otherwise, no such benefit exists under this rider.
-----------------------------------------------------------------------------
GENERAL PROVISIONS
-----------------------------------------------------------------------------
POLICY PROVISIONS
The terms and conditions of the policy apply to the rider. Where the terms or
conditions of the policy are inconsistent with those of the rider, the rider
prevails. The policy, the rider, and the applications(s) form the entire
contract.
INCONTESTABILITY
The Company will not contest this rider for any reason other than for
non-payment of the cost for it or fraud after it has been in force for two
years during the lifetime of any child named in the original application who
is insured by this rider.
SUICIDE EXCLUSION
If the Insured, while sane or insane, commits suicide during the first two
years the rider is in force, the only benefit payable will be an amount equal
to the total cost for the rider deducted prior to the date of death. The
two-year period begins on the Effective Date of the rider. An Insured Child
may immediately apply for conversion.
DIVIDENDS
This rider is non-participating and will not share in any of the Company's
profits or surplus earnings.
VALUES
This rider has no cash value, surrender value, or loan value except as
provided under Benefit B.
VUL31838ST 2-98 ULife 31838-0298
----------
VUL301ST
<PAGE>
-----------------------------------------------------------------------------
CONVERSION PRIVILEGE
-----------------------------------------------------------------------------
The term insurance on the life of any Insured Child may be converted to any
form of permanent life insurance that we write. We will not require proof of
insurability to convert. The amount of insurance under the new policy must be
at least the minimum amount we require for the plan chosen and may be up to
four times the amount of insurance on an Insured Child under this Rider. The
amount of insurance may not, however, exceed a combined total of $100,000
under all policies issued by USAA LIFE INSURANCE COMPANY pursuant to any rider
conversion privilege.
An application to convert the term insurance on the life of any Insured Child
may only be made during the 60-day period immediately preceding:
1) The rider anniversary following an Insured Child's 25th birthday;
or
2) The rider anniversary following the Insured's 70th birthday;
whichever occurs first. Application to convert may be made only within this
60-day period.
The new policy will be issued in the same mortality risk class as the
insurance being converted. The premium charged will be our published rate for
the person to be insured as of the date of conversion. Only the amount of term
insurance on an Insured Child under this Rider will be converted without proof
of insurability. Any additional insurance benefits requested to be part of the
new policy must be applied for and receive our underwriting approval.
The requirements to convert are:
1) Written application from the person to be insured; and
2) Payment of the first premium for the new policy.
For conversion to be effective, we must receive these requirements during the
lifetime of the person to be insured and before the date the insurance being
converted will terminate.
-----------------------------------------------------------------------------
TERMINATION OF RIDER
-----------------------------------------------------------------------------
Except as provided in Benefit B., this rider will terminate on the earliest
of:
1) The rider anniversary following the Insured's 70th birthday; or
2) The rider anniversary following the youngest Insured Child's 25th
birthday; or
3) The expiration of the Grace Period for unpaid cost for this rider
or the policy; or
4) The date the policy is surrendered or otherwise terminated.
This rider is issued and attached to the policy by USAA Life Insurance
Company, San Antonio, Texas.
Effective Date of this rider if other than effective date of policy:
____________________.
/s/ EDWIN L. ROSANE
-------------------
Edwin L. Rosane - President
VUL31838ST 2-98 ULife 31838-0298
----------
VUL301ST
<PAGE>
USAA LIFE INSURANCE COMPANY
EXTENDED MATURITY DATE RIDER
-----------------------------------------------------------------------------
RIDER AGREEMENT
-----------------------------------------------------------------------------
The policy is issued to mature on the Monthly Anniversary, as defined in the
policy, following the Insured's 100th birthday. Prior to the policy's Maturity
Date, the Owner may request an extension of the policy's Maturity Date. An
extension of the policy's Maturity Date is subject to the conditions stated in
this rider. If the policy is extended beyond its original Maturity Date, the
Owner is responsible for any and all federal income tax consequences.
-----------------------------------------------------------------------------
CONDITIONS
-----------------------------------------------------------------------------
The Maturity Date may be extended subject to these conditions:
1) The policy and this rider must be in force on the scheduled
Maturity Date;
2) The Owner must request an extension in writing and the written
request must be received at our Home Office;
3) We must approve the extension of the Maturity Date;
4) Any assignee of record must agree in writing to the extension of
the Maturity Date;
5) The new Maturity Date will be the date you request, but not longer
than ten years from the scheduled Maturity Date.
If any of the above conditions are not met, the policy will be deemed to have
terminated on the scheduled Maturity Date.
After the scheduled Maturity Date:
1) The Death Benefit will be reduced to the policy's cash value less
any outstanding loan and any unpaid loan interest.
2) The cash value will continue to accrue in the same manner as
described in the policy;
3) Any policy loans in effect on the Maturity Date will continue to
accrue interest;
4) We will not deduct future cost of insurance charges;
5) We will not accept any additional premium payments.
-----------------------------------------------------------------------------
GENERAL PROVISIONS
-----------------------------------------------------------------------------
This rider is attached to and is part of the policy. The terms and conditions
of the policy apply to this rider except where they are inconsistent with this
rider. Where the terms and conditions are inconsistent, the rider prevails.
The rider is issued and attached to the policy by USAA Life Insurance Company,
San Antonio, Texas.
Effective Date of this rider if other than effective date of policy: _________.
/s/ EDWIN L. ROSANE
-------------------
Edwin L. Rosane - President
VUL31852ST 2-98 ULife 31852-0298
----------
VUL303ST
<PAGE>
USAA LIFE INSURANCE COMPANY
RIDER PROVIDING FOR WAIVER OF MONTHLY DEDUCTION
IN EVENT OF TOTAL PERMANENT DISABILITY
-----------------------------------------------------------------------------
RIDER AGREEMENT
-----------------------------------------------------------------------------
USAA LIFE INSURANCE COMPANY, for consideration received, will waive the
Monthly Deduction for the policy and any attached riders, as provided. While
this rider is in force, we will waive the Monthly Deduction that becomes due
after the beginning of, and during the continuance of, the total and permanent
disability of the Insured only if the Insured has been totally and permanently
disabled as defined in this rider for at least six consecutive months. The
amount of any Monthly Deduction waived under this rider will not be deducted
from the Death Benefit at the time of settlement of the policy.
-----------------------------------------------------------------------------
DEFINITION OF TOTAL AND PERMANENT DISABILITY
-----------------------------------------------------------------------------
Total and permanent disability, for purposes of this rider, means:
1. That it is due solely to sickness or injury, and begins prior to
the Insured's attaining age 60; and
2. That it is caused by a sickness or injury that first manifests
itself while this rider is in force; and
3. For the first two years, that the Insured is unable to perform the
substantial duties of his or her occupation and is not engaged in
any occupation for remuneration or profit; and
4. Thereafter, that the Insured is unable to engage for remuneration
or profit in any occupation for which the Insured is or becomes
qualified by reason of education, training, or experience.
-----------------------------------------------------------------------------
PRESUMPTION OF DISABILITY
-----------------------------------------------------------------------------
Regardless of any other cause of disability, the following will be considered
total and permanent disability under the terms of this rider:
1. The entire and irrecoverable loss of sight of both eyes;
2. The loss by severance of both feet at or above the ankles or both
hands at or above the wrists; or
3. The loss by severance of one entire hand and one entire foot, as
defined above.
-----------------------------------------------------------------------------
REFUND OF COST OF INSURANCE
-----------------------------------------------------------------------------
Any Monthly Deduction that is due during total and permanent disability before
the Company's approval of a claim must be paid when due. Upon approval of the
claim, the Company will refund the Monthly Deductions since the inception of
the disability. In no event will more than two years of Monthly Deductions be
refunded.
-----------------------------------------------------------------------------
EXCLUSIONS
-----------------------------------------------------------------------------
No benefit will be provided if total and permanent disability results from:
1. Intentionally self-inflicted injury including but not limited to
the intentional use of illicit drugs; or
2. Warfare, declared or undeclared, or any act incident thereto while
the Insured is in the military; or
3. The Insured's participating in or committing a felony or an
assault or being incarcerated in a penal institution or
governmental detention facility; or
4. A disability of less than six months' duration.
VUL31837ST 2-98 ULife 31837-0298
----------
VUL300ST
<PAGE>
-----------------------------------------------------------------------------
NOTICE OF AND PROOF OF CLAIM
-----------------------------------------------------------------------------
Before any Monthly Deduction is waived, notice of claim and due proof of the
total and permanent disability of the Insured must be presented to our Home
Office. The claim must be presented while the Insured is living and still
totally and permanently disabled.
A claim under this rider will not be denied because of failure to comply with
the above if:
1. It is shown that it was not reasonably possible to comply; and
2. Notice and due proof was provided as soon as it was reasonably
possible.
Before any claim for benefits is approved or continued, we reserve the right
to have the Insured examined at our expense by one or more physicians of our
choice when and as often as we may reasonably require.
-----------------------------------------------------------------------------
PROOF OF CONTINUANCE OF DISABILITY AND RECOVERY FROM DISABILITY
-----------------------------------------------------------------------------
During the first two years of total and permanent disability, proof of the
Insured's continued total and permanent disability and the Insured's
employment status must be furnished whenever the Company requests. After two
years, we will not request such proof more often than once a year. The Company
has the right to receive various records, including but not limited to:
financial records of the Insured such as federal tax returns, income
statements, audit reports, payroll records and other similar documents to
substantiate a claim.
The Owner and the Insured must cooperate with the Company in the investigation
of a claim. The Company may also request the Insured to submit to an interview
under oath during the time of a claim and require the Insured to sign it.
Should we decide to do this, we will pay for the cost of the interview.
Disability will be considered terminated if:
1. Proof of the Insured's continued total and permanent disability is
not provided; or
2. The Insured recovers and is no longer totally and permanently
disabled; or
3. The Insured fails to cooperate in the investigation of his or her
claim.
If total and permanent disability is considered terminated, all Monthly
Deductions that become due thereafter must be paid as provided in the policy.
The Owner must notify the Company within 30 days if the Insured recovers from
total and permanent disability. The Company may cancel this rider and is
entitled to the payment of Monthly Deductions that havebeen waived if it
determines that the Insured has recovered from total and permanent disability
and the Company has not been notified as required.
-----------------------------------------------------------------------------
DEATH BENEFIT OPTION CHANGE
-----------------------------------------------------------------------------
When the Company approves a claim under this rider, if Death Benefit Option A
is in effect under this policy on the date the disability began, it will be
changed to Death Benefit Option B as of the Monthly Anniversary after the
disability began. The Specified Amount will be equal to the amount of life
insurance at risk to the Company on the date the disability began.
-----------------------------------------------------------------------------
GENERAL RIDER PROVISIONS
-----------------------------------------------------------------------------
CONSIDERATION
The consideration for issuing this rider is:
1. Completion of the application; and
2. Payment of the additional cost of insurance for this rider as
shown on the Policy Information Page of the policy.
VUL31837ST 2-98 ULife 31837-0298
----------
VUL300ST
<PAGE>
The Cost of Insurance for this rider and the period of time it must be paid is
shown on the Policy Information Page. Cost of Insurance for this rider is
payable in addition to the cost of insurance for the policy and is due on the
same date.
Cost of Insurance for this rider stops when the rider terminates. If we accept
a payment for a period of time beyond the termination date of the rider, the
rider still terminates in accordance with the provision of the rider and any
unearned payment will be refunded.
POLICY PROVISIONS
The terms and conditions of the policy, except the Incontestability provision,
apply to the rider. However, where the terms or conditions of the policy are
inconsistent with those of the rider, the terms of the rider prevail.
INCONTESTABILITY
The Company will not contest this rider for any reason other than fraud or
nonpayment of premiums, after it has been in force during the Insured's
lifetime for two years with no occurrence of disability of the Insured. The
two-year period begins on the Effective Date of the rider.
NO NON FORFEITURE VALUES
This rider has no loan, cash value, non-forfeiture or guaranteed values.
TERMINATION
This rider will terminate on the earliest of:
1) The Monthly Anniversary following the Insured's 60th birthday; or
2) Expiration of the Grace Period for the policy; or
3) The date the policy is surrendered; or
4) The next Monthly Anniversary following written request from the
Owner to terminate the rider; or
5) The date the policy otherwise terminates.
The rider is issued and attached to the policy by USAA Life Insurance Company,
San Antonio, Texas.
Effective Date of this rider if other than effective date of policy: ________.
/s/ EDWIN L. ROSANE
-------------------
Edwin L. Rosane - President
VUL31837ST 2-98 ULife CON-NBR 31837-0298
----------
VUL300ST
EXHIBIT 1.(6)(a)
FORM A-119
STATE OF TEXAS
STATE BOARD OF INSURANCE
No. 2487 [Seal of State of Texas appears here]
IT IS HEREBY CERTIFIED That the instrument which is hereunto attached is
a true, full and correct copy of
Original Articles of Incorporation of USAA LIFE INSURANCE COMPANY, San
Antonio, Texas, as filed in the State Board of Insurance on June 26,
1963, together with Official Order No. 13863 of the Commissioner of
Insurance, consisting of six (6) pages
now on file in and forming a part of the records of the State Board of
Insurance. IN WITNESS WHEREOF, I hereunto subscribe my name and affix
the Seal of the State Board of Insurance, in the City of Austin, State
of Texas, this
26th day of June, 1963.
[Seal of State Board of
Insurance appears here]
/s/ WILLIAM A. HARRISON
-----------------------
COMMISSIONER OF INSURANCE
By______________________________
<PAGE>
[Attorney General of Texas letterhead appears here]
Austin, June 25, 1963
CERTIFICATE
I hereby certify that the attached Original Articles of Incorporation of
USAA LIFE INSURANCE COMPANY together with all supporting documents, which were
heretofore approved by the order of the Commissioner of Insurance dated June
24, 1963, were submitted on the 24th day of June 1963 and, being examined only
as to formal compliance with the Constitution and laws of the State of Texas
and not as to solvency or financial condition, is in this respect in
conformity with the law of Texas.
/s/ WAGGONER CARR
-----------------
Waggoner Carr
Attorney General
[Seal appears here]
Filed with State Board of In-
surance of the State of
Texas This 26th
Day of June, 1963
Commissioner of Insurance
<PAGE>
ARTICLES OF INCORPORATION
OF
USAA LIFE INSURANCE COMPANY
We, the undersigned natural persons of the age of twenty-one years or
more, all of whom are citizens of the State of Texas, do hereby associate
ourselves for the purpose of forming a life, health and accident insurance
company pursuant to Chapter 3 of the Insurance Code of Texas, 1951, as
amended, and in furtherance of such purpose, do hereby adopt the following
Articles of Incorporation:
Article One.
The name of the corporation is USAA LIFE INSURANCE COMPANY.
Article Two.
The period of time for which the corporation is to exist shall be five
hundred years.
Article Three.
The purpose for which the corporation is organized is to transact a
life, health and accident insurance business as now or as hereafter permitted
by law.
Article Four.
The aggregate number of shares which the corporation shall have
authority to issue is twenty thousand (20,000) with a par value of One Hundred
($100.00) Dollars each, amounting in the aggregate to Two Million ($2, 000,
000.00) Dollars; of such aggregate amount not less than ten thousand (10, 000)
shares with a par value of One Hundred ($100.00) Dollars each, amounting to
One Million ($1, 000, 000.00) Dollars, have been subscribed and fully paid.
Article Five.
The location of the Home Office of the Company is in San Antonio, Bexar
County, Texas.
Article Six.
The number of directors constituting the initial Board of Directors is
thirteen, and the names and addresses of the persons who are to serve as
directors until the first annual meeting of the shareholders or until their
-1-
<PAGE>
successors are elected and qualified are:
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
Lt. Col. Don H. Blanchard, USMC 431 Laramie Drive, San Antonio, Texas.
RADM Frank A. Brandley Naval Air Station, Corpus Christi, Tex.
Lt. Gen. James A. Briggs, USAF 1 Main Circle, Randolph AFB, Texas.
Col. Charles E. Cheever, USA-Ret. 4119 Broadway, San Antonio. Texas.
Maj. Gen. Elbert DeCoursey, USA-Ret. 114 W. Brandon Dr., San Antonio, Texas.
Capt. John L. Hatch, MC-USN Qtrs. A, U.S Navel Hosp., Corpus Christi,
Texas.
Maj. Gen. W. T. Hudnell, USAF 108 Robbins Dr., San Antonio, Texas.
Brig. Gen. Walter A. Jensen, USA 11 Staff Post Road, Ft. Sam Houston, Tex.
Maj. Gen. John H. McCormick, USAF-Ret. 315 Northridge Dr., San Antonio, Texas.
Col. John E. Pluenneke, USAF-Ret. 3127 S. Valley View, San Antonio, Texas.
Brig. Gen. George M. Powell, MC-USA 167 Artillery Post, Ft. Sam Houston, Tex.
Maj. Gen. James L. Snyder, MC-USA 139 Medford Drive, San Antonio, Texas.
Maj. Gen. Prescott M. Spicer, USAF 100 Yount Circle, Lackland AFB, Texas.
</TABLE>
No director of the corporation shall qualify as such unless he shall be
a stockholder. At elections of directors, each share of stock entitled to vote
shall constitute only one vote, and multiplication of votes by the number of
directors to be elected, or cumulative voting, expressly is prohibited. The
by-laws of the Company shall prescribe the number of directors, which shall be
thirteen, which number may be increased or decreased from time to time by
amendment of the by-laws of the Company.
Article Seven.
The names and addresses of the incorporators are:
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
Colonel Charles E. Cheever 4119 Broadway, San Antonio, Texas.
Colonel Carlton G. Schenken 4119 Broadway, San Antonio, Texas.
Colonel Amel T. Leonard 4119 Broadway, San Antonio, Texas.
</TABLE>
-2-
<PAGE>
Article Eight
The Company reserves the right to amend, alter or repeal any provision
contained in these Articles of Incorporation in the manner now or hereafter
provided by law.
IN WITNESS WHEREOF, we have hereunto set our hands this the 24th day of
April, A. D., 1963.
/s/ CHARLES E. CHEEVER
----------------------
/s/ CARLTON G. SCHENKEN
-----------------------
/s/ AMEL T. LEONARD
-------------------
STATE OF TEXAS I
COUNTY OF BEXAR I
I, Mary B. Grossenbacher, a notary public, do hereby certify that on
this 24th day of April 1963, personally appeared before me Colonel Charles E.
Cheever, Colonel Carlton G. Schenken and Colonel Amel T. Leorard, who each
being by me first duly sworn, severally declared that they are the persons who
signed the foregoing document as incorporators, and that the statements
contained therein are true and correct.
/s/ MARY B. GROSSENBACHER
-------------------------
Notary Public, Bexar County, Texas
Mary B. Grossenbacher
My commission expires
June 1, 1963.
<PAGE>
No. 13863
OFFICIAL ORDER
of the
COMMISSIONER OF INSURANCE
of the
STATE OF TEXAS
AUSTIN, TEXAS
Date JUN 24, 1963
Subject Considered:
USAA LIFE INSURANCE COMPANY
San Antonio, Texas
ORIGINAL INCORPORATION
General remarks and official action taken:
On this day, came on for consideration by the Commissioner of Insurance,
the application of Colonel Charles E. Cheever, Colonel Carlton G.
Schenken and Colonel Amel T. Leonard for approval of the Incorporation
of USAA LIFE INSURANCE COMPANY, San Antonio, Texas.
A public hearing on the application was held before the Commissioner of
Insurance on June 24, 1963, at 10:00 A.M., in the offices of the State
Board of Insurance, 1110 San Jacinto, Austin, Texas, at which hearing
Colonel Charles E. Cheever and Colonel Carlton G. Schenken,
incorporators, and Joe S. Moore, attorney, appeared and gave evidence
and testimony in support of the application.
At such hearing, evidence was presented that all of the incorporators
are adult residents of the State of Texas; that the proposed location of
the insurance company will be in San Antonio, Bexar County, Texas; that
notice of the hearing was published in a newspaper of general
circulation in Bexar County, Texas, ten (10) days in advance of the
hearing; that the company proposes to conduct a life, health and
accident insurance business; that the proposed capital will be TWO
MILLION DOLLARS ($2,000,000) divided into Twenty Thousand (20,000)
shares of stock of the par value of ONE HUNDRED DOLLARS ($100) per
share, and that the company will be possessed of paid in surplus in the
amount of ONE MILLION DOLLARS ($1,000,000); that not less than fifty
percent (50%) of the authorized capital stock has been subscribed in
good faith and fully paid for; that the capital and surplus is the bona
fide property of such company, and has been paid into the company; and
that SIXTY-ONE THOUSAND TWO HUNDRED FIFTY-FIVE DOLLARS AND FIFTY-FOUR
CENTS ($61,255.54) of such capital and surplus is cash on deposit with
the Frost National Bank, San Antonio, Texas, and that the remainder of
such capital and surplus is in the form of securities authorized by
Article 3.02 of the Texas Insurance Code and is in the hands of the
incorporators.
From the evidence and testimony presented at such hearing, it appears to
the Commissioner that: (1) the minimum capital and surplus, as required
by law, is the bona fide property of the company; (2) the proposed
officers, directors and managing executives have sufficient insurance
experience, ability and standing to render success of the proposed
company probable; and (3) the applicants are acting in good faith.
<PAGE>
Commissioner's Order -2- Usaa Life
THEREFORE, premises considered, the Commissioner of Insurance hereby approves
the application and directs that the original Articles of Incorporation of
USAA LIFE INSURANCE COMPANY, San Antonio, Texas, be forwarded, in accordance
with Article 3.04 of the Texas Insurance Code, to the Attorney General of this
State for his approval. Upon approval by the Attorney General of the
application, Articles of Incorporation, the affidavit and the procedure and
action thereon, and upon compliance by the company with the procedures set
forth in Article 3.04 and Article 3.06 of the Texas Insurance Code, a full and
thorough examination of the company will be conducted. Certificate of
Authority to transact business shall be issued only after further order by the
Commissioner of Insurance, after examination of the company.
/s/ WILLIAM A. HARRISON
-----------------------
William A. Harrison
COMMISSIONER OF INSURANCE
Prepared by:
/s/ CLAY COTTEN
---------------
Clay Cotten
Legal Counsel
<PAGE>
CONTROL NO. YM910217
STATE BOARD OF INSURANCE
STATE OF TEXAS
[Seal of State of Texas appears here]
As the chief executive and administrative officer of the State Board of
Insurance, the Commissioner of Insurance is the official custodian of the
records of the agency. TEX. INS. CODE ANN. art. 1.09a, TEXAS OPEN RECORDS ACT
TEX. REV. CIV. STAT. ANN. art. 6252-17a ss.5(a). Pursuant to the power vested
in the Commissioner under article 1.09(g), the Commissioner authorizes such
deputies as are necessary to carry out the provisions of the Open Records Act.
As a duly authorized representative of the Commissioner of Insurance, I hereby
certify that the hereunto attached document is a true, complete and correct
copy of:
THE AMENDMENT TO THE ARTICLES OF INCORPORATION OF USAA LIFF INSURANCE COMPANY,
SAN ANTONIO, TEXAS, AND COMMISSIONER'S ORDER NO. 90-1939, DATED DECEMBER 7,
1990, ALTOGETHER CONSISTING OF FIVE (5) PAGES.
Be it known that the official records of the State Board of Insurance contain
a copy of aforesaid instrument.
WITNESS MY HAND, and the seal of the Texas State Board of Insurance, this 14th
day of December, 1990
A.W. POGUE
COMMISSIONER OF INSURANCE
BY: /s/ BEVERLY MCVEY
-----------------
<PAGE>
No. 90-1939
OFFICIAL ORDER
OF THE
COMMISSIONER OF INSURANCE
OF THE
STATE OF TEXAS
AUSTIN, TEXAS
Date DEC 07, 1990
Subject Considered:
USAA LIFE INSURANCE COMPANY
San Antonio, Texas
CHARTER AMENDMENT
Docket No. 11030
General remarks and official action taken:
On this day came on for consideration by the Commissioners of Insurance,
pursuant to TEX. INS. CODE arts. 3.04 and 3.05 and TEX. BUS. CORP. ACT
arts. 4.02, 4.04 and 9.10, the application of USAA LIFE INSURANCE
COMPANY, San Antonio, Texas, for the approval of amendment to its
charter increasing the authorized capital.
On November 21, 1990, a public hearing concerning the charter amendment
proposed by application was held before Will McCann, Hearings Officer,
in the offices of the State Board of Insurance, 1110 San Jacinto,
Austin, Texas. The Commissioner's staff was represented by Ira M.
Goodrich, Staff Attorney. The applicant was represented by Will D.
Davis, Attorney, and Richard Halinski, Assistant Vice President and
Assistant Secretary, USAA LIFE INSURANCE COMPANY. Evidence in the form
of exhibits and testimony was presented at the hearing. The hearing was
recessed and reconvened on November 27, 1990, at which time the hearing
was closed.
JURISDICTION
The Commissioner of Insurance has jurisdiction over the application of
USAA LIFE INSURANCE COMPANY pursuant to TEX. INS. CODE arts. 3.04 and
3.05 and TEX. BUS. CORP. ACT arts. 4.02, 4.04 and 9.10. The notice of
hearing, dated November 6, 1990, was properly addressed and sent by
certified mail, return receipt requested, to the applicant, pursuant to
TEX. REV. CIV. STAT. art. 6252-13a ss.13. The notice of hearing
contained a statement of the time, place and nature of the hearing, and
a statement of the matters asserted and of the legal authority and
jurisdiction under which the hearing was to be held.
<PAGE>
90-1939
COMMISSIONER'S ORDER
USAA LIFE INSURANCE COMPANY
PAGE 2 OF 3
FINDINGS OF FACT
Based upon the evidence presented at the hearing and the recommendation
of the Hearings Officer, the Commissioner of Insurance makes the
following findings of fact:
1. USAA LIFE INSURANCE COMPANY, San Antonio, Texas, is a domestic
stock life insurance company engaged in the business of insurance
pursuant to the provisions of Chapter 3 of the Insurance Code.
2. Action by the Board of Directors and the shareholder of USAA LIFE
INSURANCE COMPANY authorizing the proposed amendment as required
and permitted by TEX. INS. CODE arts. 3.04 and 3.05 and TEX. BUS.
CORP. ACT arts. 4.02, 4.04 and 9.10 has been evidenced to the
Commissioner of Insurance.
3. As a result of the amendment to Article IV of the Articles of
Incorporation, USAA LIFE INSURANCE COMPANY added a provision
authorizing the issuance of 200,000 shares of preferred stock with
a par value of $100.00 per share.
4. As a result of the amendment to Article IV of the Articles of
Incorporation, USAA LIFE INSURANCE COMPANY will increase its
authorized capital from $3,000,000.00 divided into 30,000 shares
of common stock with a par value of $100.00 per share to
$23,000,000.00 divided into 30,000 shares of common stock with a
par value of $100.00 per share and 200,000 of preferred stock with
a par value of $100.00 per share. The stated capital will increase
from $2,500,000.00 to $12,500,000.00 and will be effected by the
purchase of 100,000 shares of preferred stock by USAA FUNDING
COMPANY, an affiliate.
5. Upon approval of the charter amendment, 25,000 shares of common
stock and 100,000 of preferred stock representing more than 50% of
the authorized capital stock will be issued and outstanding.
6. The proposed capital and surplus of USAA LIFE INSURANCE COMPANY is
equal to or exceeds the minimum requirements of capital and
surplus provided in the Insurance Code for a Chapter 3 company,
and is the bona fide, unconditional and unencumbered property of
the company.
7. Testimony indicates that the officers, directors and managing
executives of USAA LIFE INSURANCE COMPANY possess sufficient
insurance experience, ability and standing to render the continued
success of the company probable.
8. Testimony indicates that USAA LIFE INSURANCE COMPANY is acting in
good faith.
<PAGE>
90-1939
COMMISSIONER'S ORDER
USAALIFE INSURANCE COMPANY
PAGE 3 OF 3
CONCLUSION OF LAW
Based upon the foregoing findings of fact, the Commissioner of Insurance
makes the following conclusion of law:
The proposed amendment to the charter of USAA LIFE INSURANCE
COMPANY, San Antonio, Texas, has been evidenced to the
Commissioner of Insurance, is properly supported by the required
documents and meets all the requirements of law for its approval.
IT IS, THEREFORE, THE ORDER of the Commissioner of Insurance that the
charter amendment of USAA LIFE INSURANCE COMPANY, San Antonio, Texas,
increasing its authorized capital from $3,000,000.00 to $23,000,000.00
be, and the same is hereby, approved.
/s/ A. W. POGUE
---------------
A. W. Pogue
COMMISSIONER OF INSURANCE
RECOMMENDED BY:
/S/ WILL MCCANN
- ---------------
Will McCann
HEARINGS OFFICER
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF USAA LIFE INSURANCE COMPANY ("USAA LIFE")
Pursuant to the provisions of Article 3.05 of the Texas Insurance Code and
Article 4.04 of the Texas Business Corporation Act, the undersigned
corporation adopts the following Amendment to its Articles of Incorporation.
ARTICLE I
The name of the corporation is USAA Life Insurance Company.
ARTICLE II
The following amendment to Article IV of the Articles of Incorporation was
adopted by the shareholders of the corporation on October 31, 1990.
The Amendment is in addition to the original and amended Article IV of the
Articles of Incorporation and the full text of the provision added is as
follows:
The aggregate number of shares of preferred stock which USAA Life
Insurance Company has the authority to issue is two hundred thousand
(200,000) shares of preferred stock with a par value of one hundred
dollars ($100.00) per share. The preferred shares authorized by this
Amendment to the Articles of Incorporation shall be issued from time to
time in series. The first series shall be designated Preferred Stock,
Series A of USAA Life Insurance Company. Authority to issue additional
series of such authorized preferred stock and the terms of such series
shall be determined by the Board of Directors at its discretion.
ARTICLE III
The number of common shares of the corporation issued and outstanding at the
time of such adoption was twenty-five thousand (25,000); and the number of
shares entitled to vote thereon was twenty-five thousand (25,000). The number
of shares voted for such Amendment was twenty-five thousand (25,000); and the
number of shares voted against such Amendment was NONE.
ARTICLE IV
The holder of all the shares outstanding and entitled to vote on said
Amendment has signed a consent in writing adopting said Amendment.
<PAGE>
ARTICLE V
The proposed Amendment to Article IV of the Articles of Incorporation and the
subsequent issuance of Preferred Stock will increase the stated capital of
USAA Life Insurance Company from two million and five hundred thousand
($2,500,000.00) dollars to twelve million and five hundred thousand
($12,500,000.00) dollars. The increase is the result of the issuance and
proposed sale of one hundred thousand (100,000) shares of Preferred Stock,
Series A, one hundred ($100.00) dollars par value. This represents fifty (50%)
percent of the two hundred (200,000) shares authorized and issued for
Preferred Stock, Series A of USAA Life Insurance Company.
Dated: OCTOBER 31, 1990.
USAA LIFE INSURANCE COMPANY
By: /s/ EDWIN L. ROSANE
-------------------
Edwin L. Rosane
President
By: /s/ R. T. HALINSKI, JR.
-----------------------
R. T. Halinski, Jr.
Assistant Secretary
STATE OF TEXAS }
}
COUNTY OF BEXAR }
Before me, a notary public, on this day personally appeared Edwin L. Rosane R.
T. Halinski, Jr., known to me to be one of the persons whose names are
subscribed to the foregoing document and, being by me first duly sworn,
declared that the statements therein contained are true and correct.
Given under my hand and seal of office this 31st day of October, A.D., 1990.
/s/ LORETTA C. LANICEK
----------------------
(Printed or Stamped Named) Loretta C. Lanicek
(NOTARY SEAL) Notary Public, State of Texas
My commission expires:
November 30, 1992
EXHIBIT 1.(6)(b)
BYLAWS OF USAA LIFE INSURANCE COMPANY
USAA LIFE INSURANCE COMPANY
San Antonio, Texas
AMENDED JANUARY 1, 1992
BYLAWS
OF
USAA LIFE INSURANCE COMPANY
A SUBSIDIARY OF UNITED SERVICES
AUTOMOBILE ASSOCIATION (USAA)
AS AMENDED JANUARY 1, 1992
(* DENOTES AMENDED SECTIONS)
<PAGE>
Amendments to Bylaws
Original Bylaws Adopted
July 24, 1963
First Amendment
September 22, 1965
Second Amendment
April 27, 1966
Third Amendment
April 26, 1967
Fourth Amendment
February 24, 1971
Fifth Amendment
April 29, 1972
Sixth Amendment
June 20, 1978
Seventh Amendment
April 17, 1980
<PAGE>
Eighth Amendment
November 13, 1980
Ninth Amendment
August 16, 1983
Tenth Amendment
November 23, 1988
Eleventh Amendment
January 1, 1992
<PAGE>
ARTICLE I
STOCK CERTIFICATES
SECTION 1. All certificates of capital stock shall be signed by the
President or a Vice President, and the Secretary, and shall be sealed with the
corporate seal.
SECTION 2. Transfers of capital stock shall be made only on the books
of the Company; and the old certificates, properly endorsed, shall be
surrendered and cancelled prior to the issuance of a new certificate.
SECTION 3. In the event of loss or destruction of a certificate of
stock, no new certificate shall be issued in lieu thereof except upon
satisfactory proof of such loss or destruction.
ARTICLE II
STOCKHOLDERS' MEETINGS
SECTION 1. The stockholders of this Company shall meet annually at the
Home Office of the Company, on a date on or before April 30 to be fixed each
year by the Board of Directors and the transaction of such other business as
may be brought before the meeting.
SECTION 2. Special meetings of stockholders of this Company may be
called by a majority of the Board of Directors or upon the written request of
stockholders representing a majority of the capital stock of the Company, on a
date and at a place fixed by the Board of Directors.
SECTION 3. Written notice of all meetings of stockholders shall be
<PAGE>
delivered either personally or by mail not less than ten days, nor more than
fifty days, in advance thereof to each stockholder at his last address as
shown on the Company's record of stockholders. Such notices shall be mailed or
delivered by the President and they shall state the time, the place, and the
purpose of any special meeting.
*SECTION 4. The President of this Company shall preside at all meetings
of stockholders. In the event of the absence of such officer, a chairman shall
be elected from among those persons present. The Secretary of the Company
shall act as secretary for the meeting of stockholders. In the event of the
absence of such secretary, a secretary may be appointed by the President or by
the Chairman of the meeting.
SECTION 5. At all meetings of stockholders, each stockholder shall be
entitled to cast one vote for each share of stock held in his name, which vote
may be cast either in person or by proxy properly executed. All proxies shall
be in writing and shall be filed with the Secretary forty-eight (48) hours
prior to the hour of the meeting.
SECTION 6. A quorom for the transaction of business at any meeting of
stockholders shall consist of stockholders representing a majority of the
number issued and outstanding shares of the capital stock, either in person or
by proxy; but the stockholders present at any meeting, though less than a
quorum, may adjourn the meeting from time to time.
ARTICLE III
DIRECTORS
*SECTION 1. There shall be not less than seven directors, one of whom
<PAGE>
shall be the President of the Company; the number of directors for the ensuing
year to be determined by the stockholders at each annual meeting.
*SECTION 2. The directors, except the President of the Company, shall be
elected at the Annual Stockholders' Meeting from among the members of USAA
resident in the United States, who are also officers of USAA or one of its
subsidiaries. Except as may otherwise be provided in the Bylaws, directors
shall hold office for one year.
SECTION 3. Any director who is absent from four consecutive meetings of
the Board shall automatically cease to hold the office of director.
SECTION 4. Unless a director resigns or is disqualified, he shall hold
office until his successor is elected and qualified.
SECTION 5. Any vacancy on the Board of Directors may be filled by the
stockholders at any special stockholders' meeting or by a majority of the
remaining directors even though a quorum does not remain, and the chosen
directors shall hold office until the next Annual Meeting of the Stockholders.
ARTICLE IV
ORGANIZATION AND MEETINGS OF THE
BOARD OF DIRECTORS
*SECTION 1. The Board of Directors shall elect, from Directors, a
Chairman and a Vice Chairman of the Board, who shall hold such offices until
<PAGE>
the meeting of the Board of Directors following the next Annual Meeting of
Stockholders, or until their successors are elected and qualified. The
Chairman shall be the presiding officer of the Board, and may perform all of
the duties usually incident to such an office.
*SECTION 2. There shall be no stated meetings of the Board of Directors
except one immediately after the Annual Meeting of the Stockholders for the
purpose of electing an Executive Committee for the ensuing year, and for the
transaction of such other business as may come before the meeting.
SECTION 3. Special meetings of the directors may be called by the
President, the Chairman of the Board, or by any three directors. The President
or the Secretary shall send advance written notice to each director at least
five days before any special meeting.
SECTION 4. Five directors shall constitute a quorum capable of
transacting any business that may come before the meeting, except as provided
elsewhere in the Bylaws.
ARTICLE V
POWERS AND DUTIES OF THE BOARD OF DIRECTORS
IN ADDITION TO THOSE COVERED ELSEWHERE
IN THESE BYLAWS
SECTION 1. The business management and affairs of the Company shall be under
the direction and control of the Board of Directors, as shall be its several
officers, agents, and employees, and the Board of Directors shall have
authority to authorize contracts, incur liabilities, expend or invest funds,
and such other matters and things connected with the conduct of the Company as
<PAGE>
they may determine; subject always, however, to the right of the stockholders
to direct and to control the Board of Directors in the exercise of these
powers, and to review, revise, approve or disapprove its prior acts, as herein
provided.
SECTION 2. The Board of Directors may grant special or general
authority to others, and may likewise withdraw such authority, all upon such
terms and conditions as the Board of Directors may determine.
SECTION 3. The funds of the Company shall be deposited in such banks as
the Board of Directors may determine, to be withdrawn only as may be
determined by the Board of Directors under general or special authority.
ARTICLE VI
OFFICERS
SECTION 1. The officers of the Company shall be a President, who shall
be a director, one or more Vice Presidents, a Secretary, and a Treasurer. Any
two or more offices may be held by the same person, except that the President
and Secretary shall not be the same person. The Board of Directors may appoint
such other officers as they may determine.
SECTION 2. The officers shall perform such duties as are customarily
performed by such officers of similar companies, and such others as may be
imposed upon them by the Board of Directors or stockholders. The President
shall be the managing officer of the Company.
SECTION 3. All officers shall be appointed by the Board of Directors
and shall hold office until their successors are appointed and qualified,
<PAGE>
unless sooner removed at any time by a majority vote of the whole Board of
Directors whenever in its judgment the best interests of the Company will be
served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed.
SECTION 4. The Board of Directors shall require officers, agents and
employees of the Company to be bonded in an amount and with a surety approved
by the Board, the expense of which shall be paid by the Company.
SECTION 5. The powers vested by the Board of Directors in any
committee, officer, agent or employee of the Company may be limited, altered
or revoked by the Board of Directors, through proper action at any meeting.
ARTICLE VII
EXECUTIVE COMMITTEE
SECTION 1. There shall be an Executive Committee to meet the emergency
and routine business demands of the Company with such powers as the Board of
Directors may delegate.
*SECTION 2. The Executive Committee shall consist of not less than three
nor more than five members elected from the Board of Directors by a majority
vote of the whole Board of Directors; except that, one of the members shall be
the President of the Company, who shall also be the Chairman of the Committee.
SECTION 3. The members of the Executive Committee shall be elected at
the meeting of the Board of Directors following the Annual Meeting of
<PAGE>
Stockholders. Except as may otherwise be provided in the Bylaws, all members
of the Executive Committee, except the President, shall hold office for one
year.
SECTION 4. Any vacancy on the Executive Committee may be filled by the
Board of Directors as otherwise provided by the Bylaws, and the chosen
Committee member shall serve until the meeting of the Board of Directors
following the next Annual Meeting of Stockholders.
SECTION 5. A majority of the Executive Committee shall constitute a
quorum.
ARTICLE VIII
AMENDMENTS
SECTION 1. These Bylaws may be repealed, altered or amended at any
regular or special meeting of the stockholders, provided notice of such
repeal, alteration or amendment is given in the notice of such meeting.
ARTICLE IX
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 1. The Company shall indemnify any director or officer or
former director or officer of the Company, or any person who, while a director
or officer of the Company, is or was serving at the request of the Company as
a director, officer, partner, venturer, proprietor, trustee, employee, agent
or similar functionary of another foreign or domestic corporation,
partnership, joint venture, sole proprietorship, trust, employee benefit plan
or other enterprise, against judgments, penalties (including excise and
<PAGE>
similar taxes), fines, settlements and reasonable expenses, including court
costs and attorneys' fees, actually incurred by such person in connection with
any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative, arbitrative or investigative, any appeal in
such action suit or proceeding, and any inquiry or investigation that could
lead to such an action, suit or proceeding, in which such person was, is, or
is threatened to be named defendant or respondent because of being or having
been such director or officer of because of serving or having served in such
capacity at the request of the Company, in which case indemnification shall be
limited to reasonable expenses actually incurred by the person in connection
with such action, suit or proceedings, if the person (1) conducted himself in
good faith, (2) reasonably believed, in the case of conduct in his official
capacity as director, officer, agent or employee of the Company, that his
conduct was in the Company's best interests, and, in all other cases, that his
conduct was at least not opposed to the Company's best interests, and (3) in
the case of any criminal proceeding, had no reasonable cause to believe his
conduct was unlawful. Such person may not be indemnified for obligations
resulting from such action, suit or proceeding in which the person is found
(1) liable on the basis that personal benefit resulted from an action taken in
the person's official capacity, or (2) liable to the Company; provided,
however, that nothing in this Article shall be construed to limit the
protection or the rights afforded any director or officer or former director
or officer or other person entitled to indemnity hereunder under the Company's
articles of incorporation or bylaws (as either may be amended from time to
time) or under any agreement, insurance policy or vote of shareholders, or
otherwise. In this Article, "official capacity" shall, when used with respect
to a director, mean the elective or appointive office in the Company held by
the officer or the employment or agency relationship undertaken by the
employee or agent in behalf of the Company, but in each instance, does not
include service for any other foreign or domestic corporation or any
<PAGE>
partnership, joint venture, sole proprietorship, trust, employee benefit plan,
or other enterprise. Indemnification in all cases not provided for in this
Article shall be governed by the Texas Business Corporation Act, as amended
and in effect from time to time.
SECTION 2. Any indemnification or advance or expenses to a director in
accordance with this Article shall be reported in writing to the shareholders
of the Company with or before the notice or waiver of notice of the next
meeting of shareholders, or with or before the next submission to shareholders
of a consent to action without a meeting and, in any case, within the
twelve-month period immediately following the date of the indemnification or
advance.
SECTION 3. The Company may purchase and maintain indemnity insurance
with respect to any obligations hereunder to the full extent permitted by law.
ARTICLE X
SECTION 1. The fiscal year of the Company shall be the calendar year.
ARTICLE XI
SECTION 1. The corporate seal, or any facsimile thereof, shall contain
the following legend:
USAA LIFE INSURANCE COMPANY, TEXAS
EXHIBIT 1.(8)(d)(i)
FORM OF
PARTICIPATION AGREEMENT
PARTICIPATION AGREEMENT (the "Agreement") made by and between SCUDDER
VARIABLE LIFE INVESTMENT FUND (the "Fund"), a Massachusetts business trust
created under a Declaration of Trust dated March 15, 1985, as amended, with a
principal place of business in Boston, Massachusetts and USAA LIFE INSURANCE
COMPANY, a Texas corporation (the "Company"), with a principal place of
business in San Antonio, Texas on behalf of the Separate Account of USAA Life
Insurance Company, a separate account of the Company, and any other separate
account of the Company as designated by the Company from time to time, upon
written notice to the Fund in accordance with Section 10 herein (each, an
"Account").
WHEREAS, the Fund acts as the investment vehicle for the separate
accounts established for variable life insurance policies and variable annuity
contracts (collectively referred to herein as "Variable Insurance Products")
to be offered by insurance companies which have entered into participation
agreements substantially identical to this Agreement ("Participating Insurance
Companies") and their affiliated insurance companies; and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares of beneficial interest ("Shares"), and additional series of
Shares may be established, each designated a "Portfolio" and representing the
interest in a particular managed portfolio of securities; and
WHEREAS, it is in the best interest of Participating Insurance Companies
to make capital contributions if required so that the annual expenses of each
Portfolio of the Fund in which a Participating Insurance Company is a
<PAGE>
shareholder will not exceed a fixed percentage of the Portfolio's average
annual net assets; and
WHEREAS, the Parties desire to evidence their agreement as to certain
other matters,
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereto agree as
follows:
1. ADDITIONAL DEFINITIONS.
For the purposes of this Agreement, the following definitions shall
apply:
(a) The "expenses of a Portfolio" for any fiscal year shall mean
the expenses for such fiscal year as shown in the Statement of Operations (or
similar report) certified by the Fund's independent public accountants;
(b) A "Portfolio's average daily net assets" for each fiscal
year shall mean the sum of the net asset values determined throughout the year
for the purpose of determining net asset value per Share, divided by the
number of such determinations during such year;
(c) The Company's "Required Contribution" on behalf of each
Account in respect of a Portfolio for any fiscal year shall mean an amount
equal to the expenses of that Portfolio for such year minus the
below-indicated percentage of that Portfolio's average daily net assets for
the year:
International Portfolio . . . . . . . . . . 1.50%
Each other Portfolio. . . . . . . . . . . . 0.75%
multiplied by a fraction the denominator of which is the average daily net
assets of that Portfolio and the numerator of which is the average daily net
2
<PAGE>
asset value of the Shares of that Portfolio owned by each Account (referred to
herein as a "Participating Shareholder"). The Company's Required Contribution
in respect of a Portfolio shall be pro-rated based on the number of business
days on which this Agreement is in effect for periods of less than a fiscal
year.
(d) The "average daily net asset value of the Shares of the
Portfolio" owned by the Account for any fiscal year of the Fund shall mean the
greater of (i) $500,000 or (ii) the sum of the aggregate net asset values of
the Shares so owned determined during the fiscal year, as of each
determination of the net asset value per Share, divided by the total number of
determinations of net asset value during such year.
(e) "Shares" means shares of beneficial interest, without par
value, of any Portfolio, now or hereafter created, of the Fund.
2. CAPITAL CONTRIBUTION.
The Company on behalf of each Account shall, within sixty days after the
end of each fiscal year of the Fund, make a capital contribution to the Fund
in respect of each Portfolio equal to the Required Contribution for that
Portfolio for such year; provided, however, that in the event that both
clauses (i) and (ii) of paragraph (d) of Section 1 of this Agreement or
similar agreements are applicable to different Participating Insurance
Companies during the same fiscal year, there shall be a proportionate
reduction of the Required Contribution of each Participating Insurance Company
to which said clause (ii) is applicable so that the total of all required
capital contributions to the Fund on behalf of any Portfolio is not greater
3
<PAGE>
than the excess of the expenses of that Portfolio for that fiscal year less
the percentage of that Portfolio's total expenses set forth in paragraph (c)
of Section 1 of this Agreement for such fiscal year.
3. DUTY OF FUND TO SELL.
The Fund shall make its Shares available for purchase at the applicable
net asset value per Share by Participating Insurance Companies and their
affiliates and separate accounts on those days on which the Fund calculates
its net asset value pursuant to rules of the Securities and Exchange
Commission; provided, however, that the 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, necessary in the best interest of the shareholders of any
Portfolio.
4. REQUIREMENT TO EXECUTE PARTICIPATION AGREEMENT; REQUESTS.
Each Participating Insurance Company shall, prior to purchasing Shares
in the Fund, execute and deliver a participation agreement in a form
substantially identical to this Agreement.
The Fund shall make available, upon written request from the
Participating Insurance Company given in accordance with Paragraph 10, to each
Participating Insurance Company which has executed an Agreement and which
Agreement has not been terminated pursuant to Paragraph 8 (i) a list of all
other Participating Insurance Companies, and (ii) a copy of the Agreement as
executed by any other Participating Insurance Company.
4
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The Fund shall also make available upon request to each Participating
Insurance Company which has executed an Agreement and which Agreement has not
been terminated pursuant to Paragraph 8, the net asset value of any Portfolio
of the Fund as of any date upon which the Fund calculates the net asset value
of its Portfolios for the purpose of purchase and redemption of Shares.
5. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless the Fund
and each of its Trustees and officers and each person, if any, who controls
the Fund within the meaning of Section 15 of the Securities Act of 1933 (the
"Act") against any and all losses, claims, damages, liabilities or litigation
(including legal and other expenses), arising out of the acquisition of any
Shares by any person, to which the Fund or such Trustees, officers or
controlling person may become subject under the Act, under any other statute,
at common law or otherwise, which (i) may be based upon any wrongful act by
the Company, any of its employees or representatives, any affiliate of or any
person acting on behalf of the Company or a principal underwriter of its
insurance products, or (ii) may be based upon any untrue statement or alleged
untrue statement of a material fact contained in a registration statement or
prospectus covering Shares or any amendment thereof or supplement thereto or
the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading
if such a statement or omission was made in reliance upon information
furnished to the Fund by the Company, or (iii) may be based on any untrue
statement or alleged untrue statement of a material fact contained in a
5
<PAGE>
registration statement or prospectus covering insurance products sold by the
Company or any insurance company which is an affiliate thereof, or any
amendments or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statement or statements therein not misleading, unless such statement or
omission was made in reliance upon information furnished to the Company or
such affiliate by or on behalf of the Fund; provided, however, that in no case
(i) is the Company's indemnity in favor of a Trustee or officer or any other
person deemed to protect such Trustee or officer or other person against any
liability to which any such person would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of his
duties or by reason of his reckless disregard of obligations and duties under
this Agreement or (ii) is the Company to be liable under its indemnity
agreement contained in this Paragraph 5 with respect to any claim made against
the Fund or any person indemnified unless the Fund or such person, as the case
may be, shall have notified the Company in writing pursuant to Paragraph 10
within a reasonable time after the summons or other first legal process giving
information of the nature of the claims shall have been served upon the Fund
or upon such person (or after the Fund or such person shall have received
notice of such service on any designated agent), but failure to notify the
Company of any such claim shall not relieve the Company from any liability
which it has to the Fund or any person against whom such action is brought
otherwise than on account of its indemnity agreement contained in this
Paragraph 5. The Company shall be entitled to participate, at its own expense,
6
<PAGE>
in the defense, or, if it so elects, to assume the defense of any suit brought
to enforce any such liability, but, if it elects to assume the defense, such
defense shall be conducted by counsel chosen by it and satisfactory to the
Fund, to its officers and Trustees, or to any controlling person or persons,
defendant or defendants in the suit. In the event that the Company elects to
assume the defense of any such suit and retain such counsel, the Fund, its
officers and Trustees or controlling person or persons, defendant or
defendants in the suit, shall bear the fees and expenses of any additional
counsel retained by them, but, in case the Company does not elect to assume
the defense of any such suit, the Company will reimburse the Fund, or such
officers and Trustees or controlling person or persons, defendant or
defendants in such suit, for the reasonable fees and expenses of any counsel
retained by them. The Company agrees promptly to notify the Fund pursuant to
Paragraph 10 of the commencement of any litigation or proceedings against it
in connection with the issue and sale of any Shares.
(b) The Fund agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls
the Company within the meaning of Section 15 of the Act against any and all
losses, claims, damages, liabilities or litigation (including legal and other
expenses) to which it or such directors, officers or controlling person may
become subject under the Act, under any other statute, at common law or
otherwise, arising out of the acquisition of any Shares by any person which
(i) may be based upon any wrongful act by the Fund, any of its employees or
representatives or a principal underwriter of the Fund, or (ii) may be based
7
<PAGE>
upon any untrue statement or alleged untrue statement of a material fact
contained in a registration statement or prospectus covering Shares or any
amendment thereof or supplement thereto or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading unless such statement or omission
was made in reliance upon information furnished to the Fund by the Company or
(iii) may be based on any untrue statement or alleged untrue statement of a
material fact contained in a registration statement or prospectus covering
insurance products sold by the Company, or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in reliance
upon information furnished to the Company by or on behalf of the Fund;
provided, however, that in no case (i) is the Fund's indemnity in favor of a
director or officer or any other person deemed to protect such director or
officer or other person against any liability to which any such person would
otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of his duties or by reason of his reckless
disregard of obligations and duties under this Agreement or (ii) is the Fund
to be liable under its indemnity agreement contained in this Paragraph 5 with
respect to any claims made against the Company or any such director, officer
or controlling person unless it or such director, officer or controlling
person, as the case may be, shall have notified the Fund in writing pursuant
to Paragraph 10 within a reasonable time after the summons or other first
8
<PAGE>
legal process giving information of the nature of the claim shall have been
served upon it or upon such director, officer or controlling person (or after
the Company or such director, officer or controlling person shall have
received notice of such service on any designated agent), but failure to
notify the Fund of any claim shall not relieve it from any liability which it
may have to the person against whom such action is brought otherwise than on
account of its indemnity agreement contained in this Paragraph. The Fund will
be entitled to participate at its own expense in the defense, or, if it so
elects, to assume the defense of any suit brought to enforce any such
liability, but if the Fund elects to assume the defense, such defense shall be
conducted by counsel chosen by it and satisfactory to the Company, its
directors, officers or controlling person or persons, defendant or defendants,
in the suit. In the event the Fund elects to assume the defense of any such
suit and retain such counsel, the Company, its directors, officers or
controlling person or persons, defendant or defendants in the suit, shall bear
the fees and expenses of any additional counsel retained by them, but, in case
the Fund does not elect to assume the defense of any such suit, it will
reimburse the Company or such directors, officers or controlling person or
persons, defendant or defendants in the suit, for the reasonable fees and
expenses of any counsel retained by them. The Fund agrees promptly to notify
the Company pursuant to Paragraph 10 of the commencement of any litigation or
proceedings against it or any of its officers or Trustees in connection with
the issuance or sale of any Shares.
9
<PAGE>
6. PROCEDURE FOR RESOLVING IRRECONCILABLE CONFLICTS.
(a) The Trustees of the Fund will monitor the operations of the
Fund for the existence of any material irreconcilable conflict among the
interests of all the contract holders and policy owners of Variable Insurance
Products (the "Participants") of all separate accounts investing in the Fund.
An irreconcilable material conflict may arise, among other things, from: (a)
an action by any state insurance regulatory authority; (b) a change in
applicable insurance laws or regulations; (c) a tax ruling or provision of the
Internal Revenue Code or the regulations thereunder; (d) any other development
relating to the tax treatment of insurers, contract holders or policy owners
or beneficiaries of Variable Insurance Products; (e) the manner in which the
investments of any Portfolio are being managed; (f) a difference in voting
instructions given by variable annuity contract holders, on the one hand, and
variable life insurance policy owners, on the other hand, or by the contract
holders or policy owners of different participating insurance companies; or
(g) a decision by an insurer to override the voting instructions of
Participants.
(b) The Company will be responsible for reporting any potential
or existing conflicts to the Trustees of the Fund. The Company will be
responsible for assisting the Trustees in carrying out their responsibilities
under this Paragraph 6(b) and Paragraph 6(a), by providing the Trustees with
all information reasonably necessary for the Trustees to consider the issues
raised. The Fund will also request its investment adviser to report to the
Trustees any such conflict which comes to the attention of the adviser.
10
<PAGE>
(c) If it is determined by a majority of the Trustees of the
Fund, or a majority of its disinterested Trustees, that a material
irreconcilable conflict exists involving the Company, the Company shall, at
its expense, and to the extent reasonably practicable (as determined by a
majority of the disinterested Trustees), take whatever steps are necessary to
eliminate the irreconcilable material conflict, including withdrawing the
assets allocable to some or all of the separate accounts from the Fund or any
Portfolio and reinvesting such assets in a different investment medium,
including another Portfolio of the Fund, offering to the affected Participants
the option of making such a change or establishing a new funding medium
including a registered investment company.
For purposes of this Paragraph 6(c), the Trustees, or the disinterested
Trustees, shall determine whether or not any proposed action adequately
remedies any irreconcilable material conflict. In the event of a determination
of the existence of an irreconcilable material conflict, the Trustees shall
cause the Fund to take such action, such as the establishment of one or more
additional Portfolios, as they in their sole discretion determine to be in the
interest of all shareholders and Participants in view of all applicable
factors, such as cost, feasibility, tax, regulatory and other considerations.
In no event will the Fund be required by this Paragraph 6(c) to establish a
new funding medium for any variable contract or policy.
The Company shall not be required by this Paragraph 6(c) to establish a
new funding medium for any variable contract or policy if an offer to do so
has been declined by a vote of a majority of the Participants materially
adversely affected by the material irreconcilable conflict. The Company will
11
<PAGE>
recommend to its Participants that they decline an offer to establish a new
funding medium only if the Company believes it is in the best interest of the
Participants.
(d) The Trustees' determination of the existence of an
irreconcilable material conflict and its implications promptly shall be
communicated to all Participating Insurance Companies by written notice
thereof delivered or mailed, first class postage prepaid.
7. VOTING PRIVILEGES.
The Company shall be responsible for assuring that its separate account
or accounts participating in the Fund shall use a calculation method of voting
procedures substantially the same as the following: those Participants
permitted to give instructions and the number of Shares for which instructions
may be given will be determined as of the record date for the Fund
shareholders' meeting, which shall not be more than 60 days before the date of
the meeting. Whether or not voting instructions are actually given by a
particular Participant, all Fund shares held in any separate account or
sub-account thereof and attributable to policies will be voted for, against,
or withheld from voting on any proposition in the same proportion as (i) the
aggregate record date cash value held in such sub-account for policies giving
instructions, respectively, to vote for, against, or withhold votes on such
proposition, bears to (ii) the aggregate record date cash value held in the
sub-account for all policies for which voting instructions are received.
Participants continued in effect under lapse options will not be permitted to
give voting instructions. Shares held in any other insurance company general
12
<PAGE>
or separate account or sub-account thereof will be voted in the proportion
specified in the second preceding sentence for shares attributable to
policies.
8. DURATION AND TERMINATION.
This Agreement shall remain in force for the period ending five years
from the date of its execution (such date and any anniversary of such date
being hereinafter called a "Renegotiation Date"), and from year to year
thereafter provided that neither the Company nor the Fund shall have given
written notice to the other within thirty (30) days prior to a Renegotiation
Date that it desires to renegotiate the amount of contribution to capital due
hereunder ("Renegotiation Notice"). If a Renegotiation Notice is properly
given as aforesaid and the Fund and the Company shall fail, within sixty (60)
days after the Renegotiation Date, either to enter into an amendment to this
Agreement or a written acknowledgment that the Agreement shall continue in
effect, this Agreement shall terminate as of the one hundred twentieth day
after such Renegotiation Date. If this Agreement is so terminated, the Fund
may, at any time thereafter, automatically redeem the Shares of any Portfolio
held by a Participating Shareholder. This Agreement may be terminated at any
time, at the option of either of the Company or the Fund, when neither the
Company, any insurance company nor the separate account or accounts of such
insurance company which is an affiliate thereof which is not a Participating
Insurance Company own any Shares of the Fund or may be terminated by either
party to the Agreement upon a determination by a majority of the Trustees of
the Fund, or a majority of its disinterested Trustees, following certification
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<PAGE>
thereof by a Participating Insurance Company given in accordance with
Paragraph 10 that an irreconcilable conflict exists among the interests of (i)
all contract holders and policy holders of Variable Insurance Products of all
separate accounts or (ii) the interests of the Participating Insurance
Companies investing in the Fund. Notwithstanding anything to the contrary in
this Agreement or its termination as provided herein, the Company's obligation
to make a capital contribution to the Fund in accordance with this Agreement
at the time in effect shall continue (i) following a properly given
Renegotiation Notice, in the absence of agreement otherwise, until termination
of this Agreement, and (ii) (except termination due to the existence of an
irreconcilable conflict), following termination of this Agreement, until the
later of the fifth anniversary of the date of this Agreement or the date on
which the Company, its separate account(s) or the separate account(s) of any
affiliated insurance company owns no Shares.
9. COMPLIANCE.
The Fund will comply with the provisions of Section 4240(a) of the New
York Insurance Law.
Each Portfolio of the Fund will comply with the provisions of Section
817(h) of the Internal Revenue Code of 1986, as amended (the "Code"), relating
to diversification requirements for variable annuity, endowment and life
insurance contracts. Specifically, each Portfolio will comply with either (i)
the requirement of Section 817(h)(1) of the Code that its assets be adequately
diversified, or (ii) the "Safe Harbor for Diversification" specified in
Section 817(h)(2) of the Code, or (iii) the diversification requirement of
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<PAGE>
Section 817(h)(1) of the Code by having all or part of its assets invested in
U.S. Treasury securities which qualify for the "Special Rule for Investments
in United States Obligations" specified in Section 817(h)(3) of the Code.
The provisions of Paragraphs 6 and 7 of this Agreement shall be
interpreted in a manner consistent with any Rule or order of the Securities
and Exchange Commission under the Investment Company Act of 1940, as amended,
applicable to the parties hereto.
No Shares of any Portfolio of the Fund may be sold to the general
public.
10. NOTICES.
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in
writing to the other party.
If to the Fund:
Scudder Variable Life Investment Fund
Two International Place
Boston, Massachusetts 02110
(617) 295-2275
Attn.: William M. Thomas
If to the Company:
USAA Life Insurance Company
9800 Fredericksburg Road
San Antonio, Texas 78288
Attn.: Dwain A. Akins, Esq.
11. MASSACHUSETTS LAW TO APPLY.
This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of The Commonwealth of Massachusetts.
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<PAGE>
12. MISCELLANEOUS.
The name "Scudder Variable Life Investment Fund" is the designation of
the Trustees for the time being under a Declaration of Trust dated March 15,
1985, as amended, and all persons dealing with the Fund must look solely to
the property of the Fund for the enforcement of any claims against the Fund as
neither the Trustees, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund. No Portfolio
shall be liable for any obligations properly attributable to any other
Portfolio.
The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which taken together shall
constitute one and the same instrument.
13. ENTIRE AGREEMENT.
This Agreement and the letter agreement dated _________, 1998 together
incorporate the entire understanding and agreement among the parties hereto,
and supersede any and all prior understandings and agreements between the
parties hereto with respect to the subject matter hereof.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the ____ day of _____, 1998.
SEAL SCUDDER VARIABLE LIFE
INVESTMENT FUND
By:
------------------------
David B. Watts
President
SEAL USAA LIFE INSURANCE COMPANY
By:
--------------------
Its:President
EXHIBIT 1.(8)(d)(ii)
Scudder Investor Services, Inc.
Two International Place
Boston, Massachusetts 02110
FORM OF
PARTICIPATING CONTRACT AND POLICY AGREEMENT
Ladies and Gentlemen:
We (sometimes hereinafter referred to as "Investor Services") are the
Principal Underwriter of shares of Scudder Variable Life Investment Fund (the
"Fund"), a no-load, open-end, diversified registered management investment
company established in 1985 as a Massachusetts business trust. The Fund is a
series fund consisting of the Balanced Portfolio, Bond Portfolio, Capital
Growth Portfolio, International Portfolio, Money Market Portfolio and Growth
and Income Portfolio (individually or collectively hereinafter referred to as
the "Portfolio" or the "Portfolios"). Additional Portfolios may be created
from time to time. The Fund is the funding vehicle for variable annuity
contracts and variable life insurance policies ("Participating Contracts and
Policies") to be offered to the separate accounts or sub-accounts (the
"Accounts") of certain life insurance companies ("Participating Insurance
Companies"). Owners of Participating Contracts and Policies will designate a
portion of their premium to be invested in Accounts which invest in, or
represent an investment in, directly or indirectly, shares of beneficial
interest ("Shares") of the Portfolios of the Fund. You are a registered
broker-dealer which intends to offer and sell Participating Contracts and
Policies. In connection with such offer and sale you will be obligated to
deliver the prospectuses of such Participating Contracts and Policies and,
contemporaneously therewith, the prospectus of the Fund. Sales of Shares to
<PAGE>
Participating Insurance Companies or their affiliates or the separate accounts
of either shall be effected solely by us as principal underwriter of the Fund,
and not by you; provided, however, that you shall be our agent in connection
with the receipt of purchase orders for Fund Shares and not in connection with
their offer and sale. The relationship between us shall be further governed by
the following terms and conditions:
1. To the extent, if any, that your activities or the activities of
the Participating Insurance Companies in connection with the sale
of Participating Contracts and Policies may constitute the sale of
Shares, you and we agree that (i) we are the sole "principal
underwriter" of the Fund and the sole "underwriter" of the Shares
as those terms are defined in the Investment Company Act of 1940
(the "1940 Act") and the Securities Act of 1933 (the "1933 Act"),
respectively, and (ii) neither you nor the Participating Insurance
Companies or the Accounts shall be deemed to be "principal
underwriters" of the Fund or "underwriters" of the Fund within the
meaning of the 1940 Act and the 1933 Act, respectively.
2. You hereby represent and warrant to us as follows:
(a) You are a corporation duly organized and validly existing in
good standing under the laws of the State of Texas and have
full power and authority to enter into this Agreement.
(b) This Agreement has been duly authorized, executed and
delivered by you and is a valid and binding obligation
enforceable against you in accordance with its terms.
(c) Your compliance with the provisions of this Agreement will
not conflict with or result in a violation of the provisions
of your charter or by-laws, or any statute or any judgment,
decree, order, rule or regulation of any court or
governmental agency or body having jurisdiction.
3. We hereby represent and warrant to you as follows:
(a) A registration statement (File No. 2-96461) on Form N-1A
with respect to the Shares (x) has been prepared by the Fund
in conformity with the requirements of the 1940 Act and the
2
<PAGE>
1933 Act and all applicable published instructions, rules
and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission"), (y)
has been filed with the Commission, and (z) is currently
effective. The registration statement, including financial
statements and exhibits, and the final prospectus, including
the statement of additional information, as subsequently
amended and supplemented, are herein respectively referred
to as the "Registration Statement" and the "Prospectus".
(b) The Registration Statement and the Prospectus and any
amendment or supplement thereto will contain all statements
required to be stated therein and will comply in all
material respects with the requirements of the 1940 Act, the
1933 Act and the Rules and Regulations, and the Registration
Statement and any post-effective amendment thereto will not
contain or incorporate by reference any untrue statement of
a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were
made, not misleading, and the Prospectus and any amendment
or supplement thereto will not contain or incorporate by
reference any untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary in order to make the statements therein, in light
of the circumstances under which they were made, not
misleading.
(c) We are a corporation duly organized and validly existing in
good standing under the laws of The Commonwealth of
Massachusetts and have full power and authority to enter
into this Agreement.
(d) This Agreement has been duly authorized, executed and
delivered by us and is a valid and binding obligation
enforceable against us in accordance with its terms.
(e) Our compliance with all of the provisions of this Agreement
will not conflict with or result in a violation of the
provisions of our charter or by-laws, or any statute or any
judgment, decree, order, rule or regulation of any court or
governmental agency or body having jurisdiction over us.
4. You hereby covenant and agree with us as follows:
(a) You shall be an independent contractor and neither you nor
any of your directors, officers or employees as such, is or
shall be an employee of us or of the Fund. You are
responsible for your own conduct and the employment, control
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<PAGE>
and conduct of your agents and employees and for injury to
such agents or employees or to others through your agents or
employees.
(b) You or one or more Participating Insurance Companies will be
responsible for insuring compliance with all applicable laws
and regulations of any regulatory body having jurisdiction
over you or Participating Contracts and Policies.
(c) No person is authorized to make any representations
concerning Shares except those contained in the Prospectus
relating thereto and in such printed information as issued
by us for use as information supplemental to the prospectus.
In offering Participating Contracts and Policies you shall,
with respect to the Fund and the Shares, rely solely on the
representations contained in the Prospectus and in the
above-mentioned supplemental information.
(d) You are not entitled to any compensation whatsoever from us
or the Fund with respect to offers of Participating
Contracts and Policies.
5. We hereby covenant and agree with you as follows:
(a) If, at any time when a Prospectus relating to the Shares is
required to be delivered under the 1940 Act, the 1933 Act or
the Rules and Regulations, we become aware of the occurrence
of any event as a result of which the Prospectus as then
amended or supplemented would include any untrue statement
of a material fact, or omit to state a material fact
necessary to make the statements therein, in light of the
circumstances under which made, not misleading, or if we
become aware that it has become necessary at any time to
amend or supplement the Prospectus to comply with the 1940
Act, the 1933 Act or the Rules and Regulations, we will
promptly notify you and promptly request the Fund to prepare
and to file with the Commission an amendment to the
Registration Statement or supplement to the Prospectus which
will correct such statement or omission or an amendment or
supplement which will effect such compliance, and deliver to
you copies of any such amendment or supplement.
(b) We will cooperate with you by taking such action as may be
necessary for the Fund to qualify the Shares for offer and
sale under the securities or Blue Sky laws of any state or
jurisdiction as you may request and as may be required by
applicable law, and will continue such qualification in
effect so long as is required by applicable law in
connection with the distribution of Shares.
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<PAGE>
6. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Shares entirely, as to any
person or generally. We reserve the right to amend this Agreement
at any time and you agree that the sale of Participating Contracts
and Policies, after notice of any such amendment has been sent to
you, shall constitute your agreement to any such amendment.
7. If we elect to provide to you for the purpose of your offering
Participating Contracts and Policies copies of any Prospectus
relating to the Shares and printed information supplemental
thereto, we shall furnish you with such copies as you reasonably
request upon the payment of reasonable charges therefor by you or
one or more Participating Insurance Companies. If we elect not to
provide such copies of such documents, you or one or more
Participating Insurance Companies shall bear the entire cost of
printing copies for your use. You shall not use such copies of
such documents printed by you or one or more Participating
Insurance Companies until you shall have furnished us with a copy
thereof and we either have given you written approval for use or
twenty days shall have elapsed following our receipt thereof and
we have not objected thereto in writing.
8. (a) You will indemnify and hold harmless Investor Services and
each of its directors and officers and each person, if any,
who controls Investor Services within the meaning of Section
15 of the 1933 Act, against any loss, liability, damages,
claim or expense (including the reasonable cost of
investigating or defending any alleged loss, liability,
damages, claim or expense and reasonable counsel fees
incurred in connection therewith), arising by reason of any
person's acquiring any Shares, which may be based upon the
1933 Act or any other statute or common law, and which (i)
may be based upon any wrongful act by you, any of your
employees or representatives, or (ii) may be based upon any
untrue statement or alleged untrue statement of a material
fact contained in a registration statement or prospectus
covering Shares or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary
to make the statements therein not misleading if such a
statement or omission was made in reliance upon information
furnished to us or the Fund by you, or (iii) may be based on
any untrue statement or alleged untrue statement of a
material fact contained in a registration statement or
prospectus covering insurance products sold by you, or any
amendments or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be
5
<PAGE>
stated therein or necessary to make the statement or
statements therein not misleading, unless such statement or
omission was made in reliance upon information furnished to
you or a Participating Insurance Company by or on behalf of
Investor Services or the Fund; provided, however, that in no
case (i) is the indemnity by you in favor of any person
indemnified to be deemed to protect Investor Services or any
such person against any liability to which Investor Services
or any such person would otherwise be subject by reason of
willful misfeasance, bad faith o gross negligence in the
performance of its or his duties or by reason of its or his
reckless disregard of its obligations and duties under this
Agreement, or (ii) are you to be liable under your indemnity
agreement contained in this paragraph with respect to any
claim made against Investor Services or any person
indemnified unless Investor Services or such person, as the
case may be, shall have notified you 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 Investor Services or upon such person
(or after Investor Services or such person shall have
received notice of such service on any designated agent),
but failure to notify you of any such claim shall not
relieve you from any liability which you may have to
Investor Services or any person against whom such action is
brought otherwise than on account of your indemnity
agreement contained in this paragraph. You shall be entitled
to participate, at your own expense, in the defense, or, if
you so elect, to assume the defense of any suit brought to
enforce any such liability, but, if you elect to assume the
defense, such defense shall be conducted by counsel chosen
by you and satisfactory to Investor Services, or to its
officers or directors, or to any controlling person or
persons, defendant or defendants in the suit. In the event
that you assume the defense of any such suit and retain such
counsel, Investor Services or such officers or directors or
controlling person or persons, defendant or defendants in
the suit, shall bear the fees and expenses of any additional
counsel retained by them, but, in case you do not elect to
assume the defense or any such suit, you shall reimburse
Investor Services and such officers, directors or
controlling person or persons, defendant of defendants in
such suit, for the reasonable fees and expenses of any
counsel retained by them. You agree promptly to notify
Investor Services of the commencement of any litigation or
proceedings against it in connection with the offer, issue
and sale of any shares.
6
<PAGE>
(b) Investor Services will indemnify and hold harmless you and
each of your directors and officers and each person, if any,
who controls you within the meaning of Section 15 of the
1933 Act, against any loss, liability, damages, claim or
expense (including the reasonable cost of investigating or
defending any alleged loss, liability, damages, claim or
expense and reasonable counsel fees incurred in connection
therewith), arising by reason of any person's acquiring any
Shares, which may be based upon the 1933 Act or any other
statute or common law, and which (i) may be based upon any
wrongful act by Investor Services, any of its employees or
representatives, or (ii) may be based upon any untrue
statement or alleged untrue statement of a material fact
contained in a registration statement or prospectus covering
Shares or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make th
statements therein not misleading unless such statement or
omission was made in reliance upon information furnished to
Investor Services or the Fund by you or (iii) may be based
on any untrue statement or alleged untrue statement of a
material fact contained in a registration statement or
prospectus covering insurance products sold by you, or any
amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statement or
statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to
you by or on behalf of Investor Services or the Fund;
provided, however, that in no case (i) is the indemnity by
Investor Services in favor of any person indemnified to be
deemed to protect you or any such person against any
liability to which you or any such person would otherwise be
subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of your or his duties by
reason of your or his reckless disregard of your or his
obligations and duties under this Agreement, or (ii) is
Investor Services to be liable under its indemnity agreement
contained in this paragraph with respect to any claim made
against you or any person indemnified unless you or such
person, as the case may be, shall have notified Investor
Services in writing within a reasonable time after the
summons or other first legal process giving information of
the nature of the claim shal have been served upon you or
upon such person (or after you or such person shall have
received notice of such service on any designated agent),
but failure to notify Investor Services of any such claim
7
<PAGE>
shall not relieve Investor Services from any liability to
which Investor Services may have to you or any person
against whom such action is brought otherwise than on
account of its indemnity agreement contained in this
paragraph. Investor Services shall be entitled to
participate, at its own expense, in th defense, or, if it so
elects, to assume the defense of any suit brought to enforce
any such liability, but, if it elects to assume the defense,
such defense shall be conducted by counsel chosen by
Investor Services and satisfactory to you, or to your
officers or directors, or to any controlling person or
persons, defendant or defendants in the suit. In the event
that Investor Services assumes the defense of any such suit
and retains such counsel, you or such officers or directors
or controlling person or persons, defendant or defendants in
the suit, shall bear the fees and expenses of any additional
counsel retained by you, but, in case Investor Services does
not elect to assume the defense of any such suit, Investor
Services shall reimburse you and such officers, directors or
controlling person or persons, defendant or defendants in
such suit, for the reasonable fees and expenses of any
counsel retained by you. Investor Services agrees promptly
to notify you of the commencement of any litigation or
proceedings against it in connection with the offer, issue
and sale of any Shares.
9. The indemnities, representations, warranties, covenants and
agreements of each party to this Agreement as set forth in this
Agreement will remain in full force and effect regardless of any
investigation made by or on behalf of either of such parties or
any of their respective officers, directors, partners or any
controlling person, and will survive delivery of and payment for
the Shares.
10. Any provision of this Agreement which may be determined by
competent authority to be prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the
extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction. To the extent permitted by applicable law, each
party hereto waives any provision of law which renders any
provision hereof prohibited or unenforceable in any respect.
11. This Agreement, as amended by the letter agreement dated February
3, 1995, as amended, together constitutes the entire agreement
among the parties concerning the subject matter hereof, and
supersede any and all prior understandings.
8
<PAGE>
12. This Agreement shall automatically terminate in the event of its
assignment. This Agreement may be terminated at any time by either
party by written notice given to the other party, provided that
the obligation of each party to indemnify the other party pursuant
to paragraph 8 hereof shall apply with respect to any Shares sold
before or after such termination.
13. Any notice hereunder shall be duly given if mailed or telegraphed
to the other party hereto at the address specified below. This
Agreement shall be governed by and construed in accordance with
the laws of The Commonwealth of Massachusetts.
14. This Agreement may be executed in any number of counterparts
which, taken together shall constitute one and the same
instrument. This Agreement shall become effective upon receipt by
us of your acceptance hereof.
15. This Agreement may not be modified or amended except by a written
instrument duly executed by the parties hereto.
SCUDDER INVESTOR SERVICES, INC.
By:
------------------
Mark S. Casady
President
Two International Place
Boston, Massachusetts 02110
The undersigned hereby accepts the
offer set forth in the above letter.
USAA INVESTMENT MANAGEMENT COMPANY
Dated:____________ By:
--------------------
John J. Dallahan
Senior Vice President,
Investments Services
Authorized Representative
10750 Robert F. McDermott Freeway
San Antonio, Texas 78288
9
EXHIBIT 1.(8)(d)(iii)
FORM OF
REIMBURSEMENT AGREEMENT
REIMBURSEMENT AGREEMENT (the "Agreement") made by and between SCUDDER
KEMPER INVESTMENTS, INC., a Delaware corporation ("Scudder Kemper"), with a
principal place of business in Boston, Massachusetts and USAA LIFE INSURANCE
COMPANY, a Texas corporation (the "Company"), with a principal place of
business in San Antonio, Texas on behalf of the Separate Account of USAA Life
Insurance Company, a separate account of the Company, and any other separate
account of the Company as designated by the Company from time to time, upon
written notice to the Fund in accordance with Section 8 herein (the
"Account").
WHEREAS, Scudder Kemper has caused to be organized Scudder Variable Life
Investment Fund (the "Fund"), a Massachusetts business trust created under a
Declaration of Trust dated March 15, 1985, as amended, the beneficial interest
in which is divided into several series, each designated a "Portfolio" and
representing the interest in a particular managed portfolio of securities; and
WHEREAS, the purpose of the Fund is to act as the investment vehicle for
the separate accounts established for variable life insurance policies and
variable annuity contracts to be offered by insurance companies which have
entered into reimbursement agreements substantially identical to this
Agreement; and
WHEREAS, the parties desire to express their agreement as to certain
matters;
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereto agree as
follows:
<PAGE>
1. ADDITIONAL DEFINITIONS.
For purposes of this Agreement, the following definition shall apply:
(a) "Shares" means shares of beneficial interest, without par value,
of any Portfolio, now or hereafter created, of the Fund.
2. ACCESS TO OTHER PRODUCTS.
Scudder Kemper shall permit the Company to participate in any registered
investment company other than the Fund which is intended as the funding
vehicle for insurance products and for which Scudder Kemper or an affiliate of
Scudder Kemper acts as investment adviser, on the same basis as other
insurance companies are permitted to participate in such a registered
investment company. This provision shall not require Scudder Kemper to make
available to the Company shares of any investment company which is organized
solely as the funding vehicle for insurance products offered by a single
insurance company or a group of affiliated insurance companies.
3. RIGHT TO REVIEW AND APPROVE SALES MATERIALS.
The Company shall furnish, or shall cause to be furnished, to Scudder
Kemper or its designee, at least twenty days prior to its intended use, each
piece of promotional material in which Scudder Kemper or the Fund is named. No
such material shall be used unless Scudder Kemper or its designee shall have
approved such use in writing, or twenty days shall have elapsed without
approval, rejection or objection since receipt by Scudder Kemper or its
designee of such material.
2
<PAGE>
Scudder Kemper shall furnish, or shall cause to be furnished, to the
Company or its designee, at least twenty days prior to its intended use, each
piece of promotional material in which the Company or its separate account(s)
is named. No such material shall be used unless the Company or its designee
shall have approved such use in writing, or twenty days shall have elapsed
without approval, rejection or objection since receipt by the Company or its
designee of such material.
4. SALES ORGANIZATION MEETINGS.
Representatives of Scudder Kemper or its designee shall meet with the
sales organizations of the Company at such reasonable times and places as may
be agreed upon by the Company and Scudder Kemper or its designee for the
purpose of educating sales personnel about the Fund.
5. DURATION.
This Agreement shall continue in effect for five (5) years from the date
of its execution, except that the obligation of each party hereto to indemnify
the other party hereto shall continue with respect to all losses, claims,
damages, liabilities or litigation based upon the acquisition of Shares
purchased as the funding vehicle for any variable life insurance policy or
variable annuity contract issued by the Company or any affiliated insurance
company.
6. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless Scudder Kemper and
each of its directors and officers and each person, if any, who controls
Scudder Kemper within the meaning of Section 15 of the Securities Act of 1933
(the "Act") against any and all losses, claims, damages, liabilities or
3
<PAGE>
litigation (including legal and other expenses) to which Scudder Kemper or
such directors, officers or controlling person may become subject under the
Act, under any other statute, at common law or otherwise, arising out of the
acquisition of any Shares by any person which (i) may be based upon any
wrongful act by the Company, any of its employees or representatives, any
affiliate of or any person acting on behalf of the Company or a principal
underwriter of its insurance products, or (ii) may be based upon any untrue
statement or alleged untrue statement of a material fact contained in a
registration statement or prospectus covering Shares or any amendment thereof
or supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission was made in
reliance upon information furnished to Scudder Kemper or the Fund by the
Company, provided, however, that in no case (i) is the Company's indemnity in
favor of a director or officer or any other person deemed to protect such
director or officer or other person against any liability to which any such
person would otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence in the performance of his duties or by reason of his
reckless disregard of obligations and duties under this Agreement or (ii) is
the Company to be liable under its indemnity agreement contained in this
Paragraph 6 with respect to any claim made against Scudder Kemper or any
person indemnified unless Scudder Kemper or such person, as the case may be,
shall have notified the Company in writing pursuant to Paragraph 8 within a
reasonable time after the summons or other first legal process giving
4
<PAGE>
information of the nature of the claims shall have been served upon Scudder
Kemper or upon such person (or after Scudder Kemper or such person shall have
received notice of such service on any designated agent), but failure to
notify the Company of any such claim shall not relieve the Company from any
liability which it has to Scudder Kemper or any person against whom such
action is brought otherwise than on account of the indemnity agreement
contained in this Paragraph 6. The Company shall be entitled to participate,
at its own expense, in the defense, or, if it so elects, to assume the defense
of any suit brought to enforce any such liability, but, if it elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to Scudder Kemper, to its officers and directors, or to any
controlling person or persons, defendant or defendants in the suit. In the
event that the Company elects to assume the defense of any such suit and
retain such counsel, Scudder Kemper, such officers and directors or
controlling person or persons, defendant or defendants in the suit, shall bear
the fees and expenses of any additional counsel retained by them, but, in case
the Company does not elect to assume the defense of any such suit, the Company
will reimburse Scudder Kemper, such officers and directors or controlling
person or persons, defendant or defendants in such suit, for the reasonable
fees and expenses of any counsel retained by them. The Company agrees promptly
to notify Scudder Kemper pursuant to Paragraph 8 of the commencement of any
litigation or proceedings against it in connection with the issue and sale of
any Shares.
5
<PAGE>
(b) Scudder Kemper agrees to indemnify and hold harmless the Company and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the Act against any and all
losses, claims, damages, liabilities or litigation (including legal and other
expenses) to which the Company or such directors, officers or controlling
persons may become subject under the Act, under any other statute, at common
law or otherwise, arising out of the acquisition of any Shares by any person
which (i) may be based upon any wrongful act by Scudder Kemper, any of its
employees or representatives or a principal underwriter of the Fund, or (ii)
may be based upon any untrue statement or alleged untrue statement of a
material fact contained in a registration statement or prospectus covering
Shares or any amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading if such
statement or omission was made in reliance upon information furnished to the
Company by Scudder Kemper; provided, however, that in no case (i) is Scudder
Kemper's indemnity in favor of a director or officer or any other person
deemed to protect such director or officer or other person against any
liability to which any such person would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of his
duties or by reason of his reckless disregard of obligations and duties under
this Agreement or (ii) is Scudder Kemper to be liable under its indemnity
agreement contained in this Paragraph 6 with respect to any claims made
against the Company or any such director, officer or controlling person unless
6
<PAGE>
it or such director, officer or controlling person, as the case may be, shall
have notified Scudder Kemper in writing pursuant to Paragraph 8 within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon it or upon
such director, officer or controlling person (or after the Company or such
director, officer or controlling person shall have received notice of such
service on any designated agent), but failure to notify Scudder Kemper of any
claim shall not relieve it from any liability which it may have to the Company
or any person against whom such action is brought otherwise than on account of
its indemnity agreement contained in this Paragraph 6. Scudder Kemper will be
entitled to participate at its own expense in the defense, or, if it so
elects, to assume the defense of any suit brought to enforce any such
liability, but if Scudder Kemper elects to assume the defense, such defense
shall be conducted by counsel chosen by it and satisfactory to the Company,
its directors, officers or controlling person or persons, defendant or
defendants, in the suit. In the event Scudder Kemper elects to assume the
defense of any such suit and retain such counsel, the Company, its directors,
officers or controlling person or persons, defendant or defendants in the
suit, shall bear the fees and expenses of any additional counsel retained by
them, but, in case Scudder Kemper does not elect to assume the defense of any
such suit, it will reimburse the Company or such directors, officers or
controlling person or persons, defendant or defendants in the suit, for the
reasonable fees and expenses of any counsel retained by them. Scudder Kemper
agrees promptly to notify the Company pursuant to Paragraph 8 of the
commencement of any litigation or proceedings against it or any of its
7
<PAGE>
officers or directors in connection with the issuance or sale of any Shares.
(c) Scudder Kemper agrees to indemnify and hold harmless the Company and
each of its directors and officers against any and all losses, claims,
damages, liabilities or litigation arising from the imposition of additional
federal income taxes on the Company or any policyholder solely as a result of
a Final Determination that any Portfolio has failed (x) to comply with the
diversification requirements of section 817(h) of the Internal Revenue Code of
1986, as amended (the "Code"), relating to the diversification requirements
for variable annuity, endowment and life insurance contracts, or (y) to
qualify as a regulated investment company within the meaning of section 851 of
the Code; provided, however, that (i) Scudder Kemper shall have no liability
under this Paragraph 6(c) if such failure is caused by a third party who is
not an employee or agent of Scudder Kemper (e.g., the Fund's custodian or
another service provider), and (ii) in no case is Scudder Kemper's indemnity
under this Paragraph 6(c) deemed to protect any person against any liability
to which that person would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of that person's
duties or by reason of reckless disregard by that person of obligations under
this Agreement.
The Company agrees that if the Internal Revenue Service asserts in
writing in connection with any governmental audit or review of the Company or,
to the Company's knowledge, of any policyholder, that any Portfolio has failed
to comply with the diversification requirements of section 817(h) of the Code
8
<PAGE>
or the Company otherwise becomes aware of any facts that could give rise to
any claim against Scudder Kemper as a result of such a failure or alleged
failure, (i) the Company shall promptly notify Scudder Kemper of such
assertion or potential claim; (ii) the Company shall consult with Scudder
Kemper as to how to minimize any liability that may arise as a result of such
failure or alleged failure; (iii) the Company shall use its best efforts to
minimize any liability of Scudder Kemper for indemnification resulting from
such failure, including, without limitation, demonstrating, pursuant to
Treasury Regulations Section 1.817-5(a) (2), to the Commissioner of the
Internal Revenue Service that such failure was inadvertent; (iv) the Company
shall permit Scudder Kemper and its legal and accounting advisors to
participate in any conferences, settlement discussions or other administrative
or judicial proceedings or contests (including judicial appeals thereof) with
the Internal Revenue Service, any policyholder or any other claimant regarding
any claims that could give rise to indemnification by Scudder Kemper as a
result of such a failure or alleged failure; (v) any written materials to be
submitted by the Company to the Internal Revenue Service, any policyholder or
any other claimant in connection with any of the foregoing proceedings or
contests (including, without limitation, any such materials to be submitted to
the Internal Revenue Service pursuant to Treasury Regulations Section
1.817-5(a) (2)), (a) shall be provided by the Company to Scudder Kemper
(together with any supporting information or analysis) at least 10 business
days prior to the day on which such proposed materials are to be submitted and
(b) shall not be submitted by the Company to any such person without the
9
<PAGE>
express written consent of Scudder Kemper, which shall not be unreasonably
withheld; (vi) the Company shall provide Scudder Kemper and its advisors with
such cooperation as Scudder Kemper shall reasonably request (including,
without limitation, by permitting Scudder Kemper and its accounting and legal
advisors to review the relevant books and records of the Company) in order to
facilitate Scudder Kemper's review of any written submissions provided to it
pursuant to the preceding clause or its assessment of the validity or amount
of any claim against it arising from such a failure or alleged failure; (vii)
the Company shall not with respect to any claim of the IRS or any policyholder
that would give rise to a claim for indemnification against Scudder Kemper (a)
compromise or settle any claim, (b) accept any adjustment on audit, or (c)
forego any allowable judicial appeals, without the express written consent of
Scudder Kemper, which shall not be unreasonably withheld, provided that the
Company shall not be required to appeal any adverse judicial decision unless
Scudder Kemper shall have provided an opinion of independent counsel to the
effect that a reasonable basis (consistent with Formal Opinion 85-352 of the
American Bar Association) exists for taking such appeal; and (viii) Scudder
Kemper shall have no liability as a result of such failure or alleged failure
if the Company fails to comply with any of the foregoing clauses (i) through
(vii). Should Scudder Kemper refuse to give its written consent to any
compromise or settlement of any claim or liability hereunder, the Company may,
in its discretion, authorize Scudder Kemper to act in the name of the Company
in, and to control the conduct of, such conferences, discussions, proceedings,
contests or appeals and all administrative or judicial appeals thereof, and in
10
<PAGE>
that event Scudder Kemper shall bear the fees and expenses associated with the
conduct of the proceedings that it is so authorized to control.
For purposes of this Paragraph 6(c), "Final Determination" shall mean,
with respect to any claim, a settlement of such claim (including the
acceptance of an adjustment proposed by the Internal Revenue Service) or a
decision of a court of competent jurisdiction with respect to such claim that
has become final after either the (i) exhaustion of allowable appeals or (2)
expiration of the time to take any such appeal with respect to the claim.
7. MASSACHUSETTS LAW TO APPLY.
This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of The Commonwealth of Massachusetts.
8. NOTICES.
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in
writing to the other party.
If to Scudder Kemper:
Scudder Kemper Investments, Inc.
Two International Place
Boston, Massachusetts 02110
(617) 295-2275
Attn: David B. Watts
If to the Company:
USAA Life Insurance Company
9800 Fredericksburg Road
San Antonio, Texas 78288
Attn.: Dwain A. Akins, Esq.
11
<PAGE>
9. MISCELLANEOUS.
The captions in the Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the ___ day of ______, 199_.
[SEAL] SCUDDER KEMPER INVESTMENTS, INC.
By:
------------------
Mark S. Casady
Authorized Officer
[SEAL] USAA LIFE INSURANCE COMPANY
By:
--------------------
Name: Edwin L. Rosane
Title: President
12
EXHIBIT 1.(8)(d)(iv)
[USAA LOGO]
________, 1998
BY EXPRESS DELIVERY
Scudder Kemper Investments, Inc.
Scudder Investor Services, Inc.
Scudder Variable Life Investment Fund
2 International Place
Boston, MA 02110
Executives:
We are writing to augment and clarify certain of the terms and
conditions of: (1) the participation agreement, dated February 3, 1995, by and
between USAA Life Insurance Company ("USAA Life"), on behalf of the Separate
Account of USAA Life Insurance Company ("Separate Account") and the Life
Insurance Separate Account of USAA Life Insurance Company ("Life Insurance
Separate Account"), and the Scudder Variable Life Investment Fund ("Fund")
(hereinafter "Participation Agreement"); (2) the reimbursement agreement,
dated February 3, 1995, by and between USAA Life and Scudder, Stevens & Clark
("SS&C") (hereinafter "Reimbursement Agreement"); and (3) the participating
contract and policy agreement, dated February 3, 1995, by and between USAA
Investment Management Company ("IMCO") and Scudder Investor Services, Inc.
("SIS") (hereinafter "Policy Agreement").
Unless otherwise noted, the provisions set out below are intended to
apply to the Participation Agreement, Reimbursement Agreement and the Policy
Agreement (collectively, the "Agreements") and, to the extent contrary to or
inconsistent with any provision in any Agreement, shall modify such provision.
The headings used herein are for convenience of reference only.
Kindly acknowledge your acceptance and agreement to the following by
affixing your signature to the last page of this letter.
AVAILABLE PORTFOLIOS.
The Fund's Capital Growth Portfolio ("Portfolio" or "Capital Growth
Portfolio") is the only Fund series that USAA Life currently intends to make
available for investment through the Separate Account and the Life Insurance
Separate Account. Accordingly, any obligations of USAA Life with respect to
capital contributions or expense reimbursements required to be made under the
Participation Agreement shall be limited to the Capital Growth Portfolio,
until such time as USAA Life notifies the Fund that it intends to use one or
more additional portfolios.
9800 Fredericksburg Road San Antonio, Texas 78288 1-800-531-8000
In San Antonio 498-8000
<PAGE>
Scudder Kemper Investments, Inc.
________, 1998
Page 2
PURCHASES AND REDEMPTIONS.
1. TIMELY PRICING AND ORDERS. The Fund or its designated agent will use
all commercially reasonable efforts to provide to USAA Life the closing net
asset value and any dividend and capital gain information for the Portfolio by
5:15 p.m., Central time on each Business Day. "Business Day" shall mean any
day on which the Fund calculates the net asset value of its Funds pursuant to
rules of the Securities and Exchange Commission and as described in the Fund's
Prospectus. USAA Life will use these data to calculate unit values, which in
turn will be used to process transactions that receive that same Business
Day's Separate Account or Life Insurance Separate Account unit value. Such
Separate Account or Life Insurance Separate Account processing will be done
the same evening, and corresponding orders with respect to Fund shares will be
placed the morning of the following Business Day. USAA Life will use all
commercially reasonable efforts to place such orders with the Fund by 9 a.m.,
Central time.
2. TIMELY PAYMENTS. USAA Life or its designated agent will transmit
orders for purchases and redemptions of Fund shares to SIS, and will wire
payment for net purchases to a custodial account designated by the Fund on the
same day as the order for Fund shares is placed, to the extent practicable.
Payment for net redemptions will be wired by the Fund to an account designated
by USAA Life on the same day as the order is placed, to the extent
practicable, but in any event within such reasonably practicable period of
time after the order is placed as would enable USAA Life to pay redemption
proceeds in compliance with Section 22(e) of the Investment Company Act of
1940.
3. APPLICABLE PRICE. The Fund shall effect any orders to purchase or
redeem Portfolio shares that USAA Life submits on behalf of the Separate
Account, based on transactions under variable annuity contracts issued by USAA
Life ("Contracts"), and on behalf of the Life Insurance Separate Account,
based on transactions under variable life insurance policies ("Policies"), at
the Portfolio's net asset value per share as of the close of business on the
Business Day the order is received by USAA Life or its designee, acting as
agent for the Fund, provided that such order is received prior to the time as
of which the Fund calculates net asset value on that Business Day. If such
order is received after that time, the order will be effected at the
Portfolio's net asset value as of the close of business on the next Business
Day. Any orders to purchase shares of an available Fund not based on
transactions under Contracts or Policies will be effected at the Fund's net
asset value per share next computed after the order is received by the Fund.
4. REDEMPTIONS. The Fund shall redeem for cash from USAA Life those full
or fractional shares of the Portfolio that USAA Life requests from time to
time.
<PAGE>
Scudder Kemper Investments, Inc.
________, 1998
Page 3
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS.
USAA Life, on behalf of the Separate Account and the Life Insurance
Separate Account, hereby elects to reinvest all dividends and capital gains
distributions in additional shares of the Capital Growth Portfolio at the net
asset values on the payment date of such dividends and capital gains
distributions until USAA Life otherwise notifies the Fund in writing. USAA
Life reserves the right to revoke this election and to receive all such
dividends and capital gain distributions in cash. The Fund shall promptly
notify USAA Life of the number of shares so issued as payment of such
dividends and distributions.
AMENDMENT TO POLICY AGREEMENT.
As an additional inducement for IMCO to enter into the Policy Agreement,
SIS hereby agrees with IMCO as follows:
(1) in connection with Sections 6 and 12 of the Policy Agreement, SIS
will give IMCO thirty days' written notice before suspending sales or
withdrawing the offering of Shares (as defined in the Policy Agreement)
or terminating the Policy Agreement, except that sales of Shares may be
suspended or the offering of Shares withdrawn or the Policy Agreement
terminated without notice (i) if the continued offering or sale of
Shares would violate any applicable statute or regulation, order or
decree of any court, governmental agency or self-regulatory organization
having jurisdiction, or (ii) if in the sole discretion of the Trustees
of the Fund, including a majority of those Trustees who are not
"interested persons" as defined in the Investment Company Act of 1940,
as amended, of the Trust or of its investment adviser, such action is
determined to be necessary in the best interests of the Shareholders of
the Portfolio.
(2) no unilateral amendment pursuant to Section 6 of the Policy
Agreement shall be effective against IMCO unless it is accompanied by a
written notice from SIS stating that the amendment is necessary to
prevent the continued offering or sale of Shares from violating any
applicable statute or regulation, order or decree of any court,
governmental agency or self-regulating organization having jurisdiction.
<PAGE>
Scudder Kemper Investments, Inc.
________, 1998
Page 4
FUND MATERIALS.
The Fund, at its expense, shall provide USAA Life or its designee with
camera ready copy or computer diskette versions of all prospectuses (including
supplements thereto), statements of additional information, annual and
semi-annual reports, and proxy materials (collectively, "Fund Materials"), to
be printed and distributed by USAA Life or IMCO to existing and prospective
Contract or Policy owners, as appropriate. USAA Life agrees to bear the cost
of printing and distributing such Fund Materials.
TAX MATTERS.
1. The Fund, SS&C, or SIS will notify USAA Life immediately upon having
a reasonable basis for believing that the Portfolio has ceased to comply with
the requirements of Section 817(h) of the Internal Revenue Code of 1986, as
amended ("Code") or that the Portfolio might not so comply in the future. In
connection with a failure to comply with the Section 817(h) diversification
requirements, SS&C shall cooperate with USAA Life by providing it with full
explanation as to the circumstances that caused the failure, and the reasons
why the failure was inadvertent.
2. The limitation against liability set out in paragraph 6(c)(viii) of
the Reimbursement Agreement shall apply only where it can be shown that the
failure of USAA Life to comply with clauses 6(c)(i) through (vii) materially
contributed to the liability.
3. Each Agreement shall terminate, at the option of USAA Life or IMCO,
as the case may be, in the event of a non-curable failure by the Portfolio to
comply with the provisions of Subchapter M or Section 817(h) of the Code. To
the extent that any Agreement by its terms provides for one or more rights or
obligations thereunder to survive the termination of that Agreement, those
provisions shall survive the termination of that Agreement under this
paragraph.
MISCELLANEOUS.
(a) The Fund, SS&C, and SIS agree to make available to USAA Life and its
affiliates, to the extent permitted by applicable law, any arrangement for
utilization of the Portfolio, which arrangement has been or will be made
generally available to any other life insurance company or any affiliate of a
life insurance company.
<PAGE>
Scudder Kemper Investments, Inc.
________, 1998
Page 5
(b) This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
(c) The name "Scudder Variable Life Investment Fund" is the designation
of the Trustees for the time being under a Declaration of Trust dated March
15, 1985, as amended, and all persons dealing with the Fund must look solely
to the property of the Fund for the enforcement of any claims against the Fund
as neither the Trustees, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund. No Portfolio
shall be liable for any obligations properly attributable to any other
Portfolio.
---------------------------------
Very truly yours,
USAA LIFE INSURANCE COMPANY
By:
-------------------
Edwin L. Rosane
President
USAA INVESTMENT
MANAGEMENT COMPANY
By:
--------------------
John J. Dallahan
Senior Vice President
Investments Services
<PAGE>
Scudder Kemper Investments, Inc.
________, 1998
Page 6
We hereby agree to and accept the provisions set out above.
SCUDDER KEMPER INVESTMENTS, INC.
By:
------------------
Mark S. Casady
SCUDDER INVESTOR SERVICES, INC.
By: __________________
SCUDDER VARIABLE LIFE INVESTMENT FUND
By:
------------------
David B. Watts
EXHIBIT 1.(8)(e)(i)
AMENDED PARTICIPATION AGREEMENT
BY AND AMONG
USAA LIFE INSURANCE COMPANY
AND
THE ALGER AMERICAN FUND,
FRED ALGER MANAGEMENT, INC.,
FRED ALGER & COMPANY, INCORPORATED
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
DESCRIPTION PAGE
<S> <C>
Section 1. Available Portfolios..................................................... 2
1.1 Growth Portfolio...................................................... 2
1.2 Addition or Deletion of Portfolios.................................... 2
1.3 No Sales to the General Public........................................ 2
Section 2. Processing Transactions.................................................. 2
2.1 Timely Pricing and Orders............................................. 2
2.2 Timely Payments....................................................... 3
2.3 Applicable Price...................................................... 3
2.4 Dividends and Distributions........................................... 3
2.5 Book Entry............................................................ 4
Section 3. Costs and Expenses....................................................... 4
3.1 General............................................................... 4
3.2 Registration.......................................................... 4
3.3 Other (Non-Sales-Related)............................................. 5
3.4 Other (Sales-Related)................................................. 5
3.5 Parties to Cooperate.................................................. 5
Section 4. Legal Compliance......................................................... 5
4.1 Tax Laws.............................................................. 5
4.2 Insurance and Certain Other Laws...................................... 7
4.3 Securities Laws....................................................... 8
4.4 Notice of Certain Proceedings and Other Circumstances................. 9
4.5 USAA Life to Provide Documents; Information about the Trust........... 10
4.6 Trust to Provide Documents; Information about USAA Life............... 10
Section 5. Mixed and Shared Funding................................................. 11
5.1 General............................................................... 11
5.2 Disinterested Trustees................................................ 11
5.3 Monitoring for Material Irreconcilable Conflicts...................... 12
5.4 Conflict Remedies..................................................... 12
5.5 Notice to USAA Life................................................... 14
5.6 Information Requested by Board of Trustees............................ 14
5.7 Compliance with SEC Rules............................................. 14
5.8 Requirements for Other Insurance Companies............................ 14
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION PAGE
<S> <C>
Section 6. Termination.............................................................. 15
6.1 Events of Termination................................................. 15
6.2 Notice Requirement for Termination.................................... 16
6.3 Portfolios to Remain Available........................................ 16
6.4 Survival of Warranties and Indemnifications........................... 17
6.5 Continuance of Agreement for Certain Purposes......................... 17
Section 7. Parties to Cooperate Respecting Termination.............................. 17
Section 8. Assignment............................................................... 18
Section 9. Notices.................................................................. 18
Section 10. Voting Procedures........................................................ 19
Section 11. Foreign Tax Credits...................................................... 19
Section 12. Indemnification.......................................................... 19
12.1 Of Trust, Distributor and Adviser by USAA Life........................ 19
12.2 Of USAA Life by Distributor and Adviser............................... 21
12.3 Effect of Notice...................................................... 24
Section 13. Applicable Law........................................................... 24
Section 14. Execution in Counterparts................................................ 24
Section 15. Severability............................................................. 24
Section 16. Rights Cumulative........................................................ 25
Section 17. Restrictions on Sales of Trust Shares.................................... 25
Section 18. Scope of Liability....................................................... 25
Section 19. Headings................................................................. 26
</TABLE>
ii
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 16th day of December,
1994 and amended March 16, 1998 ("Agreement"), by and among USAA Life
Insurance Company, a Texas life insurance company ("USAA Life"), on behalf of
itself, the Separate Account of USAA Life Insurance Company (the "Separate
Account"), and the Life Insurance Separate Account of USAA Life Insurance
Company (the "Life Insurance Separate Account"), each an investment account
organized under the laws of Texas; The Alger American Fund, a Massachusetts
business trust (the "Trust"); Fred Alger Management, Inc., a New York
corporation ("Adviser"), the Trust's investment adviser; and Fred Alger &
Company, Incorporated, a Delaware corporation ("Distributor"), the Trust's
principal underwriter (collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, USAA Life will be the issuer of certain variable annuity
contracts of USAA Life that are the subject of USAA Life's Form N-4
registration statement filed with the Securities and Exchange commission
("SEC"), File No. 33-82268 (the "Contracts"); and
WHEREAS, USAA Life will be the issuer of certain flexible premium
variable universal life insurance policies that are the subject of USAA Life's
Form S-6 and Form N-8B-2 registration statements filed with the SEC, File No.
333-45343 and 811-08625, respectively, (the "Policy" or "Policies"); and
WHEREAS, USAA Life will fund the Contracts and Policies through the
Separate Account and Life Insurance Separate Account, respectively, each of
which currently consists of seven subaccounts ("Fund Accounts"; reference
herein to the "Separate Account" or "Life Insurance Separate Account" includes
reference to each Fund Account to the extent the context requires); and
WHEREAS, USAA Life will serve as the depositor of the Separate Account
and the Life Insurance Separate Account, each of which is a unit investment
trust registered as an investment company under the Investment Company Act of
1940 (the "1940 Act"), and the security interests deemed to be issued by the
Separate Account under the Contracts and the Life Insurance Separate Account
under the Policies will be registered as securities under the Securities Act
of 1933 (the "1933 Act"); and
WHEREAS, the Trust is registered with the SEC as an open-end management
investment company under the 1940 Act, consisting of six separate series
("Series") whose shares are registered under the 1933 Act; and
WHEREAS, the Trust and Distributor will make shares of each Series
listed on Schedule A hereto (each, a "Portfolio"; reference herein to the
"Trust" includes reference to each Portfolio to the extent the context
1
<PAGE>
requires) and made part hereof, available for purchase by the Separate Account
and the Life Insurance Separate Account; and
WHEREAS, the Trust's Alger American Growth Portfolio ("Growth
Portfolio") is currently the only Portfolio that USAA Life intends to utilize
as an investment medium for the benefit of the owners of the Contracts (the
"Contract owners") or Policies ("Policy owners") who have allocated Contract
or Policy value to the Fund Account corresponding to that Portfolio;
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
SECTION 1. AVAILABLE PORTFOLIOS
1.1 GROWTH PORTFOLIO.
The Trust and Distributor will make shares in the Growth Portfolio
available to USAA Life for purchase and redemption at net asset value and with
no sales charges, subject to the terms and conditions of this Agreement.
1.2 ADDITION OR DELETION OF PORTFOLIOS.
The Parties hereto may agree, from time to time, to add other Trust
Portfolios to provide additional funding media for the Contracts and Policies,
or to delete, combine, or modify existing Portfolios, by amending Schedule A
hereto. Upon such amendment to Schedule A, any applicable reference to a
Portfolio, the Trust, or its shares herein shall include a reference to any
such additional Portfolio.
1.3 NO SALES TO THE GENERAL PUBLIC.
The Trust and Distributor represent and warrant that no shares of any
Portfolio have been or will be sold to the general public.
2
<PAGE>
SECTION 2. PROCESSING TRANSACTIONS
2.1 TIMELY PRICING AND ORDERS.
The Trust or its designated agent will provide closing net asset value,
dividend and capital gain distribution information for each Portfolio to USAA
Life at the close of trading on each day on which (a) the New York Stock
Exchange is open for regular trading, (b) the Trust calculates the Portfolio's
net asset value and (c) USAA Life is open for business ("Business Day"). The
Trust or its designated agent will use its best efforts to provide this
information by 5:15 p.m., Central time. USAA Life will use these data to
calculate unit values, which in turn will be used to process transactions that
receive that same Business Day's Separate Account or Life Insurance Separate
Account unit value. Such Separate Account or Life Insurance Account processing
will be done the same evening, and corresponding orders with respect to Trust
shares will be placed the morning of the following Business Day. USAA Life
will use its best efforts to place such orders with the Trust by 9 a.m.,
Central time.
It is understood and agreed that the Trustees of the Trust may refuse to
sell shares of any Portfolio to any person, or suspend or terminate the
offering of shares of any Portfolio if such action is required by law or by
regulatory authorities having jurisdiction or if, in the sole discretion of
the Trustees acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, such action is deemed in the best
interests of the shareholders of such Portfolio.
2.2 TIMELY PAYMENTS.
USAA Life will transmit orders for purchases and redemptions of Trust
shares to Distributor, and will wire payment for net purchases to a custodial
account designated by the Trust on the same day as the order for Trust shares
is placed, to the extent practicable. Payment for net redemptions will be
wired by the Trust to an account designated by USAA Life on the same day as
the order is placed, to the extent practicable, and in any event be made
within five calendar days after the date the order is placed in order to
enable USAA Life to pay redemption proceeds within the time specified in
Section 22(e) of the 1940 Act.
2.3 APPLICABLE PRICE.
The Parties agree that Portfolio share purchase and redemption orders
that result from Contract or Policy owner purchase payments, surrenders,
partial surrenders, partial withdrawals, routine withdrawals of charges,
loans, loan repayments, payment of benefit proceeds at death or Policy
maturity, or requests for other transactions under the Contracts or Policies
that USAA Life receives prior to the close of regular trading on the New York
Stock Exchange on a Business Day, will be executed at the net asset values as
3
<PAGE>
determined as of the close of regular trading on the New York Stock Exchange
on that Day, which generally will be the Business Day prior to Distributor's
receipt of the corresponding orders for purchases and redemptions of Portfolio
shares. USAA Life or its designee shall act as the Trust's agent for receipt
of such orders. All other purchases and redemptions of Portfolio shares by
USAA Life will be effected at the net asset values next computed after receipt
by Distributor of the order therefor, and such orders will be irrevocable.
2.4 DIVIDENDS AND DISTRIBUTIONS.
The Trust will furnish notice promptly to USAA Life of any income
dividends or capital gain distributions payable on the shares of any
Portfolio. USAA Life hereby elects to reinvest all dividends and capital gains
distributions in additional shares of the corresponding Portfolio at the
ex-dividend date net asset values until USAA Life otherwise notifies the Trust
in writing, it being agreed by the Parties that the ex-dividend date and the
payment date with respect to any dividend or distribution will be the same
Business Day. USAA Life reserves the right to revoke this election and to
receive all such income dividends and capital gain distributions in cash. The
Trust shall notify USAA Life of the number of shares so issued as payment of
such dividends and distributions.
2.5 BOOK ENTRY.
Issuance and transfer of Trust shares will be by book entry only. Stock
certificates will not be issued to USAA Life. Shares ordered from the Trust on
behalf of the Separate Account will be recorded in an appropriate title for
USAA Life, on behalf of its Separate Account. Shares ordered from the Trust on
behalf of the Life Insurance Separate Account will be recorded in an
appropriate title for USAA Life, on behalf of its Life Insurance Separate
Account.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided herein, each Party will bear
all expenses incident to its performance under this Agreement.
3.2 REGISTRATION.
(a) The Trust will bear the cost of its registering as a management
investment company under the 1940 Act and registering its shares under the
1933 Act, and keeping such registrations current and effective; including,
without limitation, the preparation of and filing with the SEC of Forms N-SAR
4
<PAGE>
and Rule 24f-2 Notices respecting the Trust and its shares and payment of all
applicable registration or filing fees with respect to any of the foregoing.
(b) USAA Life will bear the cost of registering the Separate Account
and the Life Insurance Separate Account as a unit investment trust under the
1940 Act and registering units of interest under the Contracts and Policies
under the 1933 Act and keeping such registrations current and effective;
including, without limitation, the preparation and filing with the SEC of
Forms N-SAR and Rule 24f-2 Notices respecting the Separate Account and the
Life Insurance Separate Account and each of its units of interest and payment
of all applicable registration or filing fees with respect to any of the
foregoing.
3.3 OTHER (NON-SALES-RELATED).
(a) The Trust will bear the costs of preparing, filing with the SEC
and setting for printing the Trust's prospectus, statement of additional
information and any amendments or supplements thereto (collectively, the
"Trust Prospectus"), periodic reports to shareholders, Trust proxy material
and other shareholder communications.
(b) USAA Life will bear the costs of preparing, filing with the SEC
and setting for printing, the Separate Account's prospectus, statement of
additional information and any amendments or supplements thereto
(collectively, the "Separate Account Prospectus"), any periodic reports to
Contract owners, annuitants or participants under the Contracts (collectively,
and with Policy owners, "Participants"), voting instruction solicitation
material, and other Participant communications.
(c) USAA Life will bear the costs of preparing, filing with the SEC
and setting for printing, the Life Insurance Separate Account's prospectus and
any amendments or supplements thereto (collectively, the "Life Insurance
Separate Account Prospectus"), any periodic reports to Policy owners, voting
instruction solicitation material, and other Policy owner communications.
(d) USAA Life or its affiliates shall print in quantity and deliver to
existing Participants the documents provided by the Trust in camera ready form
pursuant to Section 4.6(b) hereof. The costs of printing in quantity and
delivering to existing Participants such documents will be allocated between
USAA Life or its affiliates and the Trust or its affiliates as they shall
determine by separate agreement.
3.4 OTHER (SALES-RELATED).
Expenses of distributing a Portfolio's shares and the Contracts and
Policies will be allocated between USAA Life, or its affiliates, and the
Trust, or its affiliates, as they shall determine by separate agreement. As
5
<PAGE>
used in this Agreement, the term "affiliates" shall have the same meaning as
"affiliated person" as defined in Section 2(a)(3) of the 1940 Act.
3.5 PARTIES TO COOPERATE.
The Trust, Adviser, Distributor and USAA Life, each agrees to cooperate
with the others, as applicable, in arranging to print, mail and/or deliver
combined or coordinated prospectuses or other materials of the Trust, Separate
Account and Life Insurance Separate Account.
SECTION 4. LEGAL COMPLIANCE
4.1 TAX LAWS.
(a) The Trust represents and warrants that each Portfolio is currently
qualified as a regulated investment company ("RIC") under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), and represents that it
will use its best efforts to qualify and to maintain qualification of each
Portfolio as a RIC and the Trust, Adviser or Distributor will notify USAA Life
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.
(b) USAA Life represents that it believes, in good faith, that the
Contracts and Policies will be treated as annuity contracts and life insurance
policies, respectively, under applicable provisions of the Code and that it
will use its best efforts to maintain such treatment; USAA Life will notify
the Trust and Distributor immediately upon having a reasonable basis for
believing that any of the Contracts or Policies have ceased to be so treated
or that they might not be so treated in the future.
(c) The Trust represents that it will use its best efforts to comply
and to maintain each Portfolio's compliance with the diversification
requirements set forth in Section 817(h) of the Code and Section 1.817-5(b) of
the regulations under the Code, and the Trust, Adviser or Distributor will
notify USAA Life immediately upon having a reasonable basis for believing that
a Portfolio has ceased to so comply or that a Portfolio might not so comply in
the future.
(d) USAA Life represents that it believes, in good faith, that the
Separate Account and Life Insurance Separate Account are each a "segregated
asset account" and that interests in the Separate Account and Life Insurance
Separate Account are offered exclusively through the purchase of or transfer
into a "variable contract," within the meaning of such terms under Section 817
of the Code and the regulations thereunder. USAA Life will use its best
efforts to continue to meet such definitional requirements, and it will notify
the Trust and Distributor immediately upon having a reasonable basis for
6
<PAGE>
believing that such requirements have ceased to be met or that they might not
be met in the future.
(e) Adviser represents and warrants that it will manage each Portfolio
in compliance with its investment objectives, policies and restrictions as set
forth in the Trust Prospectus. Adviser further represents and warrants that it
will manage each Portfolio as a RIC in compliance with Subchapter M and
Section 817(h) of the Code and regulations thereunder.
(f) The Trust represents that it has adopted and will maintain
procedures for ensuring that the Trust is managed in compliance with
Subchapter M and Section 817(h) of the Code and regulations thereunder, and in
a manner designed to avoid the imposition of excise taxes under Section 4982
of the Code or any other similar or successor provision. On request, the Trust
will also provide USAA Life with such materials, cooperation and assistance as
may be reasonably necessary for USAA Life or any person designated by USAA
Life to review from time to time the procedures and practices of Adviser or
any other provider of services to the Trust for ensuring that the Trust is
managed in compliance with Subchapter M and Section 817(h) of the Code and
regulations thereunder. The Parties hereto agree that the Trust shall not
incur any unreasonable costs in connection with the provision of any material,
cooperation or assistance to USAA Life pursuant to this paragraph.
(g) Within 15 Business Days after the end of each calendar quarter,
the Adviser will furnish to USAA Life a letter confirming the Trust's
compliance with Subchapter M and Section 817(h) of the Code and regulations
thereunder as of the end of the applicable quarter, or, in the case of the
last quarter in each year, for the 12 months then ended.
(h) In the event of any noncompliance or potential noncompliance with
Subchapter M or Section 817(h) of the Code and regulations thereunder, the
Trust will take such action as is necessary or appropriate to cure any
noncompliance during a grace period of 30 calendar days after the end of the
calendar quarter in which such noncompliance occurred. If the Trust so cures
the noncompliance, it will furnish USAA Life with a report by the last day of
such grace period confirming the same. If the Trust does not so cure the
noncompliance regarding its status as a RIC, the Trust will pursue those
efforts necessary to enable each affected Portfolio to qualify once again for
treatment as a RIC in compliance with Subchapter M. If the Trust does not so
cure the noncompliance regarding its status under Section 817(h), the Trust
will cooperate in good faith with USAA Life's efforts to obtain a ruling and
closing agreement, as provided in Revenue Procedure 92-25 issued by the
Internal Revenue Service (or any applicable ruling or procedure subsequently
issued by the Internal Revenue Service), that the Trust satisfies Section
817(h) for the applicable period or periods.
7
<PAGE>
4.2 INSURANCE AND CERTAIN OTHER LAWS.
(a) The Trust will use its best efforts to comply with any applicable
state insurance laws or regulations, to the extent specifically requested in
writing by USAA Life.
(b) USAA Life represents and warrants that (i) it is an insurance
company duly organized, validly existing and in good standing under the laws
of the State of Texas and has full corporate power, authority and legal right
to execute, deliver and perform its duties and comply with its obligations
under this Agreement, (ii) it has legally and validly established and
maintains the Separate Account and the Life Insurance Separate Account each as
a segregated asset account under Chapter 3, Article 3.75 of the Texas
Insurance Code and the regulations thereunder, and (iii) the Contracts and
Policies comply in all material respects with all other applicable federal and
state laws and regulations.
(c) Distributor represents and warrants that it is a business
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware and has full corporate power, authority and
legal right to execute, deliver, and perform its duties and comply with its
obligations under this Agreement.
(d) The Trust, Adviser and Distributor represent and warrant that the
Trust is a business trust duly organized, validly existing, and in good
standing under the laws of the Commonwealth of Massachusetts and has full
power, authority, and legal right to execute, deliver, and perform its duties
and comply with its obligations under this Agreement.
(f) Adviser represents and warrants that it is a corporation, duly
organized, validly existing and in good standing under the laws of New York
and has full power, authority, and legal right to execute, deliver, and
perform its duties and comply with its obligations under this Agreement.
4.3 SECURITIES LAWS.
(a) USAA Life represents and warrants that (i) interests in the
Separate Account pursuant to the Contracts and in the Life Insurance Separate
Account pursuant to the Polices will be registered under the 1933 Act to the
extent required by the 1933 Act, and the Contracts and Policies will be duly
authorized for issuance and sold in compliance with Texas law, (ii) the
Separate Account and Life Insurance Separate Account each is and will remain
registered under the 1940 Act, to the extent required under the 1940 Act,
(iii) the Separate Account and Life Insurance Separate Account each does and
will comply in all material respects with the requirements of the 1940 Act and
the rules thereunder, (iv) the Separate Account's and the Life Insurance
Separate Account's 1933 Act registration statement relating to the Contracts
and Policies, respectively, together with any amendments thereto, will at all
times comply in all material respects with the requirements of the 1933 Act
and the rules thereunder, and (v) the Separate Account Prospectus and Life
Insurance Separate Account Prospectus each will at all times comply in all
material respects with the requirements of the 1933 Act and the rules
thereunder.
8
<PAGE>
(b) The Trust and Distributor represent and warrant that (i) Trust
shares sold pursuant to this Agreement will be registered under the 1933 Act
to the extent required by the 1933 Act and duly authorized for issuance and
sold in compliance with Massachusetts law, (ii) the Trust is and will remain
registered under the 1940 Act to the extent required by the 1940 Act, (iii)
the Trust will amend the registration statement for its shares under the 1933
Act and itself under the 1940 Act from time to time as required in order to
effect the continuous offering of shares, (iv) the Trust does and will comply
in all material respects with the requirements of the 1940 Act and the rules
thereunder, (v) the Trust's 1933 Act registration statement, together with any
amendments thereto, will at all times comply in all material respects with the
requirements of the 1933 Act and rules thereunder, and (vi) the Trust
Prospectus will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder.
(c) The Trust will register and qualify its shares for sale in
accordance with the laws of any state or other jurisdiction if and to the
extent reasonably deemed advisable by the Trust, USAA Life or any other life
insurance company utilizing the Trust.
(d) Distributor represents and warrants that it is registered as a
broker-dealer with the SEC under the Securities Exchange Act of 1934, as
amended, and is a member in good standing of the National Association of
Securities Dealers, Inc. (the "NASD"), and that it has and will perform its
obligations hereunder in compliance in all material respects with the federal
securities laws, any applicable state securities laws, and the regulations of
the NASD.
(e) Adviser represents and warrants that it is registered as an
investment adviser with the SEC under the Investment Advisers Act of 1940, as
amended, and under such state securities laws as may be applicable, and that
it has and will perform its obligations hereunder in compliance in all
material respects with the federal securities laws and any applicable state
securities laws.
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
(a) Distributor or the Trust will immediately notify USAA Life of (i)
the issuance by any court or regulatory body of any stop order, cease and
desist order, or other similar order with respect to the Trust's registration
statement under the 1933 Act or the Trust Prospectus, (ii) any request by the
SEC for any amendment to such registration statement or Trust Prospectus,
(iii) the initiation of any proceedings for that purpose or for any other
purpose relating to the registration or offering of the Trust's shares, or
(iv) any other action or circumstances that may prevent the lawful offer or
sale of shares of any Portfolio in any state or jurisdiction, including,
without limitation, any circumstances in which (x) such shares are not
registered and, in all material respects, issued and sold in accordance with
applicable state and federal law or (y) such law precludes the use of such
shares as an underlying investment medium of the Contracts or the Policies
issued or to be issued by USAA Life. Distributor and the Trust will make every
reasonable effort to prevent the issuance, with respect to any Portfolio, of
9
<PAGE>
any such stop order, cease and desist order or similar order and, if any such
order is issued, to obtain the lifting thereof at the earliest possible time.
(b) USAA Life will immediately notify the Trust of (i) the issuance by
any court or regulatory body of any stop order, cease and desist order, or
other similar order with respect to the Separate Account's or Life Insurance
Separate Account's registration statement under the 1933 Act relating to the
Contracts or the Separate Account Prospectus, or the Policies or the Life
Insurance Separate Account Prospectus, respectively, (ii) any request by the
SEC for any amendment to such registration statements or Prospectuses, (iii)
the initiation of any proceedings for that purpose or for any other purpose
relating to the registration or offering of the Separate Account interests
pursuant to the Contracts or the Life Insurance Separate Account interests
pursuant to the Policies, or (iv) any other action or circumstances that may
prevent the lawful offer or sale of said interests in any state or
jurisdiction, including, without limitation, any circumstances in which said
interests are not registered and, in all material respects, issued and sold in
accordance with applicable state and federal law. USAA Life will make every
reasonable effort to prevent the issuance of any such stop order, cease and
desist order or similar order and, if any such order is issued, to obtain the
lifting thereof at the earliest possible time.
4.5 USAA LIFE TO PROVIDE DOCUMENTS; INFORMATION ABOUT THE TRUST.
(a) USAA Life will provide to the Trust one complete copy of all SEC
registration statements, Separate Account Prospectuses, Life Insurance
Separate Account Prospectuses, reports, any preliminary and final voting
instruction solicitation material, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate to the
Separate Account, the Contracts, the Life Insurance Separate Account or the
Policies, contemporaneously with the filing of such document with the SEC or
other regulatory authorities.
(b) USAA Life will provide to the Trust or its designee each piece of
sales literature or other promotional material in which the Trust,
Distributor, and/or Adviser is named, at least 15 Business Days prior to its
use or such shorter period as the Parties hereto may, from time to time, agree
upon. No such material shall be used if the Trust or its designee objects to
such use within 15 Business Days after receipt of such material or such
shorter period as the Parties hereto may, from time to time, agree upon. The
Trust hereby designates its Adviser as the entity to receive such sales
literature, until such time as the Trust appoints another designee by giving
notice to USAA Life in the manner required by Section 9 hereof.
(c) Neither USAA Life nor any of its affiliates will give any
information or make any representations or statements on behalf of or
concerning the Trust in connection with the sale of the Contracts or the
Policies other than (i) the information or representations contained in the
registration statement, including the Trust Prospectus contained therein,
relating to shares of a Portfolio, as such registration statement and Trust
Prospectus may be amended from time to time; or (ii) in reports or proxy
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materials for the Trust; or (iii) in sales literature or other promotional
material approved by the Trust or Distributor, except with the permission of
the Trust or Distributor.
4.6 TRUST TO PROVIDE DOCUMENTS; INFORMATION ABOUT USAA LIFE.
(a) The Trust will provide to USAA Life one complete copy of all SEC
registration statements, Trust Prospectuses, reports, any preliminary and
final proxy material, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Trust or
the shares of a Portfolio, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
(b) The Trust will provide to USAA Life camera ready copies of all
Trust Prospectuses, proxy materials, periodic reports to shareholders and
other materials required by law to be sent to Contract or Policy owners who
have allocated any Contract or Policy value to a Portfolio. The Trust will
provide such camera ready copies to USAA Life in a timely manner so as to
enable USAA Life to print and distribute such materials within the time
required by law to be furnished to Contract and Policy owners.
(c) The Trust will provide to USAA Life or its designee each piece of
sales literature or other promotional material in which USAA Life or any of
its affiliates is named, or which refers to the Contracts or Policies, at
least 15 Business Days prior to its use or such shorter period as the Parties
hereto may, from time to time, agree upon. No such material shall be used if
USAA Life or its designee objects to such use within 15 Business Days after
receipt of such material or such shorter period as the Parties hereto may,
from time to time, agree upon. USAA Life shall receive all such sales
literature until such time as it appoints a designee by giving notice to the
Trust in the manner required by Section 9 hereof.
(d) Neither the Trust nor any of its affiliates will give any
information or make any representations or statements on behalf of or
concerning USAA Life, the Separate Account, the Contracts, the Life Insurance
Separate Account or the Policies other than (i) the information or
representations contained in the registration statement, including the
Separate Account Prospectus contained therein, relating to the Contracts, as
such registration statement and Separate Account Prospectus may be amended
from time to time; or (ii) the information or representations contained in the
registration statement, including the Life Insurance Separate Account
Prospectus contained therein, relating to the Policies, as such registration
statement and Life Insurance Separate Account Prospectus may be amended from
time to time; (iii) in reports or voting instruction materials for the
Separate Account or the Life Insurance Separate Account; or (iv) in sales
literature or other promotional material approved by USAA Life or its
affiliates, except with the express written permission of USAA Life.
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SECTION 5. MIXED AND SHARED FUNDING
5.1 GENERAL.
The Trust represents and warrants that it has received an order from the
SEC exempting it from certain provisions of the 1940 Act and rules thereunder
so that the Trust may be available for investment by certain other entities,
including, without limitation, separate accounts funding variable life
insurance contracts ("Mixed Funding") and separate accounts of insurance
companies unaffiliated with USAA Life ("Shared Funding"). The Parties
recognize that the SEC has imposed terms and conditions for such orders that
are substantially identical to many of the provisions of this Section 5.
Sections 5.2 through 5.8 below shall apply, if and only if the Trust
implements Mixed or Shared Funding, pursuant to such an exemptive order or
otherwise.
5.2 DISINTERESTED TRUSTEES.
The Trust agrees that its Board of Trustees shall at all times consist
of trustees a majority of whom (the "Disinterested Trustees") are not
interested persons of the Trust within the meaning of Section 2(a)(19) of the
1940 Act.
5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS.
The Trust agrees that its Board of Trustees will monitor for the
existence of any material irreconcilable conflict between the interests of the
participants in all separate accounts of life insurance companies utilizing
the Trust, including the Separate Account. USAA Life agrees to inform the
Board of Trustees of the Trust of the existence of or any potential for any
such material irreconcilable conflict of which it is aware. The concept of a
"material irreconcilable conflict" is not defined by the 1940 Act or the rules
thereunder, but the Parties recognize that such a conflict may arise for a
variety of reasons, including, without limitation:
(a) an action by any state insurance or other regulatory authority;
(b) a change in applicable federal or state insurance, tax or
securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action
by insurance, tax or securities regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any Portfolio are being
managed;
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(e) a difference in voting instructions given by variable annuity
contract and variable life insurance contract participants or by
participants of different life insurance companies utilizing the
Trust; or
(f) a decision by a life insurance company utilizing the Trust to
disregard the voting instructions of participants.
Consistent with the SEC's requirements in connection with exemptive
proceedings of the type referred to in Section 5.1 hereof, USAA Life will
assist the Board of Trustees in carrying out its responsibilities by providing
the Board of Trustees with all information reasonably necessary for the Board
of Trustees to consider any issue raised, including information as to a
decision by USAA Life to disregard voting instructions of Participants.
5.4 CONFLICT REMEDIES.
(a) It is agreed that if it is determined by a majority of the members
of the Board of Trustees or a majority of the Disinterested Trustees that a
material irreconcilable conflict exists, USAA Life and the other life
insurance companies utilizing the Trust will, at their own 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 material irreconcilable conflict, which steps may include, but
are not limited to:
(i) withdrawing the assets allocable to some or all of the separate
accounts from the Trust or any Portfolio and reinvesting such
assets in a different investment medium, including another
Portfolio of the Trust, or submitting the question whether such
segregation should be implemented to a vote of all affected
participants and, as appropriate, segregating the assets of any
particular group (E.G., annuity contract owners or participants,
life insurance contract owners or all contract owners and
participants of one or more life insurance companies utilizing the
Trust) that votes in favor of such segregation, or offering to the
affected contract owners or participants the option of making such
a change; and
(ii) establishing a new registered investment company of the type
defined as a "Management Company" in Section 4(3) of the 1940 Act
or a new separate account that is operated as a Management
Company.
(b) If the material irreconcilable conflict arises because of USAA
Life's decision to disregard Participant voting instructions and that decision
represents a minority position or would preclude a majority vote, USAA Life
may be required, at the Trust's election, to withdraw the Separate Account's
or Life Insurance Separate Account's investment in the Trust. No charge or
penalty will be imposed as a result of such withdrawal. Any such withdrawal
must take place within six months after the Trust gives notice to USAA Life
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that this provision is being implemented, and until such withdrawal
Distributor and the Trust shall continue to accept and implement orders by
USAA Life for the purchase and redemption of shares of the Trust.
(c) If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to USAA Life conflicts with
the majority of other state regulators, then USAA Life will withdraw the
Separate Account's or Life Insurance Separate Account's investment in the
Trust within six months after the Trust's Board of Trustees informs USAA Life
that it has determined that such decision has created a material
irreconcilable conflict, and until such withdrawal Distributor and Trust shall
continue to accept and implement orders by USAA Life for the purchase and
redemption of shares of the Trust.
(d) USAA Life agrees that any remedial action taken by it in resolving
any material irreconcilable conflict will be carried out at its expense and
with a view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Trustees will
determine whether or not any proposed action adequately remedies any material
irreconcilable conflict. In no event, however, will the Trust or Distributor
be required to establish a new funding medium for any Contracts or Policies.
USAA Life will not be required by the terms hereof to establish a new funding
medium for any Contracts or Policies if an offer to do so has been declined by
vote of a majority of Participants materially adversely affected by the
material irreconcilable conflict.
5.5 NOTICE TO USAA LIFE.
The Trust will promptly make known in writing to USAA Life the Board of
Trustees' determination of the existence of a material irreconcilable
conflict, a description of the facts that give rise to such conflict and the
implications of such conflict.
5.6 INFORMATION REQUESTED BY BOARD OF TRUSTEES.
USAA Life and the Trust will at least annually submit to the Board of
Trustees of the Trust such reports, materials or data as the Board of Trustees
may reasonably request so that the Board of Trustees may fully carry out the
obligations imposed upon it by the provisions hereof, and said reports,
materials and data will be submitted at any reasonable time deemed appropriate
by the Board of Trustees. All reports received by the Board of Trustees of
potential or existing conflicts, and all Board of Trustees actions with regard
to determining the existence of a conflict, notifying life insurance companies
utilizing the Trust of a conflict, and determining whether any proposed action
adequately remedies a conflict, will be properly recorded in the minutes of
the Board of Trustees or other appropriate records, and such minutes or other
records will be made available to the SEC upon request.
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5.7 COMPLIANCE WITH SEC RULES.
If, at any time during which the Trust is serving as an investment
medium for variable life insurance policies, 1940 Act Rules 6e-3(T) or, if
applicable, 6e-2 are amended or Rule 6e-3 is adopted to provide exemptive
relief with respect to mixed and shared funding, the Trust agrees that it will
comply with the terms and conditions thereof and that the terms of this
Section 5 shall be deemed modified if and only to the extent required in order
also to comply with the terms and conditions of such exemptive relief that is
afforded by any of said rules that are applicable.
5.8 REQUIREMENTS FOR OTHER INSURANCE COMPANIES.
The Trust will require that each insurance company utilizing the Trust
enter into an agreement with the Trust that contains in substance the same
provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a), 4.4(b),
4.5(a), 5, 10 and 18(a) of this Agreement.
SECTION 6. TERMINATION
6.1 EVENTS OF TERMINATION.
Subject to Section 6.4 below, this Agreement will terminate as to a
Portfolio:
(a) at the option of USAA Life, Distributor or the Trust upon the
approval by (x) a majority of the Disinterested Trustees or (y) a majority
vote of the shares of the affected Portfolio that are held in the
corresponding Fund Account of the Separate Account or Life Insurance Separate
Account (pursuant to the procedures set forth in Section 10 of this Agreement
for voting Trust shares in accordance with Participant instructions);
provided, however, that the approvals described in clauses (x) and (y) above
shall not be required if (1) the aggregate account value under the Contracts
or Policies is less than $25 million, respectively, at the date the notice of
termination is delivered, and (2) the notice of termination is delivered no
earlier than the end of the 36th full calendar month following the date this
Agreement was amended; or
(b) at the option of the Trust upon institution of formal proceedings
against USAA Life or its affiliates by the NASD, the SEC, any state insurance
regulator or any other regulatory body regarding USAA Life's obligations under
this Agreement or related to the sale of the Contracts or Policies, the
operation of the Separate Account or the Life Insurance Separate Account, or
the purchase of the Trust shares, if, in each case, the Trust reasonably
determines that such proceedings, or the facts on which such proceedings would
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be based, have a material likelihood of imposing material adverse consequences
on the Portfolio with respect to which the Agreement is to be terminated; or
(c) at the option of USAA Life upon institution of formal proceedings
against the Trust, Distributor, or Adviser by the NASD, the SEC, or any state
insurance regulator or any other regulatory body regarding the Trust's,
Distributor's or Adviser's obligations under this Agreement or related to the
operation or management of the Trust or the purchase of Trust shares, if, in
each case, USAA Life reasonably determines that such proceedings, or the facts
on which such proceedings would be based, have a material likelihood of
imposing material adverse consequences on USAA Life, or the Fund Accounts
corresponding to the Portfolio with respect to which the Agreement is to be
terminated; or
(d) at the option of any Party in the event that (i) the Portfolio's
shares are not registered and, in all material respects, issued and sold in
accordance with any applicable state or federal law or (ii) such law precludes
the use of such shares as an underlying investment medium of the Contracts or
Policies issued or to be issued by USAA Life; or
(e) upon termination of the corresponding Fund Accounts' investment in
the Portfolio pursuant to Section 5 hereof; or
(f) at the option of USAA Life if the Portfolio ceases to qualify as a
RIC under Subchapter M of the Code or under successor or similar provisions,
or if USAA Life reasonably believes that the Portfolio may fail to so qualify;
(g) at the option of USAA Life if the Portfolio fails to comply with
Section 817(h) of the Code or with successor or similar provisions, or if USAA
Life reasonably believes that the Portfolio may fail to so comply; or
(h) in the event of any change in the Portfolio's investment adviser
or investment practices, at the option of USAA Life if USAA Life reasonably
believes that such change will materially increase the risks incurred by USAA
Life or Participants; or
(i) at the option of any Party if the Contracts or Policies issued by
USAA Life cease to qualify as annuity contracts or life insurance policies,
respectively, under the Code (other than by reason of the Portfolio's
noncompliance with Section 817(h) or Subchapter M of the Code) or if interests
in the Separate Account under the Contracts or in the Life Insurance Separate
Account under the Policies are not registered and, in all material respects,
issued or sold in accordance with any applicable state or federal law.
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6.2 NOTICE REQUIREMENT FOR TERMINATION.
No termination of this Agreement will be effective unless and until the
Party terminating this Agreement gives prior written notice to the other Party
to this Agreement of its intent to terminate, and such notice shall set forth
the basis for such termination. Furthermore,
(a) in the event that any termination is based upon the provisions of
Section 6.1(a) or 6.1(e) hereof, such prior written notice shall be given at
least six months days in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto;
(b) in the event that any termination is based upon the provisions of
Section 6.1(b) or Section 6.1(c) hereof, such prior written notice shall be
given at least ninety (90) days in advance of the effective date of
termination unless a shorter time is agreed to by the Parties hereto;
(c) in the event that any termination is based upon the provisions of
Section 6.1(d), Section 6.1(f), Section 6.1(g), Section 6.1(h) or Section
6.1(i) hereof, such prior written notice shall be given as soon as possible
within twenty-four (24) hours after the terminating Party learns of the event
causing termination to be required.
6.3 PORTFOLIOS TO REMAIN AVAILABLE.
Except (i) as necessary to implement Participant-initiated transactions,
(ii) as required by state insurance laws or regulations, (iii) as required
pursuant to Section 5 of this Agreement, or (iv) with respect to any Portfolio
as to which this Agreement has terminated, USAA Life shall not (x) redeem
Trust shares attributable to the Contracts or Policies (as opposed to Trust
shares attributable to USAA Life's assets held in the Separate Account or Life
Insurance Separate Account), or (y) prevent Participants from allocating
payments to or transferring amounts from a Portfolio that was otherwise
available under the Contracts or Policies, until, in either case, 90 calendar
days after USAA Life shall have notified the Trust or Distributor of its
intention to do so.
6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS.
All warranties and indemnifications will survive the termination of
this Agreement.
6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES.
If any Party terminates this Agreement with respect to any Portfolio
pursuant to Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i)
hereof, this Agreement shall nevertheless continue in effect as to any shares
of that Portfolio that are outstanding as of the date of such termination (the
"Initial Termination Date"). This continuation shall extend to the earlier of
the date as of which the Separate Account or Life Insurance Separate Account
owns no shares of the affected Portfolio or a date (the "Final Termination
Date") six months following the Initial Termination Date, except that USAA
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Life may, by written notice to the other Parties, shorten said six month
period in the case of a termination pursuant to Sections 6.1(d), 6.1(f),
6.1(g), 6.1(h) or 6.1(i).
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
The other Parties hereto agree to cooperate with and give reasonable
assistance to USAA Life in taking all necessary and appropriate steps for the
purpose of ensuring that the Separate Account or Life insurance Separate
Account owns no shares of a Portfolio after the Final Termination Date with
respect thereto, or, in the case of a termination pursuant to Section 6.1(a),
the termination date specified in the notice of termination. Such steps may
include combining the affected Fund Account with another Fund Account,
substituting other mutual fund shares for those of the affected Portfolio, or
otherwise terminating participation by the Contracts or the Policies in such
Portfolio.
SECTION 8. ASSIGNMENT
This Agreement may not be assigned by any Party, except with the written
consent of each other Party.
SECTION 9. NOTICES
Notices and communications required or permitted by Section 2 hereof
will be given by means mutually acceptable to the Parties concerned. Each
other notice or communication required or permitted by this Agreement will be
given to the following persons at the following addresses and facsimile
numbers, or such other persons, addresses or facsimile numbers as the Party
receiving such notices or communications may subsequently direct in writing:
USAA Life Insurance Company
9800 Fredericksburg Road
San Antonio, TX 78288
Attn: Dwain A. Akins, Esq.
FAX: 210-498-0608
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The Alger American Fund
75 Maiden Lane
New York, NY 10038
Attn: Gregory S. Duch
FAX: 201-434-1459
Fred Alger Management, Inc.
75 Maiden Lane
New York, NY 10038
Attn: Gregory S. Duch
FAX: 201-434-1459
Fred Alger & Company, Incorporated
30 Montgomery Street
Jersey City, NJ 07302
Attn: Gregory S. Duch
FAX: 201-434-1459
SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3 hereof,
USAA Life will distribute all proxy material furnished by the Trust to
Participants and will vote Trust shares in accordance with instructions
received from Participants. USAA Life will vote Trust shares that are (a) not
attributable to Participants or (b) attributable to Participants, but for
which no instructions have been received, in the same proportion as Trust
shares for which said instructions have been received from Participants. USAA
Life agrees that, with respect to the Policies, it will disregard Participant
voting instructions only to the extent it would be permitted to do so pursuant
to Rule 6e-3(T)(b)(15)(iii) under the 1940 Act. USAA Life agrees that, with
respect to the Contracts, it will disregard Participant voting instructions
only to the extent it would be permitted to do so pursuant to Rule
6e-3(T)(b)(15)(iii) under the 1940 if the Contracts were variable life
insurance policies subject to that rule. Other participating life insurance
companies utilizing the Trust will be responsible for calculating voting
privileges in a manner consistent with that of USAA Life, as prescribed by
this Section 10.
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SECTION 11. FOREIGN TAX CREDITS
The Trust agrees to consult in advance with USAA Life concerning any
decision to elect or not to elect pursuant to Section 853 of the Code to pass
through the benefit of any foreign tax credits to its shareholders.
SECTION 12. INDEMNIFICATION
12.1 OF TRUST, DISTRIBUTOR AND ADVISER BY USAA LIFE.
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c),
below, USAA Life agrees to indemnify and hold harmless the Trust, Distributor
and Adviser, each of their trustees, directors and officers, and each person,
if any, who controls the Trust, Distributor or Adviser within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for
purposes of this Section 12.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
USAA Life) or actions in respect thereof (including, to the extent reasonable,
legal and other expenses), to which the Indemnified Parties may become subject
under any statute, regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or actions are related to the sale or
acquisition of the Trust's shares and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Separate
Account's or the Life Insurance Separate Account's 1933 Act
registration statement, the Separate Account Prospectus, the Life
Insurance Separate Account Prospectus, the Contracts, the Policies
or sales literature or advertising for the Contracts or the
Policies (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 USAA Life or its
affiliates by or on behalf of the Trust, Distributor or Adviser
for use in the Separate Account's or the Life Insurance Separate
Account's 1933 Act registration statement, the Separate Account
Prospectus, the Life Insurance Separate Account Prospectus, the
Contracts, the Policies, or sales literature or advertising (or
any amendment or supplement to any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in the Trust's 1933 Act registration statement, Trust
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Prospectus, sales literature or advertising of the Trust, or any
amendment or supplement to any of the foregoing, not supplied for
use therein by or on behalf of USAA Life or its affiliates) or the
negligent, illegal or fraudulent conduct of USAA Life or its
affiliates or persons under their control (including, without
limitation, their employees and "Associated Persons," as that term
is defined in paragraph (m) of Article I of the NASD's By-Laws),
in connection with the sale or distribution of the Contracts; or
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Trust's
1933 Act registration statement, Trust Prospectus, sales
literature or advertising of the Trust, or any amendment or
supplement to any of the foregoing, or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading
if such a statement or omission was made in reliance upon and in
conformity with information furnished to the Trust, Adviser or
Distributor by or on behalf of USAA Life or its affiliates for use
in the Trust's 1933 Act registration statement, Trust Prospectus,
sales literature or advertising of the Trust, or any amendment or
supplement to any of the foregoing; or
(iv) arise as a result of any failure by USAA Life to perform the
obligations, provide the services and furnish the materials
required of them under the terms of this Agreement, or any
material breach of any representation and/or warranty made by USAA
Life in this Agreement or arise out of or result from any other
material breach of this Agreement by USAA Life; or
(v) arise as a result of failure by the Contracts or Policies issued
by USAA Life to qualify as annuity contracts or life insurance
policies, respectively, under the Code, otherwise than by reason
of any Portfolio's failure to comply with Subchapter M or Section
817(h) of the Code.
(b) USAA Life shall not be liable under this Section 12.1 with respect
to any losses, claims, damages, liabilities or actions to which an Indemnified
Party would otherwise be subject by reason of willful misfeasance, bad faith,
or gross negligence in the performance by that Indemnified Party of its duties
or by reason of that Indemnified Party's reckless disregard of obligations or
duties (i) under this Agreement or (ii) to Distributor or to the Trust.
(c) USAA Life shall not be liable under this Section 12.1 with respect
to any action against an Indemnified Party unless the Trust, Distributor or
Adviser shall have notified USAA Life in writing within a reasonable time
after the summons or other first legal process giving information of the
nature of the action shall have been served upon such Indemnified Party (or
after such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify USAA Life of any such action shall
not relieve USAA Life from any liability which it may have to the Indemnified
Party against whom such action is brought otherwise than on account of this
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Section 12.1. In case any such action is brought against an Indemnified Party,
USAA Life shall be entitled to participate, at its own expense, in the defense
of such action. USAA Life also shall be entitled to assume the defense
thereof, with counsel approved by the Indemnified Party named in the action,
which approval shall not be unreasonably withheld. After notice from USAA Life
to such Indemnified Party of USAA Life's election to assume the defense
thereof, the Indemnified Party will cooperate fully with USAA Life and shall
bear the fees and expenses of any additional counsel retained by it, and USAA
Life will not be liable to such Indemnified Party under this Agreement for any
legal or other expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof, other than reasonable
costs of investigation.
12.2 OF USAA LIFE BY DISTRIBUTOR AND ADVISER.
(a) Except to the extent provided in Sections 12.2(d) and 12.2(e),
below, Distributor and Adviser agree to indemnify and hold harmless USAA Life
and its affiliates, each of their directors and officers, and each person, if
any, who controls USAA Life or iTs affiliates within the meaning of Section 15
of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 12.2) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of Distributor
and/or Adviser) or actions in respect thereof (including, to the extent
reasonable, legal and other expenses) to which the Indemnified Parties may
become subject under any statute, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or actions are related to the sale or
acquisition of the Trust's shares and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Trust's
1933 Act registration statement, Trust Prospectus or sales
literature or advertising 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 Distributor or Adviser by or on
behalf of USAA Life or its affiliates for use in the Trust's 1933
Act registration statement, Trust Prospectus, or in sales
literature or advertising (or any amendment or supplement to any
of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations
contained in the Separate Account's or Life Insurance Separate
Account's 1933 Act registration statement, Separate Account
Prospectus, Life Insurance Separate Account Prospectus, sales
literature or advertising for the Contracts or Policies, or any
amendment or supplement to any of the foregoing, not supplied for
use therein by or on behalf of the Trust, Distributor or Adviser)
or the negligent, illegal or fraudulent conduct of the Trust,
Distributor, Adviser or persons under their control (including,
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without limitation, their employees and Associated Persons), in
connection with the sale or distribution of Trust shares; or
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Separate
Account's or Life Insurance Separate Account's 1933 Act
registration statement, Separate Account Prospectus, Life
Insurance Separate Account Prospectus, sales literature or
advertising covering the Contracts or Policies, or any amendment
or supplement to any of the foregoing, or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, if such statement or omission was made in reliance
upon and in conformity with information furnished to USAA Life or
its affiliates by or on behalf of the Trust, Distributor or
Adviser for use in the Separate Account's or Life Insurance
Separate Account's 1933 Act registration statement, Separate
Account Prospectus, Life Insurance Separate Account Prospectus,
sales literature or advertising covering the Contracts or
Policies, or any amendment or supplement to any of the foregoing;
or
(iv) arise as a result of any failure by the Trust, Distributor or
Adviser to perform the obligations, provide the services and
furnish the materials required of them under the terms of this
Agreement, or any material breach of any representation and/or
warranty made by the Trust, Distributor, or Adviser in this
Agreement or arise out of or result from any other material breach
of this Agreement by the Trust, Distributor, or Adviser.
(b) Except to the extent provided in Sections 12.2(d) and 12.2(e)
hereof, Distributor and Adviser agree to indemnify and hold harmless the
Indemnified Parties from and against any and all losses, claims, damages,
liabilities (including amounts paid in settlement thereof with, except as set
forth in Section 12.2(c) below, the written consent of Distributor and/or
Adviser) or actions in respect thereof (including, to the extent reasonable,
legal and other expenses) to which the Indemnified Parties may become subject
directly or indirectly under any statute, at common law or otherwise, insofar
as such losses, claims, damages, liabilities or actions directly or indirectly
result from or arise out of the failure of any Portfolio to operate as a
regulated investment company in compliance with (i) Subchapter M of the Code
and regulations thereunder or (ii) Section 817(h) of the Code and regulations
thereunder, including, without limitation, any income taxes and related
penalties, rescission charges, liability under state law to Contract owners,
Policy owners or Participants asserting liability against USAA Life or its
affiliates pursuant to the Contracts or Policies, the costs of any ruling and
closing agreement or other settlement with the Internal Revenue Service, and
the cost of any substitution by USAA Life of shares of another investment
company or portfolio for those of any adversely affected Portfolio as a
funding medium for the Separate Account or Life Insurance Separate Account
that USAA Life reasonably deems necessary or appropriate as a result of the
noncompliance.
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(c) The written consent of Distributor and/or Adviser referred to in
Section 12.2(b) above shall not be required with respect to amounts paid in
connection with any ruling and closing agreement or other settlement with the
Internal Revenue Service.
(d) Distributor and Adviser shall not be liable under this Section
12.2 with respect to any losses, claims, damages, liabilities or actions to
which an Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance by that
Indemnified Party of its duties or by reason of such Indemnified Party's
reckless disregard of its obligations and duties (i) under this Agreement or
(ii) to USAA Life, the Separate Account, the Life Insurance Separate Account
or Participants.
(e) Distributor and Adviser shall not be liable under this Section
12.2 with respect to any action against an Indemnified Party unless USAA Life
or its affiliates shall have notified Distributor and/or Adviser in writing
within a reasonable time after the summons or other first legal process giving
information of the nature of the action shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice
of such service on any designated agent), but failure to notify Distributor
and/or Adviser of any such action shall not relieve Distributor or Adviser
from any liability which it may have to the Indemnified Party against whom
such action is brought otherwise than on account of this Section 12.2. In case
any such action is brought against an Indemnified Party, Distributor and/or
Adviser will be entitled to participate, at its own expense, in the defense of
such action. Distributor and/or Adviser also shall be entitled to assume the
defense thereof (which shall include, without limitation, the conduct of any
ruling request and closing agreement or other settlement proceeding with the
Internal Revenue Service), with counsel approved by the Indemnified Party
named in the action, which approval shall not be unreasonably withheld. After
notice from Distributor or Adviser to such Indemnified Party of Distributor or
Adviser's election to assume the defense thereof, the Indemnified Party will
cooperate fully with Distributor or Adviser and shall bear the fees and
expenses of any additional counsel retained by it, and Distributor or Adviser
will not be liable to such Indemnified Party under this Agreement for any
legal or other expenses subsequently incurred by such Indemnified Party
independently in connection with the defense thereof, other than reasonable
costs of investigation.
12.3 EFFECT OF NOTICE.
Any notice given by the indemnifying Party to an Indemnified Party
referred to in Section 12.1(c) or 12.2(e) above of participation in or control
of any action by the indemnifying Party will in no event be deemed to be an
admission by the indemnifying Party of liability, culpability or
responsibility, and the indemnifying Party will remain free to contest
liability with respect to the claim among the Parties or otherwise.
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SECTION 13. APPLICABLE LAW
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Texas law, without regard for that state's
principles of conflict of laws.
SECTION 14. EXECUTION IN COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
SECTION 15. SEVERABILITY
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
SECTION 16. RIGHTS CUMULATIVE
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, that the Parties are entitled to under
federal and state laws.
SECTION 17. RESTRICTIONS ON SALES OF TRUST SHARES
USAA Life agrees that the Trust will be permitted (subject to the other
terms of this Agreement) to make its shares available to separate accounts of
other life insurance companies and such other entities as may be permitted by
Section 817(h) of the Code, the regulations hereunder, or judicial or
administrative interpretations thereof. The Trust, Distributor, and Adviser
agree to make available to USAA Life and its affiliates, to the extent
permitted by applicable law and consistent with the fiduciary duties of the
Trustees of the Trust, any arrangement for utilization of a Portfolio that
involves a Rule 12b-1 plan adopted by the Trust.
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<PAGE>
SECTION 18. SCOPE OF LIABILITY
(a) It is understood and expressly agreed that the obligations and
liabilities of the Trust hereunder will not be binding upon any of the
trustees, shareholders, nominees, officers, agents or employees of the Trust,
as provided in its Declaration of Trust. The execution and delivery of this
Agreement have been authorized by the Board of Trustees and this Agreement has
been signed by an authorized officer of the Trust, acting as such, and neither
such authorization by the Board of Trustees nor such execution and delivery by
such officer will be deemed to have been made by any of the Trustees
individually or to impose any liability on any of them personally, but will
bind only the assets and property of the Trust, as provided in its Declaration
of Trust.
(b) The obligations assumed by Adviser and Distributor under this
Agreement shall be binding on them notwithstanding any provision in any other
agreement or instrument that limits their liability to Trust shareholders
generally.
SECTION 19. HEADINGS
The Table of Contents and headings used in this Agreement are for
purposes of reference only and shall not limit or define the meaning of the
provisions of this Agreement.
--------------------------
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed in their names and on their behalf by and through their duly
authorized officers signing below.
USAA LIFE INSURANCE COMPANY
By /s/ EDWIN L. ROSANE
-------------------
Title President
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THE ALGER AMERICAN FUND
By /s/ GREGORY S. DUCH
-------------------
Title Treasure
FRED ALGER MANAGEMENT, INC.
By /s/ GREGORY S. DUCH
-------------------
Title Executive Vice President
FRED ALGER & COMPANY, INCORPORATED
By /s/ GREGORY S. DUCH
-------------------
Title Executive Vice President
27
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SCHEDULE A
LIST OF PORTFOLIOS
Alger American Growth Portfolio
28
EXHIBIT 1.(8)(e)(ii)
AMENDED EXPENSE ALLOCATION AGREEMENT
This Agreement is made as of the 16th day of December, 1994, and amended
as of the 16th day of March, 1998, by and between USAA Life Insurance Company,
a Texas corporation ("USAA Life"), Fred Alger & Company, Incorporated, a
Delaware corporation ("Distributor"), and Fred Alger Management, Inc., a New
York corporation ("Adviser") (collectively, the "Parties").
W I T N E S S E T H:
WHEREAS, the Distributor and Adviser serve as the principal underwriter
and investment adviser, as amended, respectively, of The Alger American Fund,
a Massachusetts business trust ("Trust"), which currently consists of six
separate series (each, a "Portfolio"); and
WHEREAS, USAA Life has entered into an agreement, dated December 16th,
1994, with the Trust, Distributor, and Adviser, as amended ("Participation
Agreement"), pursuant to which the Trust and Distributor will make shares of
each Portfolio listed from time to time on Schedule A thereto available to
USAA Life at net asset value and with no sales charges, subject to the terms
of the Participation Agreement; and
WHEREAS, the Participation Agreement provides that the Trust will bear
the costs of preparing, filing with the Securities and Exchange Commission and
setting for printing the Trust's prospectus, statement of additional
information and any amendments or supplements thereto, periodic reports to
shareholders, Trust proxy material and other shareholder communications
(collectively, the "Trust Materials"), and that the Trust will provide USAA
Life with camera ready copies of all Trust Materials required by law to be
sent to owners of Contracts ("Contract owners") or Policies ("Policy owners")
who have allocated any Contract or Policy value to a Portfolio; and
WHEREAS, the Participation Agreement provides that USAA Life shall print
in quantity and deliver to existing Contract or Policy owners the Trust
Materials, and that the costs of printing in quantity and delivering to
existing Contract owners such Trust Materials will be allocated between USAA
Life or its affiliates and the Trust or its affiliates as they shall determine
by separate agreement; and
WHEREAS, the Participation Agreement provides that the expenses of
distributing a Portfolio's shares and the Contracts and the Polices will be
allocated between USAA Life, or its affiliates and the Trust, or its
affiliates, as they shall determine by separate agreement; and
<PAGE>
WHEREAS, USAA Life will incur various administrative expenses in
connection with the servicing of Contract or Policy owners who have allocated
Contract or Policy value to a Portfolio, including, but not limited to,
responding to various Contract or Policy owner inquiries regarding a
Portfolio; and
WHEREAS, the Parties hereto wish to allocate the expenses in a manner
that is fair and equitable, and consistent with the best interests of Contract
and Policy owners; and
WHEREAS, the Parties hereto wish to establish a means for allocating the
expenses that does not entail the expense and inconvenience of separately
identifying and accounting for each item of Trust expense;
NOW THEREFORE in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
1. EXPENSE ALLOCATIONS.
1.1. TRUST MATERIALS.
(a) Subject to Section 2 hereof, USAA Life or its affiliates shall
initially bear the costs of printing in quantity and distributing all Trust
Materials required by law to be distributed to existing Contract or Policy
owners who have allocated Contract or Policy value to a Portfolio.
(b) Subject to Section 2 hereof, USAA Life or its affiliates shall
initially bear the costs of printing in quantity and mailing all Trust
Materials to prospective Contract or Policy owners.
1.2. SALES MATERIALS.
(a) The Distributor and Adviser, as they may allocate between
themselves, shall bear the costs of preparing all sales literature or other
promotional material relating to each Portfolio (collectively, "Trust Sales
Materials").
(b) Subject to Section 2 hereof, USAA Life or its affiliates shall
initially bear the costs of printing in quantity all Trust Sales Materials,
and preparing and printing in quantity all sales literature or other
promotional material relating to the Contracts or Policies (collectively,
"USAA Sales Materials").
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<PAGE>
(c) Subject to Section 2 hereof, USAA Life or its affiliates shall
initially bear the costs of mailing all Trust and USAA Sales Materials to
prospective Contract or Policy owners.
1.3. CONTRACT OWNER SERVICING.
Subject to Section 2 hereof, USAA Life or its affiliates shall initially
bear all costs of servicing Contract or Policy owners who have allocated
Contract or Policy value to a Portfolio, which servicing shall include, but is
not limited to, responding to various Contract owner inquiries regarding a
Portfolio.
2. PAYMENT OF EXPENSES.
(a) The Distributor and Adviser, as they may allocate between
themselves, shall pay to USAA Life a quarterly fee equal to a percentage of
the average daily net assets of the Portfolio attributable to Contracts and
Policies, at the annual rate of .10% (hereinafter, "Quarterly Fee"), in
connection with the expenses incurred by USAA Life under Section 1.1, Section
1.2 and Section 1.3 hereof. The payment of the Quarterly Fee shall commence at
the end of the first calendar quarter in which Contract or Policy value has
been allocated to a Portfolio.
(b) From time to time, the Parties hereto shall review the Quarterly
Fee to determine whether it reasonably approximates the incurred and
anticipated costs, over time, of USAA Life in connection with its duties
hereunder. The Parties agree to negotiate in good faith any change to the
Quarterly Fee proposed by a Party in good faith.
3. TERM OF AGREEMENT.
This Agreement shall continue in effect for so long as the Adviser or
its successor(s) in interest, or any affiliate thereof, continues to perform
in a similar capacity for the Trust, and for so long as any Contract or Policy
value or any monies attributable to USAA Life is allocated to a Portfolio.
4. NOTICES.
Notices and communications required or permitted hereby will be given to
the following persons at the following addresses and facsimile numbers, or
such other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:
3
<PAGE>
USAA Life Insurance Company
9800 Fredericksburg Road
San Antonio, TX 78288
Attn: Dwain A. Akins, Esq.
FAX: 210-498-0608
Fred Alger Management, Inc.
75 Maiden Lane
New York, NY 10038
Attn: Gregory S. Duch
FAX: 202-434-1459
Fred Alger & Company, Incorporated
75 Maiden Lane
New York, NY 10038
Attn: Gregory S. Duch
FAX: 201-434-1459
5. APPLICABLE LAW.
Except insofar as the 1940 Act or other federal laws and regulations may
be controlling, this Agreement will be construed and the provisions hereof
interpreted under and in accordance with Texas law, without regard for that
state's principles of conflict of laws.
6. EXECUTION IN COUNTERPARTS.
This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
7. SEVERABILITY.
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
4
<PAGE>
8. RIGHTS CUMULATIVE.
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, that the Parties are entitled to under
federal and state laws.
9. HEADINGS.
The headings used in this Agreement are for purposes of reference only
and shall not limit or define the meaning of the provisions of this Agreement.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed in their names and on their behalf by and through their duly
authorized officers signing below.
USAA LIFE INSURANCE COMPANY
By /s/ EDWIN L. ROSANE
-------------------
Title President
FRED ALGER MANAGEMENT, INC.
By /s/ GREGORY S. DUCH
-------------------
Title Executive Vice President
FRED ALGER & COMPANY, INCORPORATED
By /s/ GREGORY S. DUCH
-------------------
Title Executive Vice President
EXHIBIT 1.(8)(f)(i)
FUND PARTICIPATION AGREEMENT
THIS AGREEMENT ("Agreement") made as of the 30th day of April, 1998, by
and among BT Insurance Funds Trust ("TRUST"), a Massachusetts business trust,
Bankers Trust Company ("ADVISER"), a New York banking corporation, and USAA
Life Insurance Company ("LIFE COMPANY"), a life insurance company organized
under the laws of the State of Texas (collectively, the "Parties").
WHEREAS, TRUST is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940, as amended (the "'40 Act"),
as an open-end diversified management investment company; and
WHEREAS, TRUST is comprised of several series funds (each a "Series"),
each of whose shares are registered under the Securities Act of 1933, as
amended (" '33 Act"); and
WHEREAS, TRUST was organized to act as the funding vehicle for certain
variable life insurance and/or variable annuity contracts ("Variable
Contracts") offered by life insurance companies ("Participating Insurance
Companies") through their separate accounts; and
WHEREAS, TRUST may also offer its shares to certain qualified pension
and retirement plans ("Qualified Plans"); and
WHEREAS, TRUST has received an order from the SEC granting Participating
Insurance Companies and their separate accounts exemptions from the provisions
of Sections 9(a), 13(a), 15(a) and 15(b) of the '40 Act, and Rules 6e-2(b)(15)
and 6e-3(T)(b)(1-5) thereunder, to the extent necessary to permit shares of
the Series of the TRUST to be sold to and held by separate accounts of both
affiliated and unaffiliated Participating Insurance Companies and Qualified
Plans ("Exemptive Order"); and
WHEREAS, LIFE COMPANY has established or will establish one or more
separate accounts listed on Appendix A hereto (collectively, "Separate
Accounts") to offer certain Variable Contracts issued by LIFE COMPANY and
funded by the Separate Accounts listed on Appendix A hereto (collectively,
"Contracts") and is desirous of having the Series listed on Appendix B hereto
(each, a "Portfolio") serve as underlying funding vehicles for the Contracts;
and
WHEREAS, ADVISER is a "bank" as defined in the Investment Advisers Act
of 1940, as amended (the "Advisers Act") and as such is excluded from the
definition of "Investment Adviser" and is not required to register as an
investment adviser pursuant to the Advisers Act; and
1
<PAGE>
WHEREAS, ADVISER serves as the TRUST's investment adviser; and
WHEREAS, First Data Distributors, Inc. ("DISTRIBUTOR") serves as the
Trust's principal underwriter of the Trust's shares; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase shares of Portfolios to fund the
Contracts and TRUST is authorized to sell such shares to LIFE COMPANY at such
shares' net asset value;
NOW, THEREFORE, in consideration of their mutual promises, LIFE COMPANY,
TRUST, and ADVISER agree as follows:
Article I. SALE OF TRUST SHARES
1.1 TRUST agrees to make available to the Separate Accounts shares of
each Portfolio ("Shares") for purchase and redemption at net asset value, and
with no sales charges, subject to the terms and conditions of this Agreement.
The Parties may agree, from time to time, to amend Appendicies A and/or B
hereto ("Appendix A" and "Appendix B," respectively) to reflect additions,
deletions, and other changes to the Separate Accounts, Contracts, and/or
Portfolios. Upon such amendment, references to Separate Account, Contract,
Portfolio, Trust or Shares shall be read consistently with the changes
effected by that amendment, unless otherwise specifically provided.
1.2 TRUST agrees to execute orders to purchase Shares ("Purchase
orders") that correspond to Contract owner transaction requests received by
LIFE COMPANY ("requests" or "Contract owner requests") on each Business Day
using the net asset value per Share next computed after the LIFE COMPANY
receives the requests. The Parties agree that, unless otherwise specified in
writing by TRUST, the computation of each Portfolio's net asset value per
Share will occur as of 4:00 p.m. New York time each Business Day. For purposes
of this Agreement, "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which TRUST calculates its net asset
value pursuant to the rules of the SEC.
1.3 TRUST agrees to execute orders to redeem Shares ("Redemption
orders") that correspond to Contract owner requests on each Business Day using
the net asset value per Share next computed after the LIFE COMPANY receives
the requests. Redemption orders that do not relate to requests will be
executed using the net asset value per Share next computed after receipt by
TRUST of such orders.
1.4 TRUST shall furnish, on or before each ex-dividend date, notice to
LIFE COMPANY of any income dividends or capital gain distributions payable on
the Shares of any Portfolio. LIFE COMPANY hereby elects to receive all such
income dividends and capital gain distributions as are payable on a
Portfolio's Shares in additional Shares of the Portfolio. TRUST shall notify
LIFE COMPANY or its designee of the number of Shares so issued as payment of
such dividends and distributions.
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<PAGE>
1.5 TRUST shall make the net asset value per Share for the Portfolios
available to LIFE COMPANY on a daily basis as soon as reasonably practicable
after the net asset value per Share is calculated but shall use its best
efforts to make such net asset value available by 6:30 p.m. New York time. If
TRUST provides LIFE COMPANY with materially incorrect Share net asset value
information through no fault of LIFE COMPANY, LIFE COMPANY on behalf of the
Separate Accounts, shall be entitled to an adjustment to the number of Shares
purchased or redeemed to reflect the correct Share net asset value. Any
material error in the calculation of net asset value per Share, dividend or
capital gain information shall be reported promptly by TRUST upon discovery to
LIFE COMPANY.
1.6 LIFE COMPANY shall be the designee of TRUST for receipt of
Purchase orders and Redemption orders from the designated Separate Account to
purchase or redeem Shares that correspond to Contract owner transactions. At
the end of each Business Day, LIFE COMPANY shall use the information described
in Section 1.5 to calculate Separate Account unit values for that Day. Using
these unit values, LIFE COMPANY shall process each such Business Day's
Contract owner transactions based on requests received by the close of trading
on the floor of the New York Stock Exchange (currently 4:00 P.M. New York
time) to determine the net dollar amount of Shares which shall be purchased or
redeemed at that Day's closing net asset value per Share. LIFE COMPANY shall
net all Purchase and Redemption orders, and shall submit a net order ("Net
Order") to TRUST by 9:30 a.m. New York time on the Business Day next following
LIFE COMPANY's receipt of such requests in accordance with the terms of
Sections 1.2 and 1.3 hereof; provided, however, that TRUST shall provide
additional time to LIFE COMPANY in the event that TRUST is unable to meet the
6:30 p.m. time stated in Section 1.5 hereof. Such additional time shall be
equal to the additional time that TRUST takes to make the net asset values
available to LIFE COMPANY.
1.7 If LIFE COMPANY's Net Order requests the purchase of TRUST Shares,
LIFE COMPANY shall pay for such purchase by wiring federal funds to TRUST or
its designated custodial account on the day the order is transmitted by LIFE
COMPANY. If LIFE COMPANY's Net Order requests a net redemption resulting in a
payment of redemption proceeds to LIFE COMPANY, TRUST shall wire the
redemption proceeds to LIFE COMPANY by the next Business Day, unless doing so
would require TRUST to dispose of Portfolio securities or otherwise incur
additional costs. In any event, proceeds shall be wired to LIFE COMPANY within
the time period permitted by the '40 Act or the rules, orders or regulations
thereunder, and TRUST shall notify the person designated in writing by LIFE
COMPANY as the recipient for such notice of such delay by 3:00 p.m. New York
time on the same Business Day that LIFE COMPANY transmits the Net Redemption
Order to TRUST. If LIFE COMPANY's Net Order requests the application of
redemption proceeds from the redemption of Shares to the purchase of shares of
another fund advised by ADVISER, TRUST shall so apply such proceeds on the
same Business Day that LIFE COMPANY transmits such order to TRUST.
1.8 TRUST agrees that all Shares of the Portfolios will be sold only
to Participating Insurance Companies which have agreed to participate in TRUST
to fund their separate accounts and/or to Qualified Plans, all in accordance
with the requirements of Section 817(h)(4) of the Internal Revenue Code of
1986, as amended ("Code") and Treasury Regulation 1.817-5. Shares of the
TRUST's Series will not be sold directly to the general public.
3
<PAGE>
1.9 TRUST may refuse to sell Shares of any Portfolio to any person, or
suspend or terminate the offering of the Shares of or liquidate any Portfolio
of TRUST if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board of Trustees of the
TRUST (the "Board"), acting in good faith and in light of its duties under
federal and any applicable state laws, deemed necessary, desirable or
appropriate and in the best interests of the Shareholders of such Portfolios.
1.10 Issuance and transfer of Shares will be by book entry only. Stock
certificates will not be issued to LIFE COMPANY or the Separate Accounts. The
TRUST will record, or cause to be recorded, Shares ordered from any Portfolio
in appropriate book entry titles for the Separate Accounts.
Article II. REPRESENTATIONS AND WARRANTIES
2.1 LIFE COMPANY represents and warrants that it is an insurance
company duly organized and in good standing under the laws of Texas and that
it has legally and validly established each Separate Account as a segregated
asset account under such laws, and that USAA Investment Management Company,
the principal underwriter for the Contracts, is registered as a broker-dealer
under the Securities Exchange Act of 1934.
2.2 LIFE COMPANY represents and warrants that it has registered or,
prior to any issuance or sale of the Contracts, will register each Separate
Account as a unit investment trust ("UIT") in accordance with the provisions
of the '40 Act to the extent required thereby, and cause each Separate Account
to remain so registered to serve as a segregated asset account for the
Contracts, unless an exemption from registration is available.
2.3 LIFE COMPANY represents and warrants that units of interest issued
in connection with the Contracts have been or will be registered under the '33
Act unless an exemption from registration is available prior to any issuance
or sale of the Contracts, and that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
and further that the sale of the Contracts shall comply in all material
respects with applicable state insurance law suitability requirements.
2.4 Subject to TRUST's compliance with the duties and obligations set
out in Sections 2.6 and 2.7 hereof, LIFE COMPANY represents and warrants that
the Contracts have been or will be at the time of issuance treated as life
insurance, endowment or annuity contracts under applicable provisions of the
Code, that it will maintain such treatment and that it will notify TRUST
immediately upon having a reasonable basis for believing that the Contracts
have ceased to be so treated or that they might not be so treated in the
future.
2.5 TRUST and ADVISER represent and warrant that the Shares offered
and sold pursuant to this Agreement will be registered under the '33 Act and
sold in accordance with all applicable federal laws, and TRUST shall be
registered under the '40 Act prior to and at the time of any issuance or sale
of such Shares. TRUST, subject to Section 1.9 above, shall amend its
registration statements under the '33 Act and the '40 Act from time to time as
4
<PAGE>
required in order to effect the continuous offering of its Shares. TRUST shall
register and qualify its Shares for sale in accordance with the laws of the
various states only if and to the extent deemed advisable by TRUST.
2.6 TRUST and ADVISER represent and warrant that each Portfolio has
complied and will comply with the requirements set forth in Section 817(h) of
the Code, and the rules and regulations thereunder, including without
limitation Treasury Regulation 1.817-5, and will notify LIFE COMPANY
immediately upon having a reasonable basis for believing any Portfolio has
ceased to comply and will immediately take all reasonable steps to adequately
diversify the Portfolio to achieve compliance.
2.7 TRUST and ADVISER represent and warrant that each Portfolio
invested in by the Separate Account will be treated as a "regulated investment
company" under Subchapter M of the Code, and will notify LIFE COMPANY
immediately upon having a reasonable basis for believing it has ceased to so
qualify or might not so qualify in the future.
2.8 ADVISER represents and warrants that it shall perform its
obligations hereunder in compliance in all material respects with any
applicable state and federal laws.
Article III. PROSPECTUS AND OTHER TRUST DOCUMENTS
3.1 TRUST shall prepare and be responsible for filing with the SEC and
any state regulators requiring such filing all Shareholder reports, notices,
proxy materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of TRUST.
TRUST shall bear the costs of registration and qualification of shares of the
Portfolios, preparation and filing of the documents listed in this Section 3.1
and all taxes and filing fees to which an issuer is subject on the issuance
and transfer of its shares.
3.2 TRUST or its designee shall provide LIFE COMPANY, free of charge,
with as many copies of the current prospectus (or prospectuses), including
supplements, statements of additional information, annual and semi-annual
reports and proxy materials for the Shares of the Portfolios as LIFE COMPANY
may reasonably request for distribution to existing Contract owners whose
Contracts are funded by Shares. TRUST or its designee shall provide LIFE
COMPANY, at LIFE COMPANY's expense, with as many copies of the current
prospectus (or prospectuses) for the Shares ("TRUST prospectus") as LIFE
COMPANY may reasonably request for distribution to prospective purchasers of
Contracts. If requested by LIFE COMPANY, TRUST or its designee shall provide
the Trust prospectus (including a "camera ready" copy of the current
prospectus (or prospectuses) as set in type or, at the request of LIFE
COMPANY, as a diskette in the form sent to the financial printer) and other
assistance as is reasonably necessary in order for the Parties once a year (or
more frequently if the Trust prospectus is supplemented or amended) to have
the prospectus for the Contracts ("Contract prospectus") and the Trust
prospectus printed together in one document. The expenses of such printing
will be apportioned between LIFE COMPANY and TRUST in proportion to the number
of pages of the Contract and TRUST prospectuses, taking account of other
relevant factors affecting the expense of printing, such as covers, columns,
graphs and charts; TRUST shall bear the cost of printing the TRUST prospectus
portion of such document for distribution only to owners of existing Contracts
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<PAGE>
funded by the Shares, and LIFE COMPANY shall bear the expense of printing the
Contract prospectus portion of such document, as well as the TRUST prospectus
portion of such document for distribution to prospective purchasers of
Contracts. In the event that LIFE COMPANY requests that TRUST or its designee
provide the TRUST prospectus in a "camera ready" or diskette format, TRUST
shall be responsible for providing the TRUST prospectus in the format in which
it is accustomed to formatting prospectuses and shall bear the expense of
providing the TRUST prospectus in such format (e.g. typesetting expenses), and
LIFE COMPANY shall bear the expense of adjusting or changing the format to
conform with any of its prospectuses.
3.3 TRUST will provide LIFE COMPANY with at least one complete copy of
all TRUST prospectuses, statements of additional information, annual and
semi-annual reports, proxy statements, exemptive applications and all
amendments or supplements to any of the above that relate to the Portfolios
promptly after the filing of each such document with the SEC or other
regulatory authority. LIFE COMPANY will provide TRUST with at least one
complete copy of all Contract prospectuses, statements of additional
information, annual and semi-annual reports, proxy statements, exemptive
applications and all amendments or supplements to any of the above that relate
to a Separate Account promptly after the filing of each such document with the
SEC or other regulatory authority.
Article IV. SALES MATERIALS
4.1 LIFE COMPANY will furnish or will cause to be furnished, to TRUST
and ADVISER, each piece of sales literature in which TRUST or ADVISER is
named, at least fifteen (15) Business Days prior to its intended use. No such
material will be used if TRUST or ADVISER objects to its use in writing within
ten (10) Business Days after receipt of such material.
4.2 TRUST and ADVISER will furnish, or will cause to be furnished, to
LIFE COMPANY, each piece of sales literature in which LIFE COMPANY or any of
its Separate Accounts is named, at least fifteen (15) Business Days prior to
its intended use. No such material will be used if LIFE COMPANY objects to its
use in writing within ten (10) Business Days after receipt of such material.
4.3 TRUST and its affiliates and agents shall not give any information
or make any representations on behalf of LIFE COMPANY or concerning LIFE
COMPANY, the Separate Accounts, or the Contracts other than the information or
representations contained in a registration statement or Contract prospectus,
as such registration statement and prospectus may be amended or supplemented
from time to time, or in reports of the Separate Accounts or reports prepared
for distribution to owners of such Contracts, or in sales literature approved
by LIFE COMPANY or its designee, except with the written permission of LIFE
COMPANY.
4.4 LIFE COMPANY and its affiliates and agents shall not give any
information or make any representations on behalf of TRUST or concerning TRUST
other than the information or representations contained in a registration
statement or TRUST prospectus, or prospectus for any Portfolio, as such
registration statement or prospectus may be amended or supplemented from time
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<PAGE>
to time, or in sales literature approved by TRUST or its designee, except with
the written permission of TRUST.
4.5 For purposes of this Agreement, the phrase "sales literature"
includes, without limitation, advertisements (such as material published, or
designed for use, in a newspaper, magazine or other periodical, radio,
television, telephone or tape recording, videotape display, signs or
billboards, motion pictures or other public media), sales literature (such as
any written communication distributed or made generally available to customers
or the public, including brochures, circulars, research reports, market
letters, form letters, seminar texts, or 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, prospectuses, statements of
additional information, shareholder reports and proxy materials, and any other
material constituting sales literature or advertising under National
Association of Securities Dealers, Inc. ("NASD") rules, the '40 Act, the '33
Act, or rules thereunder.
Article V. POTENTIAL CONFLICTS
5.1 The TRUST represents that it has received The Exemption Order from
the SEC granting relief from various provisions of the '40 Act and the rules
thereunder to the extent necessary to permit TRUST Shares to be sold to and
held by separate accounts of both affiliated and unaffiliated Participating
Insurance Companies and Qualified Plans. The Exemptive Order requires TRUST
and each Participating Insurance Company to comply with conditions and
undertakings substantially as provided in this Section 5. The TRUST agrees not
to enter into a participation agreement with any other Participating Insurance
Company unless it imposes the same conditions and undertakings as are imposed
on LIFE COMPANY hereby.
5.2 The Board will monitor TRUST for the existence of any material
irreconcilable conflict between the Variable Contract owners of all separate
accounts, including the Contract owners investing in the Separate Accounts,
and of participants of Qualified Plans investing in TRUST, and determine what
action, if any, should be taken in response to such conflicts. An
irreconcilable material conflict may arise for a variety of reasons, which may
include: (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 TRUST are
being managed; (e) a difference in voting instructions given by Variable
Contract owners; or (f) a decision by a Participating Insurance Company to
disregard the voting instructions of Variable Contract owners.
5.3 LIFE COMPANY will report any potential or existing conflicts of
which it becomes aware to the Board. LIFE COMPANY will be responsible for
assisting the Board in carrying out its responsibilities in this regard by
providing the Board with all information reasonably necessary for the Board to
consider any issues raised. This responsibility includes, but is not limited
to, an obligation by the LIFE COMPANY to inform the Board whenever it has
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<PAGE>
determined to disregard Contract owners' voting instructions. These
responsibilities of LIFE COMPANY will be carried out with a view only to the
interests of the Contract owners.
5.4 If a majority of the Board, or majority of its disinterested
Trustees, determines that a material irreconcilable conflict exists affecting
LIFE COMPANY, LIFE COMPANY, at its expense and to the extent reasonably
practicable (as determined by a majority of the Board's disinterested
Trustees), will take any steps necessary to remedy or eliminate the material
irreconcilable conflict, including; (a) withdrawing the assets allocable to
some or all of the Separate Accounts from TRUST or any Portfolio thereof and
reinvesting those assets in a different investment medium, which may include
another portfolio of TRUST ; (b) submitting the question as to whether such
segregation should be implemented to a vote of all affected Contract owners
and as appropriate, segregating the assets of any appropriate group of
Contract owners that votes in favor of such segregation, or offering to the
affected Contract owners the option of making such a change; and (c)
establishing a new registered management investment company (or series
thereof) or managed separate account. If a material irreconcilable conflict
arises because of LIFE COMPANY's decision to disregard Contract owner voting
instructions, and that decision represents a minority position or would
preclude a majority vote, LIFE COMPANY may be required, at the election of
TRUST, to withdraw a Separate Account's investment in TRUST, and no charge or
penalty will be imposed as a result of such withdrawal. The responsibility to
take such remedial action shall be carried out with a view only to the
interests of the Contract owners.
For the purposes of this Section 5.4, a majority of the disinterested
Trustees shall determine whether or not any proposed action adequately
remedies any material irreconcilable conflict, but in no event will TRUST or
ADVISER (or any other investment adviser of TRUST) be required to establish a
new funding medium for any Contract. Further, LIFE COMPANY shall not be
required by this Section 5.4 to establish a new funding medium for any
Contracts if an offer to do so has been declined by a vote of a majority of
Contract owners materially and adversely affected by the material
irreconcilable conflict.
5.5 The Board's determination of the existence of an irreconcilable
material conflict and its implications shall be made known promptly and in
writing to LIFE COMPANY.
5.6 No less than annually, LIFE COMPANY shall submit to the Board such
reports, materials or data as the Board may reasonably request so that the
Board may fully carry out its obligations. Such reports, materials, and data
shall be submitted more frequently if deemed appropriate by the Board.
Article VI. VOTING
6.1 LIFE COMPANY will provide pass-through voting privileges to all
Contract owners so long as the SEC continues to interpret the '40 Act as
requiring pass-through voting privileges for Contract owners. Accordingly,
LIFE COMPANY, where applicable, will vote Shares of any Portfolio held in its
Separate Account(s) in a manner consistent with voting instructions timely
received from its Contract owners. LIFE COMPANY will be responsible for
assuring that each of its registered Separate Account(s) that owns any Shares
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<PAGE>
calculates voting privileges in a manner consistent with other Participating
Insurance Companies. LIFE COMPANY will vote Shares that are not attributable
to Contract owners to whom pass-through voting privileges are extended, or
that are attributable to Contract owners from whom timely voting instructions
were not received, in the same proportion as it votes those Shares for which
it has received voting instructions. Notwithstanding the foregoing, LIFE
COMPANY reserves the right to vote Shares held in any Separate Account in its
own right, to the extent permitted by law. TRUST will promptly notify LIFE
COMPANY of any amendment to, or change in interpretation of, the Exemptive
Order it has obtained.
6.2 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or if
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
'40 Act or the rules thereunder with respect to mixed and shared funding on
terms and conditions materially different from any exemptions granted in the
Exemptive Order, then TRUST, and/or LIFE COMPANY, as appropriate, shall take
such steps as may be necessary to comply with Rule 6e-2 and Rule 6e-3(T), as
amended, and Rule 6e-3, as adopted, to the extent such Rules are applicable.
Article VII. INDEMNIFICATION
7.1 INDEMNIFICATION BY LIFE COMPANY. LIFE COMPANY agrees to indemnify
and hold harmless TRUST, and ADVISER and each of their respective trustees,
directors, principals, officers, employees and agents (and former trustees,
directors, principals, officers, employees, and agents) and each person, if
any, who controls TRUST or ADVISER within the meaning of Section 15 of the '33
Act (collectively, the "Indemnified Parties") against any and all losses,
claims, damages, liabilities (including amounts paid in settlement with the
written consent of LIFE COMPANY, which consent shall not be unreasonably
withheld) or litigation or threatened litigation (including reasonable legal
and other expenses), to which the Indemnified Parties may become subject under
any statute or regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of Shares or the Contracts
and:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the Contracts, any Separate Account's registration statement
or Contract prospectus contained therein, or in any sales
literature for the Contracts (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that
this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and
in conformity with information furnished in writing to LIFE
COMPANY by or on behalf of TRUST, ADVISER or DISTRIBUTOR for
use in the Contracts, any Separate Account's registration
statement or Contract prospectus or sales literature for the
Contracts (or any amendment or supplement supplement to any
of the foregoing) or otherwise for use in connection with
the sale of the Contracts or Shares; or
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<PAGE>
(b) arise out of or result from (i) statements or
representations (other than statements or representations
contained in any registration statement, prospectus or sales
literature for the TRUST, or any Portfolio not supplied by
LIFE COMPANY, or persons under its control) or (ii) willful
misfeasance, bad faith, negligence, or reckless disregard of
obligations or duties of LIFE COMPANY or persons under its
control, with respect to the sale or distribution of the
Contracts or Shares; or (c) arise out of any untrue
statement or alleged untrue statement of a material fact
contained in any registration statement, prospectus, or
sales literature for the TRUST, or any Portfolio, or any
amendment or supplement to any of the foregoing, or the
omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, if such statement or
omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished
in writing to TRUST by or on behalf of LIFE COMPANY for use
in such materials; or
(c) arise as a result of any failure by LIFE COMPANY to provide
substantially the services and furnish the materials under
the terms of this Agreement; or
(d) arise out of or result from any material breach of any
representation and/or warranty made by LIFE COMPANY in this
Agreement or arise out of or result from any other material
breach of this Agreement by LIFE COMPANY.
7.2 LIFE COMPANY shall not be liable under Section 7.1 hereof with
respect to any losses, claims, damages, liabilities or litigation incurred or
assessed against an Indemnified Party to the extent that such losses, claims,
damages, liabilities or litigation are attributable to such Indemnified
Party's willful misfeasance, bad faith, 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 breach of this
Agreement.
7.3 LIFE 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 LIFE 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 LIFE COMPANY
of any such claim shall not relieve LIFE 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, LIFE COMPANY shall be entitled
to participate at its own expense in the defense of such action. LIFE COMPANY
also shall be entitled to assume the defense thereof, with counsel
satisfactory to the Indemnified Party named in the action. After notice from
LIFE COMPANY to such Indemnified Party of LIFE 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 LIFE COMPANY will not be liable to
such Indemnified Party under this Agreement for any legal or other expenses
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<PAGE>
subsequently incurred by such Indemnified Party independently in connection
with the defense thereof other than reasonable costs of investigation.
7.4 INDEMNIFICATION BY TRUST AND ADVISER. TRUST and ADVISER agree to
indemnify and hold harmless LIFE COMPANY and each of its directors,
principals, officers, employees, and agents (and former directors, principals,
officers, employees, and agents) and each person, if any, who controls LIFE
COMPANY within the meaning of Section 15 of the '33 Act (collectively, the
"Indemnified Parties") against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
TRUST and ADVISER which consent shall not be unreasonably withheld) or
litigation or threatened litigation (including reasonable legal and other
expenses) to which the Indemnified Parties may become subject under any
statute, or regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of Shares or the Contracts
and:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
any registration statement or prospectus or sales literature
for the TRUST or any Portfolios (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as
to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon
and in conformity with information furnished in writing to
TRUST, ADVISER, or DISTRIBUTOR by or on behalf of LIFE
COMPANY for use in any registration statement, prospectus or
sales literature for the TRUST or any Portfolio (or any
amendment or supplement to any of the foregoing) or
otherwise for use in connection with the sale of the
Contracts or Shares; or
(b) arise out of or result from (i) statements or
representations (other than statements or representations
contained in any Separate Account's registration statement
or Contract prospectus, or sales literature for the
Contracts not supplied by TRUST, ADVISER or DISTRIBUTOR or
persons under their respective control) or (ii) willful
misfeasance or bad faith, negligence, or reckless disregard
of obligations or duties of ADVISER, TRUST or DISTRIBUTOR or
persons under their respective control, with respect to the
sale or distribution of the Contracts or Shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in any Separate
Account's registration statement or Contract prospectus, or
sales literature for the Contracts, or any amendment or
supplement to any of the foregoing or the omission or
alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading, if such statement or omission or
such alleged statement or omission was made in reliance upon
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<PAGE>
and in conformity with information furnished in writing to
LIFE COMPANY for inclusion therein by or on behalf of TRUST,
ADVISER or DISTRIBUTOR; or
(d) arise as a result of (i) a failure by TRUST, or ADVISER to
provide substantially the services and furnish the materials
under the terms of this Agreement; (ii) a failure by a
Portfolio(s) to comply with the diversification requirements
of Section 817(h) of the Code; or (iii) a failure by a
Portfolio(s) to qualify as a "regulated investment company"
under Subchapter M of the Code; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by TRUST, or ADVISER in
this Agreement or arise out of or result from any other
material breach of this Agreement by TRUST, or ADVISER.
7.5 TRUST and ADVISER shall not be liable under Section 7.4 hereof
with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party to the extent that such
losses, claims, damages, liabilities or litigation are attributable to such
Indemnified Party's willful misfeasance, bad faith, or negligence in the
performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations and duties under this
Agreement or breach of this Agreement.
7.6 TRUST and ADVISER 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 TRUST and ADVISER 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 TRUST and
ADVISER of any such claim shall not relieve TRUST and ADVISER 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, TRUST and
ADVISER shall be entitled to participate at its own expense in the defense of
such action. TRUST and ADVISER also shall be entitled to assume the defense
thereof, with counsel satisfactory to the Indemnified Party named in the
action. After notice from TRUST and ADVISER to such Indemnified Party of TRUST
and ADVISER's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
TRUST and ADVISER will not be liable to such Indemnified Party under this
Agreement for any legal or other expenses subsequently incurred by such
Indemnified Party independently in connection with the defense thereof other
than reasonable costs of investigation.
Article VIII. TERM: TERMINATION
8.1 This Agreement shall be effective as of the date first written
above and shall continue in force until terminated in accordance with the
provisions herein.
8.2 This Agreement shall terminate in accordance with the following
provisions:
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(a) At the option of LIFE COMPANY or TRUST at any time from the
date hereof upon 180 days' notice, unless a shorter time is
agreed to in writing by the Parties;
(b) At the option of LIFE COMPANY, if TRUST Shares are not
reasonably available to meet the requirements of the
Contracts as determined by LIFE COMPANY. Prompt notice of
election to terminate shall be furnished by LIFE COMPANY,
said termination to be effective ten days after receipt of
notice unless TRUST makes available a sufficient number of
Shares to reasonably meet the requirements of the Contracts
within said ten-day period;
(c) At the option of LIFE COMPANY, upon the institution of
formal proceedings against TRUST or ADVISER by the SEC, the
NASD, or any other regulatory body, the expected or
anticipated ruling, judgment or outcome of which would, in
LIFE COMPANY's reasonable judgment, materially impair the
ability of the TRUST, or ADVISER, to meet and perform their
respective obligations and duties hereunder. Prompt notice
of election to terminate shall be furnished by LIFE COMPANY
with said termination to be effective upon receipt of
notice;
(d) At the option of TRUST or ADVISER, upon the institution of
formal proceedings against LIFE COMPANY and/or its
broker-dealer affiliates by the SEC, the NASD, or any other
regulatory body, the expected or anticipated ruling,
judgment or outcome of which would, in TRUST or ADVISER's
reasonable judgment, materially impair LIFE COMPANY's
ability to meet and perform its obligations and duties
hereunder. Prompt notice of election to terminate shall be
furnished by TRUST or ADVISER with said termination to be
effective upon receipt of notice;
(e) In the event TRUST'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 medium of Contracts issued or to be
issued by LIFE COMPANY termination shall be effective upon
such occurrence without notice;
(f) In the event any Portfolio fails to qualify as a "regulated
investment company" under Subchapter M of the Code or
otherwise fails to meet the requirements of Section 817(h)
of the Code and the regulations thereunder. Termination
shall be effective upon such occurrence without notice;
(g) At the option of TRUST and ADVISER if the Contracts cease to
qualify as annuity contracts or life insurance contracts, as
applicable, under the Code, or if TRUST and ADVISER
reasonably believes that the Contracts may fail to so
qualify. Termination shall be effective upon receipt of
notice by LIFE COMPANY;
(h) At the option of LIFE COMPANY, upon breach by TRUST or
ADVISER of any material provision of this Agreement, which
breach has not been cured to the satisfaction of LIFE
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COMPANY within ten days after written notice of such breach
is delivered to TRUST or ADVISER;
(i) At the option of TRUST or ADVISER, upon LIFE COMPANY's
breach of any material provision of this Agreement, which
breach has not been cured to the satisfaction of TRUST or
ADVISER within ten days after written notice of such breach
is delivered to LIFE COMPANY;
(j) At the option of TRUST, if the Contracts are not registered,
issued or sold in accordance with applicable federal and/or
state law. Termination shall be effective immediately upon
such occurrence without notice;
(k) In the event this Agreement is assigned without the prior
written consent of LIFE COMPANY, TRUST, and ADVISER,
termination shall be effective immediately upon such
occurrence without notice.
8.3 Notwithstanding any termination of this Agreement pursuant to
Section 8.2 hereof, TRUST at its option may elect to continue to make
available additional TRUST Shares, as provided below, for so long as TRUST
desires 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, if TRUST so elects to make additional Shares available, the owners
of the Existing Contracts or LIFE COMPANY, whichever shall have legal
authority to do so, shall be permitted to reallocate investments in TRUST,
redeem investments in TRUST and/or invest in TRUST upon the payment of
additional premiums under the Existing Contracts. In the event of a
termination of this Agreement pursuant to Section 8.2 hereof, TRUST and
ADVISER, as promptly as is practicable under the circumstances, shall notify
LIFE COMPANY whether TRUST elects to continue to make Shares available after
such termination. If Shares continue to be made available after such
termination, the provisions of this Agreement shall remain in effect and
thereafter either TRUST or LIFE COMPANY may terminate the Agreement, as so
continued pursuant to this Section 8.3, upon sixty (60) days prior written
notice to the other Party.
8.4 Except as necessary to implement Contract owner initiated
transactions, or as required by state insurance laws or regulations, LIFE
COMPANY shall not redeem the Shares attributable to the Contracts (as opposed
to the Shares attributable to LIFE COMPANY's assets held in the Separate
Accounts), and LIFE COMPANY shall not prevent Contract owners from allocating
payments to a Portfolio that is otherwise available under the Contracts until
thirty (30) days after the LIFE COMPANY shall have notified TRUST of its
intention to do so.
Article IX. NOTICES
Any notice hereunder shall be given by registered or certified mail
return receipt requested 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.
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If to TRUST:
BT Insurance Funds Trust
Attn.:
Phone:
Fax:
If to ADVISER:
Bankers Trust Company - Global Investment Management
130 Liberty Street
New York, NY 10006
Attn.:
Phone:
Fax:
If to LIFE COMPANY:
USAA Life Insurance Company
9800 Fredericksburg Road
San Antonio, TX 78288
Attn.: Dwain Akins
Phone: (210) 498-0676
Fax: (210) 498-0608
Notice shall be deemed given on the date of receipt by the addressee as
evidenced by the return receipt.
Article X. MISCELLANEOUS
10.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof
or otherwise affect their construction or effect.
10.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
10.3 If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
10.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York. It
shall also be subject to the provisions of the federal securities laws and the
rules and regulations thereunder and to any orders of the SEC granting
exemptive relief therefrom and the conditions of such orders.
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10.5 It is understood and expressly stipulated that neither the
shareholders of shares of any Portfolio nor the Trustees or officers of TRUST
or any Portfolio shall be personally liable hereunder. No Portfolio shall be
liable for the liabilities of any other Portfolio. All persons dealing with
TRUST or a Portfolio must look solely to the property of TRUST or that
Portfolio, respectively, for enforcement of any claims against TRUST or that
Portfolio. It is also understood that each of the Portfolios shall be deemed
to be entering into a separate Agreement with LIFE COMPANY so that it is as if
each of the Portfolios had signed a separate Agreement with LIFE COMPANY and
that a single document is being signed simply to facilitate the execution and
administration of the Agreement.
10.6 Each Party shall cooperate with each other Party and all
appropriate governmental authorities (including without limitation the SEC,
the NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
10.7 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.
10.8 If the Agreement terminates the Parties agree that Article VII and
Sections 10.5, 10.6 and 10.7 shall remain in effect after termination.
10.9 No provision of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by
TRUST, ADVISER and the LIFE COMPANY.
10.10 No failure or delay by a Party in exercising any right or remedy
under this Agreement will operate as a waiver thereof and no single or partial
exercise of rights shall preclude a further or subsequent exercise. The rights
and remedies provided in this Agreement are cumulative and not exclusive of
any rights or remedies provided by law.
IN WITNESS WHEREOF the Parties have caused their duly authorized
officers to execute this Agreement as of the date and year first above
written.
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BT INSURANCE FUNDS TRUST
By: /s/ELIZABETH RUSSELL
--------------------
Name: Elizabeth Russell
Title: Secretary
BANKERS TRUST COMPANY
By: /s/ IRENE S. GREENBERG
----------------------
Name: Irene S. Greenberg
Title: Vice President
USAA LIFE INSURANCE COMPANY
By: /s/ KENNETH A. MCCLURE
----------------------
Name: Kenneth A. McClure
Title: Senior Vice President
Life, Health & Marketing
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Appendix A
This appendix is an integral part of the Agreement to which it is
attached. Except as otherwise noted, defined terms used herein shall have the
same meaning as given them in the Agreement.
1. The Separate Account of USAA Life Insurance Company
2. The Life Insurance Separate Account of USAA Life Insurance Company
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Appendix B
This Appendix is an integral part of the Agreement to which it is
attached. Except as otherwise noted, defined terms used herein shall have the
same meaning as given them in the Agreement.
1. Equity 500 Index Fund
2. Small Cap Index Fund
3. EAFE(R) Equity Index Fund
19
EXHIBIT 1.(8)(f)(ii)
BANKERS TRUST COMPANY
130 Liberty Street, New York, New York 10006
VINAY MENDIRATTA
VICE PRESIDENT
GLOBAL INVESTMENT MANAGEMENT
TEL: 212-250-2884
FAX: 212-775-2189
April 30, 1998
Mr. Dwain Akins, Esq.
Assistant Vice President and
Assistant Secretary
Life & Health Insurance Counsel
USAA Life Insurance Company
General Counsel - C3 West
9800 Fredricksburg Road, C-3-W
San Antonio, TX 78288
Dear Dwain:
USAA Life Insurance Company ("Life Company") will invest in one or more series
funds (each a "Portfolio") of the BT Insurance Funds Trust ("Trust"), which
will serve as an underlying funding vehicle for certain variable annuity
contracts and variable life insurance policies (collectively, the "Contracts")
issued by Life Company, pursuant to a Fund Participation Agreement by and
among the Life Company, Trust and Bankers Trust Company, dated April 30, 1998.
Bankers Trust Company ("Bankers Trust") serves as the investment adviser to
the Trust and in such capacity provides investment advisory and administrative
services to the Trust and its Portfolios.
Life Company hereby agrees to provide the services enumerated herein on
a sub-administration basis to owners of Contracts ("Contract Owners") who are
beneficial owners of shares of each Portfolio. Such services shall consist of
the following:
1. Providing necessary personnel and facilities to establish and
maintain Contract Owner accounts and records.
2. Recording debits and credits to the accounts of Contract Owners.
3. Paying the proceeds of redemptions to Contract Owners either by
check or by wire.
4. Furnishing Fund prospectuses, statements of additional
information, proxy materials, annual and semi-annual reports to
shareholders and other communications from the Fund to Contract
Owners, as provided in Article 3.2 of the Participation Agreement.
<PAGE>
5. Performing such shareholder servicing as may be required, which
shall include but not be limited to, responding to questions
regarding account balances and other account inquiries.
6. Federal and state income tax withholding and reporting.
7. Providing such other assistance and services as may reasonably be
requested by the Fund.
In recognition of Life Company providing such services and the
administrative cost savings to the Portfolios and the Trust, the Bankers Trust
will pay Life Company the fees set forth in Exhibit A hereto ("Fees").
In the event that the investment advisory and/or administration fees
paid by the Portfolio to Bankers Trust are reduced by the Board of Trustees of
the Trust pursuant to an amendment of the applicable agreement, or, in the
good faith opinion of the Trust, based upon an opinion of counsel reasonably
acceptable to Life Company, such payments are, will or may be deemed to be in
contravention or violation of any law, rule, regulation, court decision or
order, or out-of-court settlement of actual or threatened litigation or
enforcement position of any regulatory body having jurisdiction over the Trust
(taken together, "Change in Law"), the Fees shall be adjusted accordingly to
conform to such Change in Law on terms and conditions deemed fair and
equitable by Bankers Trust, and acceptable to Life Company. No Fee adjustment
of any type, for any reason, shall take effect until agreed upon, in writing,
by both Bankers Trust and Life Company.
Bankers Trust shall give Life Company written notice 30 days prior to
seeking approval by the Board of Trustees of the Trust of (a) any increase in
the fees to be paid to Bankers Trust or (b) any reduction or elimination of
Bankers Trust's voluntary fee waiver as reflected in Exhibit B hereto.
Either party may terminate this Agreement, without penalty, on 60 days'
written notice to the other party; except that the Fees set forth in Exhibit A
shall continue as long as the assets underlying the Contracts issued by Life
Company are allocated to the Trust. Unless so terminated, this Agreement shall
continue in effect for so long as Bankers Trust, or its successor(s) in
interest, continues to perform in an advisory capacity for the Trust and for
so long as any Contract values or any monies attributable to Life Company are
in the Trust.
Each party hereto shall indemnify and hold harmless ("Indemnifying
Party") the other party and each of its officers, directors, trustees,
employees, and agents (and former officers, directors, trustees, employees,
and agents) and each person, if any, who controls such other party within the
meaning of Section 15 of the Securities Act of 1933 (individually and
collectively, "Indemnified Party") from and against any and all losses,
claims, damages, liabilities, costs, and expenses (including reasonable
attorneys' fees) ("Losses") arising out of (i) any violation by the
Indemnifying Party of any law, rule, regulation, court order or enforcement
position of any regulatory body having jurisdiction over either party, (ii)
the Indemnifying Party's performance of or failure to perform its obligations
under, or in connection with this Agreement, except that an Indemnifying Party
2
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shall have no liability to the extent such Losses result from the willful
misfeasance, bad faith, negligence, reckless disregard of obligations or
duties under this Agreement, or breach of this Agreement by an Indemnified
Party. In no event shall any party be liable for any special, consequential,
or incidental damages. The indemnification under this Agreement is in addition
to (and not duplicative of), and not in lieu of; any indemnification provided
under any Fund Participation Agreement entered into between the parties.
If you are in agreement with the foregoing, please sign a copy and
return it to the undersigned.
Accepted and Agreed:
Bankers Trust Company USAA Life Insurance Company
By: /s/ IRENE S. GREENBERG By: /s/ KENNETH A. MCCLURE
---------------------- ----------------------
Irene S. Greenberg Kenneth A. McClure
Vice President Senior Vice President
Life, Health & Marketing
Date: May 1, 1998 Date: April 30, 1998
3
<PAGE>
EXHIBIT A
BT INSURANCE FUNDS TRUST
FEES
For each following Portfolio, Bankers Trust agrees to pay Life Company a
quarterly amount that is equal on an annual basis to the specified
percentage of the average combined daily net assets of all of the shares
of the Portfolio held in the Life Company's segregated asset accounts
pursuant to the applicable Participation Agreement:
Portfolio Fees for Administrative Services
EQUITY 500 INDEX FUND
all assets .13%
SMALL CAP INDEX FUND
on first $200 million .15%
on the balance .20%
EAFE EQUITY INDEX FUND
on first $200 million .15%
on the balance .20%
4
<PAGE>
EXHIBIT B
BT INSURANCE FUNDS TRUST
ADVISORY AND OTHER FEES; BANKERS TRUST'S VOLUNTARY FEE WAIVER
The annual fees and waivers below are expressed as a percentage of the
average daily net assets of the applicable Portfolio.
Portfolio
EQUITY 500 INDEX FUND
Advisory .20
Admin & Service .13
Other .21
Waiver/Reimb (.24)
Expense Ratio .30
SMALL CAP INDEX FUND
Advisory .35
Admin & Service .13
Other .25
Waiver/Reimb (.28)
Expense Ratio .45
EAFE EQUITY INDEX FUND
Advisory .45
Admin & Service .13
Other .27
Waiver/Reimb (.20)
Expense Ratio .65
5
EXHIBIT 1.(10)(a)(i)
VARIABLE UNIVERSAL LIFE APPLICATION
(Known in some states as Flexible
Premium Variable Life)
ABOUT THIS BOOKLET
Here's the life insurance application you requested. Before you begin, please
take a moment to read the step-by-step instructions below. If you have
questions and would like to speak to an Account Representative, please call
toll free 1-800-531-2923 (in San Antonio call 456-9035).
1. This booklet contains an application for USAA Life Insurance Company's
Variable Universal Life insurance policy. Please complete the entire
application and sign where indicated. If additional space is needed to
answer any question, please attach an extra sheet of paper.
2. Use the Guide opposite the questions as a "road map" to completing the
application.
3. In some cases, medical tests will be required. USAA Life will arrange
and pay for the tests.
4. To take advantage of our Automatic Payment Plan for premium payments,
complete the authorization form enclosed in your packet and attach a
check marked "VOID" to the form.
5. RETURN THIS BOOKLET INTACT along with any required premium payment in
the enclosed postage-paid envelope. If the insurance you're applying
for, plus any other insurance you have with USAA Life, exceeds $500,000,
do NOT send the premium payment with your application. We will bill you
when your application is approved.
USAA
LIFE
INSURANCE
COMPANY [LOGO]
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VARIABLE UNIVERSAL LIFE - PART I - GUIDE
1 PROPOSED INSURED
Annual income is NOT required if the applicant is a dependent child.
2 POLICYOWNER
Only the Policyowner can exercise policy rights. If the Proposed Insured is a
minor, an adult must be named as the Policyowner. If a business is named as
the Policyowner, indicate the name of business.
After the policy is issued, a Business Authorization Form will be sent to you.
If the Policyowner is other than the Proposed Insured, we recommend that a
Successor Owner be named in Section 20, Special Requests, under Personal
Profile Part II.
Generally, it is advisable to name the Proposed Insured as the Successor Owner
unless federal estate tax is a consideration OR the Proposed Insured is a
minor.
3 PAYOR
If the premiums for the policy will be paid by someone other than the
Policyowner, please complete this section.
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VARIABLE UNIVERSAL LIFE - PART I - APPLICATION
1 PROPOSED INSURED (PLEASE PRINT OR TYPE)
NAME: FIRST MIDDLE LAST BIRTH DATE: MO DAY YR AGE
____________________________________________ ______________________ ___
BIRTHPLACE (STATE) SEX: [ ] M [ ] F
SOCIAL SECURITY NUMBER _____________________
USAA NUMBER (IF ANY) _______________________
DRIVER'S LICENSE NUMBER AND STATE OF ISSUE ________________________
EMPLOYER/SOURCE OF INCOME __________________
OCCUPATION / DUTIES ________________________
ANNUAL INCOME $___________________________
MILITARY STATUS:
[ ] ACTIVE DUTY [ ] RETIRED [ ] ACTIVE RESERVE [ ] INACTIVE RESERVE
[ ] SEPARATED [ ] PRECOMMISSIONED [ ] NONE
BRANCH OF SERVICE/GOVT AGENCY MILITARY RANK
_____________________________ _____________
RESIDENCE PHONE EXT. BUSINESS PHONE EXT.
(___)_______________ _______ (___)_______________ _______
RESIDENCE ADDRESS: NUMBER & STREET CITY STATE ZIP
____________________________________________________________________________
YEARS THERE
___________
BUSINESS ADDRESS: NUMBER & STREET CITY STATE ZIP
____________________________________________________________________________
YEARS EMPLOYED
______________
HAVE YOU OR YOUR SPOUSE EVER BEEN AN OFFICER IN THE U.S. ARMED FORCES?
[ ] YES [ ] NO
HAVE EITHER OF YOUR PARENTS OR YOUR SPOUSE'S PARENTS EVER BEEN
AN OFFICER IN THE U.S. ARMED FORCES? [ ] YES [ ] NO
2 POLICYOWNER (COMPLETE ONLY IF THE POLICYOWNER IS OTHER THAN THE PROPOSED
INSURED OR IF THE PROPOSED INSURED IS UNDER AGE 15)
RANK/TITLE NAME: FIRST MIDDLE LAST
____________________________________________________________________________
RELATIONSHIP TO INSURED SSN/TAX ID NO.
____________________________________________________________________________
ADDRESS: NUMBER & STREET CITY STATE ZIP
____________________________________________________________________________
RESIDENCE PHONE EXT. BUSINESS PHONE EXT.
(___)_______________ _______ (___)_______________ _______
BIRTH MO DAY YR
DATE: __/__/__ USAA NUMBER (IF ANY) ____________
POLICY SENT TO POLICYOWNER UNLESS OTHERWISE REQUESTED.[ ] INSURED [ ] OTHER
IF OTHER, PLEASE COMPLETE THE FOLLOWING:
NAME: FIRST MIDDLE LAST
____________________________________________________________________________
ADDRESS: NUMBER & STREET CITY STATE ZIP
____________________________________________________________________________
YEARS THERE
___________
3 PAYOR (COMPLETE ONLY IF PAYOR IS OTHER THAN POLICYOWNER)
NAME: FIRST MIDDLE LAST
____________________________________________________________________________
RELATIONSHIP TO INSURED
____________________________________________________________________________
SSN/TAX ID NO.
____________________________________________________________________________
ADDRESS: NUMBER & STREET CITY STATE ZIP
____________________________________________________________________________
YEARS THERE
___________
RESIDENCE PHONE EXT. BUSINESS PHONE EXT.
(___)_______________ _______ (___)_______________ _______
BIRTH MO DAY YR
DATE: __/__/__ USAA NUMBER (IF ANY) ____________
PREMIUM NOTICES SENT TO POLICYOWNER UNLESS OTHERWISE REQUESTED.
VUL31345ST 1-98
TURN TO NEXT PAGE.
USAA LIFE INSURANCE COMPANY
9800 FREDERICKSBURG ROAD
SAN ANTONIO, TEXAS 78288
31345-0198
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4 POLICY AMOUNT AND OPTIONAL BENEFITS
SELECT OPTION-Option A and/or Option B are mentioned in the enclosed
illustration. Be sure to write in the SPECIFIED AMOUNT OF INSURANCE. Then
decide which OPTIONAL BENEFITS you want. Each of the options carries an
additional premium.
WAIVER OF MONTHLY DEDUCTION - If you suffer an accident or illness that
results in a covered disability; this option guarantees that your cost of
insurance will be paid for you during the period of your disability. The
premium for this benefit varies based on the age of the Proposed Insured.
ACCIDENTAL DEATH BENEFIT (ADB) - If you die as a result of a covered accident,
this option will pay your beneficiary an ADDITIONAL amount above the face
amount you have selected for the policy. The selected ADB can be up to a
maximum of $200,000, or the face amount of the policy, whichever is less. The
premium for ADB is $.84 per $1,000 of coverage per year.
CHILD RIDER - An easy way to provide coverage for your child(ren), this rider
is available in $1,000 increments from $2,000 to a maximum of $25,000. The
cost for this rider is $6 per $1,000 of coverage per year. Premiums remain the
same, regardless of the number of children covered. The Proposed Insured under
the basic policy must be age 20 through 55 to select the Child Rider option.
If you select the Child Rider option, you must complete Sections 13-19 of the
Personal Profile.
5 PREMIUM AMOUNT AND METHOD OF PAYMENT
PREMIUM AMOUNT - Write in your Planned Periodic Premium for the amount of
insurance and Optional Benefits you selected in Section 4. (See the enclosed
illustration for the premiums.) If you select the Automatic Payment Plan,
enclose a check for two months' premium. If you select any other method of
payment, enclose one full payment for the payment interval selected. (Please
make checks payable to USAA Life Insurance Company.)
METHOD OF PAYMENT - Select the method by which you want to make your premium
payments.
AUTOMATIC PAYMENT PLAN. We suggest that you use our Automatic Payment Plan.
This is an efficient and economical monthly payment system that authorizes
USAA Life to automatically withdraw your premium payment on the date of your
choice from your bank account. Complete and return the authorization form
enclosed in your packet.
MONTHLY GOVERNMENT ALLOTMENT. If you are eligible, you may elect to pay your
premiums by Monthly Government Allotment. With this method, your contract
premium amount is deducted at the end of the month in which the salary is
earned. We'll provide additional instructions after your policy is issued.
DIRECT BILLING. If you choose this method, please also select a payment
frequency. You can choose between an annual, semi-annual or quarterly direct
premium payment plan.
SINGLE PREMIUM. Single Premium means you have no plans for future premium
payments.
NOTE: IF THE INSURANCE YOU'RE APPLYING FOR, PLUS ANY OTHER INSURANCE YOU NOW
HAVE WITH USAA LIFE, EXCEEDS $500,000, DO NOT SEND THE PREMIUM WITH YOUR
APPLICATION. WE WILL BILL YOU WHEN YOUR APPLICATION IS APPROVED.
1035 EXCHANGE If you intend to cancel an existing policy and transfer the cash
surrender value to the policy applied for in this application, then fill in
the amount of exchange and the company name of the policy. You should complete
a separate 1035 Exchange form and send it and your old policy with your
application.
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4 POLICY AMOUNT AND OPTIONAL BENEFITS
PLAN NAME: VARIABLE UNIVERSAL LIFE (KNOWN AS FLEXIBLE PREMIUM VARIABLE LIFE IN
GA, IL, IN, MD, PA, TN, VA, AND DC.) SPECIFIED AMOUNT OF INSURANCE ($100,000
MINIMUM) $_______________
SELECT OPTION
(CHECK ONLY ONE): [ ] OPTION A [ ] OPTION B
Provides fixed death Provides fixed
benefit protection insurance protection
plus your cash
value as total death benefit
OPTIONAL BENEFITS: CHECK THE BENEFITS YOU ARE REQUESTING AND
FILL IN AMOUNT IF APPLICABLE.
[ ] WAIVER OF MONTHLY DEDUCTION (Not available if Proposed Insured is
under age 15 or over age 55: not available in New York).
[ ] ACCIDENTAL DEATH BENEFIT (ADB) (Not available if Proposed Insured
is under age 10 or over age 60) $___________
[ ] CHILD RIDER (Only available if Proposed Insured is age 20 through
55 and child is age 17 or under; not available for residents of
Hawaii) $____________
[ ] OTHER _________________________________
5 PREMIUM AMOUNT AND METHOD OF PAYMENT
INITIAL PREMIUM PAYMENT AMOUNT $__________
PLANNED PERIODIC PREMIUMS $_________
METHOD OF PAYMENT
(SELECT ONLY ONE)
[ ] AUTOMATIC PAYMENT PLAN (MONTHLY) $ ______________ You must
complete and return the enclosed authorization form with this
application. Please include a voided check from your financial
institution.
[ ] MONTHLY GOVERNMENT ALLOTMENT $ ______________
[ ] DIRECT BILLING $ ______________
[ ] ANNUALLY $ ______________
[ ] SEMI-ANNUALLY $ ______________
[ ] QUARTERLY $ ______________
[ ] SINGLE PREMIUM $ ______________
PLEASE ENCLOSE A CHECK
FOR THE INITIAL PREMIUM PAYMENT AMOUNT
WITH YOUR COMPLETED APPLICATION.
If the amount of insurance you're applying for, plus any other life insurance
you have with USAA Life, exceeds $500,000, do NOT send the premium.
1035 EXCHANGE $____________ FROM
________________________
(NAME OF COMPANY)
VUL31345ST 1-98
USAA LIFE INSURANCE COMPANY
9800 FREDERICKSBURG ROAD
SAN ANTONIO, TEXAS 78288
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6 INVESTMENT ALLOCATION
Provide the desired percent allocation of the initial premium payment you
request next to your selected accounts. If you are allocating your premium
payment to variable fund accounts other than the Money Market Variable Fund
Account, that portion of your premium payment will be allocated to the Money
Market Variable Fund Account for a period equal to the FREE LOOK PERIOD stated
in your policy plus five days. At the end of the period, the premium payments
will be allocated as directed in this application and as explained in more
detail in the prospectus. If you decide to return the policy within the FREE
LOOK PERIOD, USAA Life will refund your money as explained in the policy.
7 INVESTMENT SUITABILITY INFORMATION
These questions are intended to help you determine your Investment Objectives
and Risk Tolerance. This information helps us determine the suitability of
this policy for your needs.
Please complete all of this information to the best of your ability. Enter a
number from 1-4 in the space provided (with 1 as the highest) to rate the
priority of your Investment Objectives and Risk Tolerance. Below this,
complete the information based on the Policyowner's income and net worth.
8 TOBACCO USE
Please answer questions regarding your tobacco use.
NOTE: TOBACCO USE QUESTION A SHOULD BE ANSWERED "YES" IF THE PROPOSED INSURED
HAS USED ANY TOBACCO PRODUCTS OR NICOTINE SUBSTITUTES (E.G., NICOTINE PATCH OR
GUM) IN THE PAST 12 MONTHS.
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6 INVESTMENT ALLOCATION
You may allocate your premium payment to as many of the variable fund accounts
as you like, in amounts no smaller than one tenth of a percent, as long as the
total equals 100%.
USAA LIFE:
_____ % Growth & Income
_____ % World Growth
_____ % Aggressive Growth
_____ % Diversified Assets
_____ % International
_____ % Income
_____ % Money Market
_____ % Alger American Growth
_____ % Scudder VLIF Capital Growth
_____ % Bankers Trust Equity 500 Index
_____ % Bankers Trust Small Cap Index
_____ % Bankers Trust EAFE (R) Index
100% TOTAL
7 INVESTMENT SUITABILITY INFORMATION (TO BE COMPLETED BY POLICYOWNER)
INVESTMENT OBJECTIVES
Enter a priority rating from 1-4 (with 1 as highest).
_____ Long-term gain
_____ Short-term gain
_____ Income
_____ Tax advantaged
RISK TOLERANCE
Check one.
______ Aggressive
______ Moderate
______ Conservative
INVESTMENT TIME HORIZON
[ ] 1-10 years [ ] 10-20 years [ ] 20+ years
Annual income from occupation $_______
Annual income from other sources $_______
Projected income for next 12 months $_______
Estimated net worth (excluding home) $_______
Tax bracket _____
List sources of income ________________
8 TOBACCO USE (PLEASE LIST DETAILS FOR EACH "YES" ANSWER IN THE SPACE
PROVIDED BELOW)
A. Has the Proposed Insured smoked one or more cigarettes in the last 12
months? [ ] Yes [ ] No
B. Has the Proposed Insured used any other form of tobacco or tobacco
surrogate in the last 12 months? [ ]Yes [ ] No
C. Has the Proposed Insured ever used any form of tobacco? [ ]Yes [ ]No
TYPE AVERAGE DAILY USAGE DATE LAST USED
________ ___________________ _______________
TYPE AVERAGE DAILY USAGE DATE LAST USED
________ ___________________ _______________
TYPE AVERAGE DAILY USAGE DATE LAST USED
________ ___________________ _______________
TYPE AVERAGE DAILY USAGE DATE LAST USED
________ ___________________ _______________
NOW, COMPLETE THE PERSONAL PROFILE SECTION.
VUL31345ST 1-98
USAA LIFE INSURANCE COMPANY
9800 FREDERICKSBURG ROAD
SAN ANTONIO, TEXAS 78288
31345-0198
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PERSONAL PROFILE - PART I - GUIDE
9 PURPOSE OF INSURANCE
Please check the appropriate box for Purpose of Insurance. Purpose of
Insurance includes two broad areas -- personal and business.
PERSONAL INSURANCE INCLUDES: FAMILY PROTECTION, which protects against the
loss of your future income; ESTATE LIQUIDITY, which protects against the
forced sale of your estate to pay estate taxes; DEBT PROTECTION, to pay
specific debt balances.
BUSINESS INSURANCE INCLUDES: KEY PERSON, which protects a business from loss
of revenue due to the death of a key person; BUY/SELL AGREEMENT, which
provides funding to settle a deceased partner's business interest.
IF THE PURPOSE FOR THIS INSURANCE IS NOT LISTED, please check "Other" and
indicate the purpose in the space provided.
10 BENEFICIARY DESIGNATION
Please write in the full name and address of each beneficiary. If you wish to
name a trust as beneficiary, please indicate whether it is an intervivos
(living) trust or a testamentary trust established by your will. If it is an
intervivos trust, please include the date it was written, grantor's name, and
the name and address of the trustee.
PRIMARY BENEFICIARY - This is the person, persons, or trust to receive the
proceeds from the policy at the insured's death.
CONTINGENT BENEFICIARY - The person, persons, or trust to receive the proceeds
if the primary beneficiary does not survive the insured. If more than one
person is named as primary or contingent beneficiary, the proceeds will be
divided equally unless otherwise directed.
NOTE: WHEN YOU NAME A BENEFICIARY, PLEASE INCLUDE NAME, ADDRESS, RELATIONSHIP,
AND SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER INFORMATION.
11 LIFE INSURANCE NOW IN FORCE (OR APPLIED FOR ON THE LIFE OF PROPOSED
INSURED NAMED IN PART I)
COMPLETE NAME OF COMPANY - Please list all policies currently in force or
applied for on the life of the individual to be insured. If none, so indicate.
TYPE OF PLAN AND COVERAGE - Please indicate type of plan and coverage type
(e.g., personal, business, group) for each policy listed.
ACCIDENTAL DEATH BENEFIT - If any of these policies have an Accidental Death
Benefit, fill in the dollar amount.
12 REPLACEMENT
If you are replacing a policy, please provide the following information:. name
of company, amount of policy, effective date of policy, and policy number.
NOTE: IF YOU ARE REPLACING A POLICY THAT HAS SUBSTANTIAL CASH AVAILABLE, YOU
MAY BE CREATING A TAXABLE SITUATION. TAX RULES MAY ALLOW YOU TO DEFER THIS
TAXABLE GAIN WHEN BUYING ANOTHER POLICY. SPECIAL FORMS ARE REQUIRED IN SUCH
SITUATIONS, SO PLEASE CALL FOR ASSISTANCE.
HAWAII RESIDENTS: IF YOU CHECK "YES" FOR REPLACEMENT, state law requires that
you send your policy to USAA Life Insurance Company for comparison.
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PERSONAL PROFILE - PART I
9 PURPOSE OF INSURANCE
[ ] FAMILY PROTECTION [ ] KEY PERSON
[ ] ESTATE LIQUIDITY [ ] BUY/SELL AGREEMENT
[ ] DEBT PROTECTION [ ] OTHER
10 BENEFICIARY DESIGNATION (ATTACH A SEPARATE SHEET IF MORE SPACE IS
REQUIRED)
NAME OF PRIMARY BENEFICIARY(IES): FIRST MIDDLE LAST
_____________________________________________________________________________
RELATIONSHIP TO INSURED BIRTH DATE: MO DAY YR SSN / TAX ID NUMBER
_________________________________________/___/_______________________________
ADDRESS: NUMBER & STREET CITY STATE ZIP
_____________________________________________________________________________
NAME OF CONTINGENT BENEFICIARY(IES): FIRST MIDDLE LAST
_____________________________________________________________________________
RELATIONSHIP TO INSURED BIRTH DATE: MO DAY YR SSN / TAX ID NUMBER
_________________________________________/___/____________________________
ADDRESS: NUMBER & STREET CITY STATE ZIP
____________________________________________________________________________
IF THERE ARE NO SURVIVING BENEFICIARIES, THE PROCEEDS ARE PAID TO THE OWNER
OR, IF THE OWNER IS DECEASED, TO THE OWNER'S ESTATE. IF A BENEFICIARY
DESIGNATED IS A TRUST PLEASE PROVIDE THE TRUST NAME, GRANTOR'S NAME, TRUST
DATE, TRUSTEE INFORMATION AND TRUST TAX IDENTIFICATION NUMBER.
11 LIFE INSURANCE NOW IN FORCE (OR APPLIED FOR ON THE LIFE OF PROPOSED
INSURED NAMED IN PART I)
1. NAME OF COMPANY POLICY NUMBER YR ISSUED TYPE PLAN
________________________________________________________________________
COVERAGE TYPE AMOUNT ACCIDENTAL DEATH BENEFIT
________________________________________________________________________
2. NAME OF COMPANY POLICY NUMBER YR ISSUED TYPE PLAN
________________________________________________________________________
COVERAGE TYPE AMOUNT ACCIDENTAL DEATH BENEFIT
________________________________________________________________________
3. NAME OF COMPANY POLICY NUMBER YR ISSUED TYPE PLAN
________________________________________________________________________
COVERAGE TYPE AMOUNT ACCIDENTAL DEATH BENEFIT
________________________________________________________________________
12 REPLACEMENT
Is this application for insurance intended to replace or modify any life
insurance now in force on the life of any Proposed Insured? (This information
is required by state regulations.) [ ] Yes [ ]No
IF YES, PLEASE LIST EACH POLICY TO BE REPLACED.
_____________________________________________________________________________
COMPANY AMOUNT ISSUE DATE POLICY NUMBER
_____________________________________________________________________________
COMPANY AMOUNT ISSUE DATE POLICY NUMBER
TURN TO NEXT PAGE
VUL31345ST 1-98
USAA LIFE INSURANCE COMPANY
9800 FREDERICKSBURG ROAD
SAN ANTONIO, TEXAS 78288
31345-0198
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13 CHILD RIDER (AVAILABLE FOR CHILDREN AGE 17 AND UNDER; NOT AVAILABLE IN
HAWAII)
Complete this section if you are requesting Child Rider coverage on your
policy. Complete questions about children in Section 18 of Part II, Statement
of Health. Family members who are not listed will not be covered.
NOTE: UNLESS OTHERWISE DESIGNATED UNDER SECTION 20, SPECIAL REQUESTS, THE
BENEFICIARY FOR THIS INSURANCE WILL BE THE PROPOSED INSURED UNDER THE BASIC
POLICY.
14 AVOCATION
Complete this section for all persons to be covered under the basic policy and
Child Rider.
Please give details regarding the type of activity and frequency of
participation.
15 FOREIGN RESIDENCE / TRAVEL
Complete this section for all persons to be covered under the basic policy and
Child Rider.
This question applies to active duty personnel as well as to civilians. Do not
include vacation travel of 30 days or less to Europe, Canada, Mexico, or
Japan.
16 AVIATION
Complete this section for all persons to be covered under the basic policy and
Child Rider.
Please give details regarding type of aircraft, FAA certificate type(s), and
hours flown.
17 DRIVING HISTORY
Complete this section for all persons to be covered under the basic policy and
Child Rider.
Please provide details regarding driving history for the past five years.
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13 CHILD RIDER (ATTACH A SEPARATE SHEET IF MORE SPACE IS REQUIRED)
IF COVERAGE IS NOT REQUIRED, PROCEED TO THE NEXT QUESTION.
1. CHILD'S NAME SEX: [ ]M [ ]F BIRTH DATE: MO DAY YR
________________________________________________________________________
SOCIAL SECURITY NUMBER HEIGHT (FT/IN) WEIGHT (LBS)
________________________________________________________________________
AMOUNT OF LIFE INSURANCE NOW IN FORCE
________________________________________________________________________
2. CHILD'S NAME SEX: [ ]M [ ]F BIRTH DATE: MO DAY YR
________________________________________________________________________
SOCIAL SECURITY NUMBER HEIGHT (FT/IN) WEIGHT (LBS)
________________________________________________________________________
AMOUNT OF LIFE INSURANCE NOW IN FORCE
________________________________________________________________________
3. CHILD'S NAME SEX: [ ]M [ ]F BIRTH DATE: MO DAY YR
________________________________________________________________________
SOCIAL SECURITY NUMBER HEIGHT (FT/IN) WEIGHT (LBS)
________________________________________________________________________
AMOUNT OF LIFE INSURANCE NOW IN FORCE
________________________________________________________________________
14 AVOCATION
Has any Proposed Insured ever participated in or does any Proposed Insured
plan to participate in (within the next 12 months) any of the following:
[ ] Yes [ ] No
IF YES, CHECK ALL THAT APPLY AND PROVIDE DETAILS BELOW.
[ ] AUTOMOBILE RACING
[ ] SKYDIVING
[ ] ROCK OR MOUNTAIN CLIMBING
[ ] POWERBOAT RACING
[ ] ULTRALIGHT FLYING
[ ] MOTORCYCLE RACING
[ ] HANG GLIDING
[ ] SCUBA DIVING
[ ] BALLOONING
PROPOSED INSURED AVOCATION TIMES PER MONTH
_____________________________________________________________________________
DETAILS (SPEEDS ATTAINED, DEPTHS/HEIGHTS REACHED, ETC.)
_____________________________________________________________________________
PROPOSED INSURED AVOCATION TIMES PER MONTH
_____________________________________________________________________________
DETAILS (SPEEDS ATTAINED, DEPTHS/HEIGHTS REACHED, ETC.)
_____________________________________________________________________________
15 FOREIGN RESIDENCE / TRAVEL
Do any of the Proposed Insureds plan to travel to or reside in a foreign
country within the next 12 months? [ ] Yes [ ] No
IF YES, PROVIDE DETAILS AS INDICATED BELOW.
_____________________________________________________________________________
PROPOSED INSURED COUNTRY NAME PURPOSE OF VISIT LENGTH OF STAY
_____________________________________________________________________________
PROPOSED INSURED COUNTRY NAME PURPOSE OF VISIT LENGTH OF STAY
16. AVIATION
Has any Proposed Insured ever flown or does any Proposed Insured plan to fly
in the next 24 months as a pilot, crew member, student, or in any capacity
other than as a passenger? [ ] Yes [ ] No
IF YES, COMPLETE THE FOLLOWING.
ACTIVE DUTY OR RESERVE BRANCH OF SERVICE MAJOR COMMAND (AMC,
ACC, etc.)
_____________________________________________________________________________
TYPE(S) OF AIRCRAFT [ ] PILOT [ ] CREW MEMBER
_____________________________________________________________________________
HOURS FLOWN: NEXT 12 MOS. LAST 12 MOS. 13-24 MOS. AGO
_____________________________________________________________________________
COMMERCIAL
_____________________________________________________________________________
TYPE(S) OF AIRCRAFT [ ] PILOT [ ] CREW MEMBER
_____________________________________________________________________________
HOURS FLOWN: NEXT 12 MOS. LAST 12 MOS. 13-24 MOS. AGO
_____________________________________________________________________________
CIVILIAN PLEASURE
_____________________________________________________________________________
TYPE(S) OF AIRCRAFT [ ] PILOT [ ] CREW MEMBER
_____________________________________________________________________________
HOURS FLOWN: NEXT 12 MOS. LAST 12 MOS. 13-24 MOS. AGO
_____________________________________________________________________________
TOTAL HOURS FLOWN WHILE IN CHARGE OF AN AIRCRAFT: _____ MILITARY _____CIVILIAN
If aviation participation requires a restriction for the base policy, which do
you prefer?
[ ] Pay additional premium [ ] Have policy contain an Aviation Exclusion
except when traveling as a passenger
NOTE: THE ABOVE OPTIONS DO NOT APPLY TO THE ACCIDENTAL DEATH BENEFIT. THE
AVIATION EXCLUSION FOR THAT BENEFIT CANNOT BE WAIVED.
17 DRIVING HISTORY
Within the last five years, has any Proposed Insured been convicted of Driving
While Intoxicated, Driving Under the Influence, two or more moving violations,
or had a driver's license suspended or revoked? [ ] Yes [ ] No
IF YES, PROVIDE DETAILS AS INDICATED BELOW.
____________________________________________________________________________
PROPOSED INSURED DATE VIOLATION TYPE DETAILS (SPEED, LENGTH OF
SUSPENSION/REVOCATION, ETC.)
____________________________________________________________________________
PROPOSED INSURED DATE VIOLATION TYPE DETAILS (SPEED, LENGTH OF
SUSPENSION/REVOCATION, ETC.)
TURN TO NEXT PAGE.
VUL31345ST 1-98
USAA LIFE INSURANCE COMPANY
9800 FREDERICKSBURG ROAD
SAN ANTONIO, TEXAS 78288
31345-0198
----------
ST
<PAGE>
PERSONAL PROFILE - PART II GUIDE
18 STATEMENT OF HEALTH
Complete this section for all persons to be covered under the basic policy and
Child Rider.
Depending upon your age, the amount of coverage for which you are applying,
and your health history, certain medical tests will need to be performed to
underwrite your insurance. USAA Life will have a paramedical service contact
you to schedule the appointment.
We will pay for anything we request. If you would like to expedite the
process, please call your Account Representative.
ATTENTION APO/FPO:
You will not be contacted by a paramedical service. If tests or exams are
indicated, please have a physician complete the enclosed Medical Examiner's
Report.
19 MEDICAL DETAILS
Please list details to questions answered "YES" in the Statement of Health.
Attach a separate sheet if more space is required.
<PAGE>
PERSONAL PROFILE - PART II
18 STATEMENT OF HEALTH
(COMPLETE THIS SECTION FOR ALL PROPOSED INSUREDS INCLUDING ANY PERSON TO BE
COVERED BY THE CHILD RIDER)
Give full details of any "YES" answers to questions #3 or #4. Include dates,
name of Proposed Insured, name and address of physician consulted, reason for
visit, type of treatment, and any medication prescribed in the MEDICAL DETAILS
section listed below.
1. Height and weight of Proposed Insured. ___ Feet ___ Inches ___ Lbs.
2. Has there been any change in weight during the last 12 months?
[ ] Yes [ ] No If yes, indicate gain or loss. Gain ___ Lbs.
Loss ___ Lbs.
3. Has any Proposed Insured under the basic policy or under
the Child Rider ever: YES NO
A. Had a life or health insurance application declined,
postponed, modified or rated? [ ] [ ]
B. Had or been treated by a physician or consulted with a
health advisor for any of the following:
1. Disorder of eyes, ears, nose or throat? [ ] [ ]
2. High blood pressure, chest pain, heart attack, or
other cardiovascular disorder? [ ] [ ]
3. Disorder of the kidney, genitourinary tract, or
reproductive system? [ ] [ ]
4. Diabetes, hyperthyroidism, or other endocrine gland
disorder? [ ] [ ]
5. Ulcers, hepatitis, disorder of pancreas, liver, or
intestines? [ ] [ ]
6. Cancer, tumors, arthritis, disorder of the bones or
joints, or connective tissue disease? [ ] [ ]
7. Disorder of the blood, lymph glands, or respiratory
system? [ ] [ ]
8. Mental, nervous system, or brain disorder? [ ] [ ]
9. Alcoholism or advised to reduce or discontinue the
use of alcohol for health reasons? [ ] [ ]
C. Consulted for any other reason a physician or other
physical or mental health advisor within the last five
years? [ ] [ ]
D. Used marijuana, cocaine, heroin, barbiturates,
hallucinogens, or amphetamines unless on the advice of a
physician? [ ] [ ]
E. Been diagnosed or treated by a physician for Acquired
Immune Deficiency Syndrome (AIDS), AIDS-related complex
(ARC), or AIDS-related condition? [ ] [ ]
F. Been diagnosed or treated by a physician for any other
sexually transmitted disease (other than AIDS/ARC)?
4. Did mother or father of any Proposed Insured die before
age 60 of cardiovascular disease or cancer? [ ] [ ]
19 MEDICAL DETAILS (ATTACH A SEPARATE SHEET IF MORE SPACE IS REQUIRED)
QUESTION # PROPOSED INSURED VISIT DATE VISIT REASON
_____________________________________________________________________________
DOCTOR'S NAME/ADDRESS TREATMENT MEDICATION
_____________________________________________________________________________
QUESTION # PROPOSED INSURED VISIT DATE VISIT REASON
_____________________________________________________________________________
DOCTOR'S NAME/ADDRESS TREATMENT MEDICATION
_____________________________________________________________________________
QUESTION # PROPOSED INSURED VISIT DATE VISIT REASON
_____________________________________________________________________________
DOCTOR'S NAME/ADDRESS TREATMENT MEDICATION
_____________________________________________________________________________
QUESTION # PROPOSED INSURED VISIT DATE VISIT REASON
_____________________________________________________________________________
DOCTOR'S NAME/ADDRESS TREATMENT MEDICATION
_____________________________________________________________________________
QUESTION # PROPOSED INSURED VISIT DATE VISIT REASON
_____________________________________________________________________________
DOCTOR'S NAME/ADDRESS TREATMENT MEDICATION
_____________________________________________________________________________
QUESTION # PROPOSED INSURED VISIT DATE VISIT REASON
_____________________________________________________________________________
DOCTOR'S NAME/ADDRESS TREATMENT MEDICATION
_____________________________________________________________________________
QUESTION # PROPOSED INSURED VISIT DATE VISIT REASON
_____________________________________________________________________________
DOCTOR'S NAME/ADDRESS TREATMENT MEDICATION
_____________________________________________________________________________
20 SPECIAL REQUESTS (WRITE IN ANY SPECIAL INSTRUCTIONS HERE)
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
NOW READ AND SIGN AUTHORIZATION IN PART III. SEE NEXT PAGE.
VUL31345ST 1-98
USAA LIFE INSURANCE COMPANY
9800 FREDERICKSBURG ROAD
SAN ANTONIO, TEXAS 78288
31345-0198
----------
ST
<PAGE>
PART III - AUTHORIZATION
HOME OFFICE ADDITIONS AND CORRECTIONS (DO NOT WRITE IN THIS SPACE)
No change in age at issue, plan of insurance, amount, risk classification, or
benefits shall be effective unless agreed to in writing by the Proposed
Insured and the Applicant if other than the Proposed Insured.
TELEPHONE PRIVILEGES
You may change premium payment allocation, request partial surrenders, request
loans, and request transfers between variable fund accounts by telephone. If
you want to decline the right to conduct this type of business by telephone,
please check this box.
____ DECLINE
CONDITIONS RELATING TO THIS APPLICATION / NOTICES
The Proposed Insured and the Applicant, if other than the Proposed Insured,
represent that all statements and answers contained in this application are
complete and true and are offered as consideration for the insurance applied
for. It is expressly agreed that:
1. The company is authorized to amend this application by an appropriate
notation in the space designated HOME OFFICE ADDITIONS AND CORRECTIONS in
order to correct any apparent errors or omissions. However, no change in age
at issue, plan of insurance, amount, risk classification, or benefits shall be
effective unless agreed to in writing by the Proposed Insured and the
Applicant if other than the Proposed Insured. The acceptance of any policy
issued as a result of this application shall constitute an acceptance of such
amendments as well as the acceptance of the beneficiary designation,
ownership, and method of payment of the proceeds of such policy.
2. The initial premium payment is held by the Company in its general account
while your application is being considered. During this time no earnings are
credited to an Account for you. If your application is accepted, the premium
will be transferred to the Variable Fund Accounts as provided in the policy.
3. The company shall incur no liability under this application prior to
delivery of the policy unless and until all conditions expressed hereafter are
met:
(a) an amount equal to the first full premium for the method of payment you
selected is received by the company, and
(b) all underwriting requirements, including any medical examinations required
by the company's rules, are complete.
If the Proposed Insured is an acceptable risk for insurance exactly as applied
for without modification of plan, premium rate, or amount of insurance under
the company's rules and practices, then the insurance under the policy applied
for shall become effective on the latest of: the date the company receives the
application, the date of completion of all underwriting requirements, or any
date of issue requested in the application. If any of the above conditions are
not met, the liability of the company shall be limited to the return of the
premium submitted. PRIOR TO DELIVERY OF THE POLICY, THE COMPANY 5 MAXIMUM
LIABILITY UNDER THIS APPLICATION SHALL NOT EXCEED $200,000, INCLUDING
ACCIDENTAL DEATH BENEFIT.
VUL31345ST 1-98
USAA LIFE INSURANCE COMPANY
9800 FREDERICKSBURG ROAD
SAN ANTONIO, TEXAS 78288
31345-0198
----------
ST
<PAGE>
PART III AUTHORIZATION
I hereby authorize any licensed physician, medical practitioner, hospital,
clinic, or medically related facility, insurance company, Medical Information
Bureau, or any other organization, institution, or person that has any records
or knowledge of me or my health or that of any child to be insured, to provide
USAA Life Insurance Company any such information, including information about
AIDS, HIV, drugs, alcoholism, or mental illness. I further authorize USAA Life
Insurance Company to release any information obtained by this authorization to
its reinsurers, to the Medical Information Bureau, and other insurance
companies with which I have policies or to which I may apply or to which a
claim for benefits may be submitted, and to other persons or organizations
performing business or legal services in connection with my application or
claim. I agree that this authorization will remain in force for 2 1/2 years
from its date and that a reproduction shall be as valid as the original.
I authorize the company to obtain an investigative consumer report on me or
any child to be insured and elect the opportunity to be interviewed if such a
report is prepared.
I have read and understand the above authorization. I also acknowledge receipt
and review of the Notice of Privacy and Disclosure practices attached to the
application envelope.
I have received and read the prospectus for this Variable Universal Life
contract including the prospectuses for the underlying Funds. I understand the
objectives of the Variable Universal Life accounts as explained in the
prospectus and have determined that my allocations are suitable investments
based upon my needs and financial situation.
I understand that the premium payment value allocated to the Variable Fund
Accounts may increase or decrease and is not guaranteed as to a dollar amount.
NOTE: The following certification is required by the Internal Revenue Service
(IRS), and does not affect your insurability.
CERTIFICATION - Under penalties of perjury I certify that:
1.The number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to me), and
2. I am not subject to backup withholding either because I have not been
notified by the Internal Revenue Service (IRS) that I am subject to backup
withholding as a result of failure to report all interest or dividends, or the
IRS has notified me that I am no longer subject to backup withholding (does
not apply to real estate transactions, mortgage interest paid the acquisition
or abandonment of secured contributions to an individual retirement
arrangement (IRA), and payments other than interest and dividends).
CERTIFICATION INSTRUCTIONS - You must cross out item (2) above if you have
been notified by the IRS that you are currently subject to backup withholding
because of underreporting interest or dividends on your tax return. The IRS
does not require your consent to any provision of this document other than the
certifications required to avoid backup withholding.
DATED AT _________________________ THIS ______ DAY OF _________________, 19____
CITY STATE
_____________________________________________
SIGNATURE OF PROPOSED INSURED OF BASIC POLICY
(PARENT IF UNDER 15)
_____________________________________________
SIGNATURE OF POLICYOWNER IF OTHER THAN
PROPOSED INSURED
_____________________________________________
SIGNATURE OF WITNESS (A NOTARY IS NOT
REQUIRED)
USAA LIFE USE ONLY
_____________________________________________
SIGNATURE OF AGENT
_____________________________________________ _____________
SIGNATURE OF REGISTERED PRINCIPAL DATE
VUL31345ST 1-98
USAA LIFE INSURANCE COMPANY
9800 FREDERICKSBURG ROAD
SAN ANTONIO, TEXAS 78288
31345-0198
----------
ST
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY
31345-0198
----------
ST
EXHIBIT 1.(10)(a)(ii)
(USAA LOGO (R)) USAA LIFE INSURANCE COMPANY
APPLICATION FOR
LIFE INSURANCE POLICY CHANGE
1-800-292-8444 o In San Antonio 456-9050
Please complete entire application unless otherwise indicated.
-----------------------------------------------------------------------------
1 CHANGE REQUESTED
-----------------------------------------------------------------------------
FOR CONTRACT / POLICY NUMBER __________________________________
INCREASE COVERAGE:
[ ] Increase coverage to $______________
[ ] Increase Accidental Death Benefit to $_______________
[ ] Increase Child Rider to $___________
(PLEASE COMPLETE SECTIONS 5 THROUGH 8 AND THE PERSONAL PROFILE STATEMENT OF
HEALTH.)
OPTION CHANGE:
[ ] Change Universal Life Option from A to B (known as Flexible Premium
Adjustable Life in DC, GA, IL, IN, MD, PA, TN, and VA)
[ ] Change Variable Universal Life Option from A to B (known as Flexible
Premium Variable Life in DC, GA, IL, IN, MD, PA, TN, and VA)
ADD OPTIONAL BENEFITS:
[ ] DISABILITY WAIVER OF PREMIUM. NOT AVAILABLE FOR UNIVERSAL LIFE OR
VARIABLE UNIVERSAL LIFE. If you suffer an accident or illness which
results in a covered disability, this option guarantees that your
premiums will be paid for you while you are disabled.
[ ] WAIVER OF MONTHLY DEDUCTION. AVAILABLE FOR UNIVERSAL LIFE AND VARIABLE
UNIVERSAL LIFE. If you suffer an accident or illness which results in a
covered disability, this option guarantees that your cost of insurance
will be paid for you while you are disabled.
[ ] INCREASING COVERAGE BENEFIT (ICB). AVAILABLE FOR ANNUAL RENEWABLE TERM
(ART) ONLY. This optional benefit automatically increases your coverage
by five percent each year up to a maximum of $15,000 per year,
whichever is less, WITHOUT having to prove insurability ($225,000
lifetime total maximum). There's no initial cost for this rider; you
pay only the additional premium amount for the five percent increase
when it is added to your policy each year.
[ ] ACCIDENTAL DEATH BENEFIT (ADB) OF $___________. AVAILABLE FOR ALL OF
OUR LIFE INSURANCE POLICIES. If you die as a result of a covered
accident, this option will pay your beneficiary an ADDITIONAL amount
above the face amount you have selected for the policy. The selected
ADB can be up to a maximum of $200,000, or the face amount of the
policy, whichever is less. The premium for ADB is $.84 per $1,000 of
coverage per year.
[ ] CHILD RIDER FOR $__________. NOT AVAILABLE FOR SEVEN-YEAR TERM. An easy
way to provide coverage for your child(ren). This rider is available in
$1,000 increments from $2,000 to a maximum of $25,000. The cost for
this rider is $6 per $1,000 of coverage per year. Premiums remain the
same, regardless of the number of children covered. The Proposed
Insured must be age 20 through 55 to select the Child Rider option.
(PLEASE COMPLETE SECTIONS 5 THROUGH 8 AND THE PERSONAL PROFILE
STATEMENT OF HEALTH.)
[ ] SPOUSE RIDER. AVAILABLE ON MOST TERM LIFE INSURANCE POLICIES. Provides
annual renewable term or level term coverage on the spouse of the
primary insured at a generally lower cost than a separate policy. (YOU
SHOULD COMPLETE THIS APPLICATION AND HAVE YOUR SPOUSE COMPLETE THE
SEPARATE SPOUSE RIDER APPLICATION.)
[ ] ANNUAL RENEWABLE TERM (ART) RIDER OF $ __________. AVAILABLE FOR WHOLE
LIFE ONLY. The ART Rider allows you to purchase additional term
coverage at a generally lower cost than a separate policy.
PREMIUM RATING REVIEW [ ]
OTHER: [ ] Increase Planned Periodic Payment To: $ _________________________
(Universal Life/FPAL or Variable Universal Life/FPVL only)
[ ] _________________________________________________________________.
-----------------------------------------------------------------------------
2 PROPOSED INSURED (PLEASE PRINT OR TYPE)
-----------------------------------------------------------------------------
NAME: FIRST MIDDLE LAST BIRTH DATE: MO DAY YR
____________________________________________|________________/_____/________
SOCIAL SECURITY NUMBER USAA NUMBER (IF ANY) DRIVER'S LICENSE NUMBER AND
STATE OF ISSUE
________________________|_____________________|_____________________________
OCCUPATION ANNUAL INCOME
______________________________________________|$____________________________
-----------------------------------------------------------------------------
3 TOBACCO USE (PLEASE LIST DETAILS FOR EACH "YES" ANSWER IN THE
SPACE PROVIDED BELOW)
-----------------------------------------------------------------------------
A. Has the Proposed Insured smoked one or more cigarettes in the last 12
months? [ ] Yes [ ] No
B. Has the Proposed Insured used any other form of tobacco or tobacco
surrogate in the last 12 months? [ ] Yes [ ] No
C. Has the Proposed Insured ever used any form of tobacco? [ ] Yes [ ] No
____|___________________|______________
TYPE AVERAGE DAILY USAGE DATE LAST USED
____|___________________|______________
TYPE AVERAGE DAILY USAGE DATE LAST USED
____|___________________|______________
TYPE AVERAGE DAILY USAGE DATE LAST USED
____|___________________|______________
TYPE AVERAGE DAILY USAGE DATE LAST USED
31571-0198
LAP31571ST 1-98 ----------
ST
USAA LIFE INSURANCE COMPANY 9800 FREDERICKSBURG ROAD SAN ANTONIO, TEXAS 78288
<PAGE>
-----------------------------------------------------------------------------
4 REPLACEMENT
-----------------------------------------------------------------------------
Is this application for insurance intended to replace or modify any life
insurance or annuities now in force on the life of any Proposed Insured? (This
information is required by state regulations.) [ ] NO [ ] YES IF YES, PLEASE
LIST EACH POLICY TO BE REPLACED.
_____________________________________________________________________________
COMPANY AMOUNT ISSUE DATE POLICY NUMBER
_____________________________________________________________________________
COMPANY AMOUNT ISSUE DATE POLICY NUMBER
-----------------------------------------------------------------------------
5 CHILD RIDER (AVAILABLE FOR CHILDREN AGE 17 AND UNDER; NOT
AVAILABLE IN HAWAII)
-----------------------------------------------------------------------------
If coverage is not desired, proceed to Question 6
<TABLE>
<S> <C> <C> <C> <C> <C>
CHILD'S NAME BIRTH DATE: MO/DAY/YR SOCIAL SECURITY NUMBER HEIGHT WEIGHT AMOUNT OF LIFE
INSURANCE NOW
IN FORCE
1.______________|______/______/________|_________________________|__FT __IN |___LBS |_______________
2.______________|______/______/________|_________________________|__FT __IN |___LBS |_______________
3.______________|______/______/________|_________________________|__FT __IN |___LBS |_______________
</TABLE>
-----------------------------------------------------------------------------
6 AVOCATION
-----------------------------------------------------------------------------
Complete this section for all persons covered, including those covered under
the Child Rider. Has any Proposed Insured ever participated in or does any
Proposed Insured plan to participate in (within the next 12 months) any of the
following: [ ] No [ ] Yes IF YES, CHECK ALL THAT APPLY AND PROVIDE DETAILS
BELOW.
[ ] AUTOMOBILE RACING [ ] ROCK OR MOUNTAIN CLIMBING [ ] ULTRALIGHT FLYING
[ ] HANG GLIDING [ ] BALLOONING
[ ] SKYDIVING [ ] POWERBOAT RACING [ ] MOTORCYCLE RACING
[ ] SCUBA DIVING
_____________________________________________________________________________
PROPOSED INSURED AVOCATION TIMES PER MONTH DETAILS (SPEEDS ATTAINED,
DEPTHS/HEIGHTS REACHED, ETC.)
_____________________________________________________________________________
PROPOSED INSURED AVOCATION TIMES PER MONTH DETAILS (SPEEDS ATTAINED,
DEPTHS/HEIGHTS REACHED, ETC.)
-----------------------------------------------------------------------------
7 FOREIGN RESIDENCE / TRAVEL
-----------------------------------------------------------------------------
Complete this section for all persons covered, including those covered under
the Child Rider. This questions applies to active duty personnel as well as to
civilians. Do not include vacation travel of 30 days or less to Europe,
Canada, Mexico or Japan.
Do any of the Proposed Insureds plan to travel or reside in a foreign country
within the next 12 months? [ ] No [ ] Yes
IF YES, PROVIDE DETAILS AS INDICATED BELOW.
_____________________________________________________________________________
PROPOSED INSURED COUNTRY NAME PURPOSE OF VISIT LENGTH OF STAY
_____________________________________________________________________________
PROPOSED INSURED COUNTRY NAME PURPOSE OF VISIT LENGTH OF STAY
-----------------------------------------------------------------------------
8 AVIATION
-----------------------------------------------------------------------------
Complete this section for all persons covered, including those covered under
the Child Rider. Please give name of Proposed Insured and details regarding
type of aircraft, FAA certificate type(s), and hours flown.
Has the Proposed Insured ever flown or does any Proposed Insured plan to fly
in the next 24 months as a pilot, crew member, student, or in any capacity
other than as a passenger? [ ] NO [ ] YES IF YES, COMPLETE THE FOLLOWING.
<TABLE>
<S> <C>
NAME OF PROPOSED INSURED: HOURS FLOWN
____________________________________________________________________________________________________________________
ACTIVE DUTY OR RESERVE BRANCH OF SERVICE MAJOR COMMAND TYPE(S) OF AIRCRAFT NEXT 12 LAST 12 13-24 MOS
MONTHS MONTHS AGO
[ ] PILOT
[ ] CREW MEMBER
________________________|___________________|________________|_______________________|_________|_________|__________
COMMERCIAL [ ] PILOT
[ ] CREW MEMBER
_____________________________________________________________|_______________________|_________|_________|__________
CIVILIAN PLEASURE [ ] PILOT
[ ] CREW MEMBER
_____________________________________________________________|_______________________|_________|_________|__________
</TABLE>
TOTAL HOURS FLOWN WHILE IN CHARGE OF AN AIRCRAFT: ____ MILITARY ____ CIVILIAN
If aviation participation requires a restriction for the additional coverage,
which do you prefer?
[] Pay additional premium
[] Have policy contain an Aviation Exclusion except when traveling as
a passenger.
NOTE: THE ABOVE OPTIONS DO NOT APPLY TO THE ACCIDENTAL DEATH BENEFIT. THE
AVIATION EXCLUSION FOR THAT BENEFIT CANNOT BE WAIVED.
31571-0198
LAP31571ST 1-98 ----------
ST
USAA LIFE INSURANCE COMPANY 9800 FREDERICKSBURG ROAD SAN ANTONIO, TEXAS 78288
<PAGE>
PERSONAL PROFILE
-----------------------------------------------------------------------------
STATEMENT OF HEALTH (COMPLETE THIS SECTION FOR ALL PROPOSED INSURERS
INCLUDING ANY PERSON TO BE COVERED BY THE CHILD RIDER)
-----------------------------------------------------------------------------
Give full details of any "YES" answers to questions #3 or #4. Include dates,
name of Proposed Insured, name and address of physician consulted, reason for
visit, type of treatment, and any medication prescribed in the MEDICAL DETAILS
section listed below.
1. Height and weight of Proposed Insured. _______ Feet _______ Inches
_______ Lbs.
2. Has there been any change in weight during the last 12 months?
[ ] Yes [ ] No If yes, please explain. Gain: ____ Lbs. Loss: ____ Lbs.
3. Has any Proposed Insured under the basic policy or under the Child Rider
ever: YES NO
A. Had a life or health insurance application declined,
postponed, modified or rated? [ ] [ ]
B. Had or been treated by a physician or consulted with
a health advisor for any of the following:
1. Disorder of eyes, ears, nose or throat? [ ] [ ]
2. High blood pressure, chest pain, heart attack
or other cardiovascular disorder? [ ] [ ]
3. Disorder of the kidney, genitourinary tract, or
reproductive system? [ ] [ ]
4. Diabetes, hyperthyroidism or other endocrine
gland disorder? [ ] [ ]
5. Ulcers, hepatitis, disorder of pancreas, liver
or intestines? [ ] [ ]
6. Cancer, tumors, arthritis, disorder of the
bones or joints, or connective tissue disease? [ ] [ ]
7. Disorder of the blood, lymph glands or
respiratory system? [ ] [ ]
8. Mental, nervous system, or brain disorder? [ ] [ ]
9. Alcoholism or advised to reduce or discontinue
the use of alcohol for health reasons? [ ] [ ]
C. Consulted for any other reason a physician or other
physical or mental health advisor within the last
five years? [ ] [ ]
D. Used marijuana, cocaine, heroin, barbiturates,
hallucinogens or amphetamines unless on the advice of
a physician? [ ] [ ]
E. Been diagnosed or treated by a physician for Acquired
Immune Deficiency Syndrome (AIDS), AIDS-related
complex (ARC), or AIDS-related condition? [ ] [ ]
F. Been diagnosed or treated by a physician for any
other sexually transmitted disease (other than
AIDS/ARC)? [ ] [ ]
4. Did mother or father of any Proposed Insured die before age
60 of cardiovascular disease? [ ] [ ]
-----------------------------------------------------------------------------
MEDICAL DETAILS (ATTACH A SEPARATE SHEET IF MORE SPACE IS REQUIRED)
-----------------------------------------------------------------------------
QUESTION # PROPOSED INSURED VISIT DATE VISIT REASON
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
DOCTOR'S NAME/ADDRESS TREATMENT MEDICATION
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
-----------------------------------------------------------------------------
SPECIAL REQUESTS (WRITE IN ANY SPECIAL INSTRUCTIONS HERE)
-----------------------------------------------------------------------------
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
31571-0198
LAP31571ST 1-98 ----------
ST
USAA LIFE INSURANCE COMPANY 9800 FREDERICKSBURG ROAD SAN ANTONIO, TEXAS 78288
<PAGE>
AUTHORIZATION
-----------------------------------------------------------------------------
HOME OFFICE ADDITIONS AND CORRECTIONS (DO NOT WRITE IN THIS SPACE)
-----------------------------------------------------------------------------
No change in age at issue, plan of insurance, amount, risk classification, or
benefits shall be effective unless agreed to in writing by the Proposed
Insured and the applicant it other than the Proposed Insured.
-----------------------------------------------------------------------------
CONDITIONS RELATING TO THIS APPLICATION / NOTICES
-----------------------------------------------------------------------------
The Proposed Insured and the applicant, if other than the Proposed In sured,
represent that all statements and answers contained in this application are
complete and true as written to the best of their knowledge and belief and are
offered as consideration for the insurance applied for. It is expressly agreed
that:
1. The company is authorized to amend this application by an appropriate
notation in the space designated HOME OFFICE ADDITIONS AND CORRECTIONS in
order to correct any apparent errors or omissions. However, no change in age
at issue, plan of insurance, amount, risk classification, or benefits shall be
effective unless agreed to in writing by the Proposed Insured and the
applicant if other than the Proposed Insured. The acceptance of any insurance
issued as a result of this application shall constitute an acceptance of such
amendments.
2. The company shall incur no liability under this application prior to
delivery of written confirmation of coverage unless and until all conditions
expressed hereinafter are met:
(a) an amount equal to the first full premium for the method of payment you
selected is received by the company, and
(b) all underwriting requirements, including any medical examinations re
quired by the company's rules are complete.
If the Proposed Insured is an acceptable risk for insurance exactly as ap
plied for without modification of plan, premium rate, or amount of insurance
under the company's rules and practices, then the insurance under the coverage
applied for shall become effective on the latest of: the date the company
receives the application, the date of completion of all underwriting
requirements, or any date of issue requested in the application. If any of the
above conditions are not met, the liability of the company shall be limited to
the return of the premium submitted. PRIOR TO DELIVERY OF WRITTEN CONFIRMATION
OF COVERAGE, THE COMPANY'S MAXIMUM LIABILITY UNDER THIS APPLICATION SHALL NOT
EXCEED $200,000, INCLUDING ACCIDENTAL DEATH BENEFIT.
-----------------------------------------------------------------------------
AUTHORIZATION
-----------------------------------------------------------------------------
I hereby authorize any licensed physician, medical practitioner, hospital,
clinic, or medically-related facility, insurance company, Medical Information
Bureau, or any other organization, institution, or person that has any records
or knowledge of me or my health or that of any child to be insured, to provide
USAA Life Insurance Company any such information, including information about
AIDS, HIV, drugs, alcoholism, or mental illness. I further authorize USAA Life
Insurance Company to release any information obtained by this authorization to
its reinsurers, to the Medical Information Bureau, and other insurance
companies with which I have policies or to which I may apply or to which a
claim for benefits may be submitted, and to other persons or organizations
performing business or legal services in connection with my application or
claim. I agree that this authorization will remain in force for 2 1/2 years
from its date and that a reproduction shall be as valid as the original.
I authorize the company to obtain an investigative consumer report on me or
any child to be insured and elect the opportunity to be interviewed if such a
report is prepared.
I agree that any new insurance coverage issued as a result of this application
will be subject to the suicide and contestability provisions of my existing
contract, beginning on the effective date of such new insurance coverage.
I have read and understand the above authorization. I also acknowledge receipt
and review of the Notice of Privacy and Disclosure practices attached to the
application envelope.
NOTE: The following certification is required by the Internal Revenue Service
(IRS) and does not affect your insurability.
CERTIFICATION - Under penalties of perjury, I certify that:
1. The number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to me), AND
2. I am not subject to backup withholding either because I have not been
notified by the Internal Revenue Service (IRS) that I am subject to backup
withholding as a result of failure to report all interest or dividends, or the
IRS has notified me that I am no longer subject to backup withholding (does
not apply to real estate transactions, mortgage interest paid, the acquisition
or abandonment of secured property, contributions to an individual retirement
arrangement (IRA), and payments other than interest and dividends).
CERTIFICATION INSTRUCTIONS - You must cross out item (2) above if you have
been notified by IRS that you are currently subject to backup withholding
because of underreporting interest or dividends on your tax return. The IRS
does not require your consent to any provision of this document other than the
certifications required to avoid backup withholding.
DATED AT__________________THIS___________DAY OF___________________,___________
CITY STATE YEAR
_____________________________________________________________________________
SIGNATURE OF PROPOSED INSURED OF BASIC POLICY (PARENT IF UNDER 15)
_____________________________________________________________________________
SIGNATURE OF WITNESS (A NOTARY IS NOT REQUIRED)
_____________________________________________________________________________
SIGNATURE OF POLICYOWNER IF OTHER THAN PROPOSED INSURED
31571-0198
LAP31571ST 1-98 ----------
ST
USAA LIFE INSURANCE COMPANY 9800 FREDERICKSBURG ROAD SAN ANTONIO, TEXAS 78288
EXHIBIT 1.(10)(b)
[USAA LOGO] USAA LIFE INSURANCE COMPANY
AGREEMENT FOR EXCHANGE OF INSURANCE AND ANNUITY CONTRACTS
UNDER SECTION 1035 OF INTERNAL REVENUE CODE
USAA/Policy Number ______________________
Social Security Number______________________
ATTACH THIS FORM AND YOUR CURRENT POLICY TO YOUR APPLICATION.
I _______________________________________, the undersigned, own the following:
[ ] LIFE INSURANCE POLICY [ ] ENDOWMENT POLICY [ ] ANNUITY CONTRACT
<TABLE>
<S> <C> <C> <C>
POLICY (CONTRACT) NUMBER: ISSUED BY: ADDRESS: ON THE LIFE OF:
_________________________ __________ ____________________ _______________
_________________________ __________ ____________________ _______________
_________________________ __________ ____________________ _______________
</TABLE>
collectively called "Old Policy(s)" which I hereby agree to exchange pursuant
to Section 1035 of the Internal Revenue Code for:
[ ] A LIFE INSURANCE POLICY [ ] AN ANNUITY CONTRACT
called "New Policy" on the life of the same insured named in the Old Policy(s)
if USAA LIFE INSURANCE COMPANY ("USAA Life") approves my application, dated
________ for the New Policy and I accept it.
In consideration of USAA Life's furnishing this form and assisting me with the
exchange of contracts under Section 1035 of the Internal Revenue Code, I
hereby further represent and agree as follows:
AT THE TIME OF THE EXCHANGE, IS THE OLD POLICY A MODIFIED ENDOWMENT CONTRACT
(MEC) UNDER INTERNAL REVENUE CODE SECTION 7702A?
[ ] YES [ ] NO
1. OWNERSHIP OF OLD POLICY
I am the sole owner of the Old Policy(s). No other person (including
fiduciaries whether or not court-appointed), firm, corporation or
governmental unit has any legal or equitable claim or interest in or
against the Old Policy(s), except as follows (describe):
NOTE: COLLATERAL ASSIGNEES, IRREVOCABLE BENEFICIARIES, ETC. MUST SIGN ON
BACK OF FORM AS INDICATED.
2. ABSOLUTE ASSIGNMENT OF OLD POLICY(S)
I hereby assign, irrevocably transfer and deliver the Old Policy(s)
described above to USAA LIFE INSURANCE COMPANY, San Antonio, Texas,
Federal ID #74-1472662, together with all right, title and interest
therein and thereto. My copy of this form is my receipt for the Old
Policy(s).
3. USAA LIFE WILL NOT PAY PREMIUMS ON OLD POLICY(S)
I understand and agree that USAA Life is not obligated to and will not
make any premium payments on the Old Policy(s). Therefore, I further
agree for myself, my heirs and assigns that USAA Life is not liable if
the Old Policy(s) lapses for non-payment of premiums. I understand that
if the Old Policy(s) is reassigned to me under the terms of Paragraph 5,
and it has lapsed because premiums have not been paid, I can reinstate
it only if the terms of the Old Policy(s) permit it to be reinstated.
4. SURRENDER OF OLD POLICY(S)
I understand and agree that:
FOR A LIFE INSURANCE POLICY
If USAA Life approves and issues the New Policy, and I accept it, USAA
Life will apply for the surrender of the Old Policy(s) for its cash
value after the New Policy is delivered to me.
As of the Surrender Date, if the Old Policy(s) is a life insurance or
endowment policy, it will no longer provide life insurance protection in
the event of the insured's death.
07117-0495
----------
LLL600ST
<PAGE>
If the insured under the Old Policy(s) dies BEFORE the Surrender Date,
and USAA Life's Home Office is given written notice of the death before
the Surrender Date, USAA Life will reassign the Old Policy(s) to the
owner or the owner's legal representative. The beneficiary named in the
Old Policy(s) may then apply to the issuer of the Old Policy(s) for any
death benefit available under the Old Policy(s). Upon such reassignment,
USAA Life shall be discharged from all liability with respect to the Old
Policy(s). FURTHER, IN THIS SITUATION, USAA LIFE SHALL NOT BE OBLIGATED
OR HAVE ANY LIABILITY TO PAY DEATH PROCEEDS TO ANY BENEFICIARY UNDER THE
NEW POLICY EXCEPT TO THE EXTENT SAID PROCEEDS EXCEED THE DEATH PROCEEDS
OF THE OLD POLICY.
If the insured dies ON or AFTER the Surrender Date, I understand that no
death benefits will be available under the Old Policy(s). I understand
that the cash values of the Old Policy(s) will be applied by USAA Life
as a non-repeating premium under the New Policy.
FOR AN ANNUITY CONTRACT
If USAA Life approves my application, it will apply for the surrender of
the Old Policy(s) for its cash value. Upon receipt of the cash proceeds,
USAA Life will issue a New Policy for delivery to me.
FOR ALL POLICIES
USAA Life will apply the entire cash surrender value it receives from
the Old Policy(s) as a non-repeating premium for the New Policy issued
by USAA Life.
5. REASSIGNMENT OF OLD POLICY(S)
In the event:
o USAA Life declines my application for the New Policy; or
o I refuse to accept the New Policy; or
o I return the New Policy to USAA Life under the Free Look
Provision of the New Policy; or
o The insured under the Old Policy(s) dies BEFORE the
Surrender Date, and written notice of the death is given to
USAA Life's Home Office BEFORE the Surrender Date;
then this Agreement shall be null and void and USAA Life shall reassign
the Old Policy(s) to me or my legal representative, whereupon USAA Life
shall have no further obligation with respect to the Old Policy(s). I
UNDERSTAND THAT AFTER THE SURRENDER DATE, THE OLD POLICY(S) CANNOT BE
RETURNED TO ME AND THAT NO DEATH BENEFIT WILL BE PAID UNDER IT IF THE
INSURED DIES.
6. ACKNOWLEDGEMENT OF RESPONSIBILITY FOR TAX OBLIGATIONS
I understand and agree that USAA Life is furnishing this form and
participating in this transaction at my specific request. Accordingly, I
am not relying on USAA Life, its agents or employees for any tax advice
whatsoever with respect to this transaction. I understand that any tax
obligations resulting from this transaction are mine. Further, I assume
any and all risk with respect to the accomplishment of a valid Section
1035 exchange under the Internal Revenue Code.
I also request that the surrendering company send to USAA Life a report
on any taxable gain or loss on Old Policy(s).
7. COVERAGE OF NEW POLICY (LIFE INSURANCE ONLY)
I understand that this Agreement creates no insurance.
8. SIGNATURES
<TABLE>
<S> <C> <C> <C>
Signed at X_________________________________ On X_____________________________
(City and State) (Date)
X_________________________________ X_____________________________
(Owner) (Witness)
X_________________________________ X_____________________________
(Irrevocable Beneficiary, if any) (Collateral Assignee, if any)
</TABLE>
FOR USAA LIFE HOME OFFICE USE ONLY
Received and recorded at the Home Office of USAA LIFE INSURANCE COMPANY:
Date: ________________________ By:___________________________________________
Edward Ray Dinstel, Vice President or
Pattie McWilliams, Assistant Vice President
07117-0495
----------
LLL600ST
EXHIBIT 2
[USAA LOGO] USAA LIFE INSURANCE COMPANY
-------------------------------------------------------------
April 16, 1998
OPINION AND CONSENT OF COUNSEL REGARDING THE
LEGALITY OF THE SECURITIES REGISTERED
USAA Life Insurance Company
9800 Fredericksburg Road, C-3-W
San Antonio, Texas 78288
Dear Executives:
This opinion is furnished in connection with the filing, with the United
States Securities and Exchange Commission, by the Life Insurance Separate
Account ("Separate Account") of the USAA Life Insurance Company ("USAA Life")
of a Registration Statement under the Securities Act of 1933 (the "Act") on
Form S-6 (File No. 333-45343) ("Registration Statement") of an indefinite
amount of units of interest ("Units") in the Separate Account funding a
flexible-premium Variable Universal Life Insurance Policy (form no. 31891)
(the "Policy").
This Policy is intended to provide lifetime insurance protection on the
insured's life. USAA Life will offer the Policy in the manner described in the
Prospectus included in the Registration Statement. USAA Life will allocate net
premiums received under a Policy to the Separate Account to the extent
directed by owners.
I have examined all such corporate records of USAA Life and such other
documents and such laws as I consider appropriate as a basis for the opinion
hereinafter expressed. On the basis of such examination, it is my opinion
that:
1. USAA Life is a corporation duly organized and validly existing
under the laws of Texas.
2. The Separate Account was duly created and is duly maintained by
USAA Life pursuant to the provisions of Sec. 2, Article 3.73, of the
Texas Insurance Code.
3. The assets of the Separate Account are owned by USAA Life. USAA
Life is not a trustee with respect thereto. Under Texas law, the income,
gains and losses, whether or not realized, from assets allocated to the
Separate Account must be credited to or charged against such account,
without regard to the other income, gains or losses of USAA Life.
Although contractual obligations with respect to funds of the Separate
Account constitute corporate obligations with respect to USAA Life, the
<PAGE>
specific amounts payable from accumulations in the Separate Account in
accordance with the Policy will depend upon the investment experience of
the Separate Account.
4. The Policy provides that the portion of the assets of the
Separate Account equal to the reserves and other policy liabilities with
respect to the Separate Account shall not be chargeable with liabilities
arising out of any other business USAA Life may conduct and that USAA
Life reserves the right to transfer assets of the Separate Account in
excess of such reserves and policy liabilities to the general account of
USAA Life.
5. When executed, a Policy (including any Units when duly credited
thereunder) will have been duly authorized and each of the Policies
(including any such Units) will constitute a validly issued and binding
obligation of USAA Life in accordance with its terms. Purchasers of the
Policies described in the Prospectus will be subject only to the
deductions, charges and fees set forth in the Prospectus.
I hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to my name under the heading
"Legal Matters" in the Prospectus.
Very truly yours,
/s/DWAIN A. AKINS
-----------------
Dwain A. Akins
Assistant Vice President and
Assistant Secretary
USAA Life Insurance Company
EXHIBIT 6
KPMG Peat Marwick LLP
112 East Pecan, Suite 2400
San Antonio, TX 78205-1585
Consent of Independent Auditor
The Board of Directors
USAA Life Insurance Company
San Antonio, Texas
We consent to the use of our report dated March 20, 1998, on the consolidated
balance sheets of USAA Life Insurance Company as of December 31, 1997 and
1996, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the years in the three-year period ended December
31, 1997, and to the reference to our firm under the heading "Experts" in
Registration Statement and related prospectus.
/s/KPMG PEAT MARWICK LLP
------------------------
KPMG Peat Marwick LLP
San Antonio, Texas
May 15, 1998
EXHIBIT 8
USAA LIFE INSURANCE COMPANY
VARIABLE UNIVERSAL LIFE PROVIDED VIA DIRECT MAIL BY:
INSURANCE Chris Croninger, CLU, ChFC
ILLUSTRATION 9800 Fredericksburg Road, San Antonio, TX 78288
1-800-531-8303
INITIAL DEATH BENEFIT: PREPARED ON: 04/28/98
$100,000 REQUESTED BY: INSURED:
OPTION: A John Doe John Doe
USAA #987654 USAA #987654
VARIABLE UNIVERSAL LIFE INSURANCE
Variable Universal Life insurance is a life insurance plan designed to provide
lifetime protection along with the opportunity to invest your premium dollars
in tax-deferred, investment choices. With this product, you can make transfers
among accounts with no immediate tax liability. This policy gives you control
of the investment/cash value portion of your policy. At the same time, you
assume the associated investment risk.
PRODUCT FEATURES: Important features include flexible benefits, flexible
premiums, permanent death benefit, cash value accumulation, and investment
options. You can borrow or withdraw cash value from your Variable Universal
Life insurance policy without surrendering your policy. Both loans and
withdrawals can adversely affect future cash value accumulations, premium
payments, and death benefits.
OPTIONAL BENEFIT RIDERS: Depending on your needs, you may purchase optional
riders: Waiver of Monthly Deduction, Child Rider, and Accidental Death
Benefit. Riders provide additional benefits and might contain conditions and
exclusions that are different from those in your policy. You also receive
riders that are included at no additional cost: Extended Maturity Rider and
Accelerated Benefit for Terminal Illness Rider. Availability of optional
benefit riders are subject to state approval.
MORE COMPLETE INFORMATION ABOUT USAA LIFE'S VARIABLE UNIVERSAL LIFE, INCLUDING
CHARGES AND EXPENSES, CAN BE FOUND IN THE PROSPECTUS WHICH PRECEDED OR
ACCOMPANIED THIS INFORMATION. ANOTHER COPY CAN BE OBTAINED FROM USAA LIFE AT
THE ABOVE ADDRESS. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE SENDING MONEY.
USAA LIFE'S VARIABLE UNIVERSAL LIFE IS DISTRIBUTED BY USAA INVESTMENT
MANAGEMENT COMPANY, A REGISTERED BROKER DEALER AND NASD MEMBER.
IMPORTANT TERMS IN THIS ILLUSTRATION
GUARANTEED EXPENSES: Your policy's values based on the MAXIMUM cost of
insurance and expenses and the assumed hypothetical return on your cash value.
The maximum cost of insurance and expenses are guaranteed; however, THE
HYPOTHETICAL VALUES are NOT GUARANTEED as they assume a rate of return that
may or may not be achieved.
NON-GUARANTEED EXPENSES: Your policy's values based on the CURRENT cost of
insurance and expenses and the assumed hypothetical return on your cash value.
The current cost of insurance and expenses are not guaranteed, as the cost of
insurance and expenses could increase and the hypothetical return might not be
achieved.
HYPOTHETICAL GROSS RATE OF RETURN: The assumed annual rate of return shown to
illustrate how your policy would perform if it achieved the assumed
hypothetical rate. This rate is before any expenses. This policy does not
guarantee any rate of return. You assume all investment risk for this policy.
NET RATE OF RETURN: The Hypothetical Gross Rate of Return illustrated less
.54% which represents an average of the management fee and other expenses for
each of the 12 Funds corresponding to the 12 variable fund accounts under the
policy and .75% which represents the mortality and expense charge under the
policy.
TOTAL ANNUAL PREMIUM: The annualized amount of money you contribute plus any
lump-sum premium payments.
CASH VALUE: The total value of your variable fund accounts, minus any
outstanding loan amounts.
CASH SURRENDER VALUE: The maximum amount you would receive if you surrendered
your policy. This is also the amount you may borrow against or withdraw from
your policy. It reflects the deduction of the Surrender Charge. Any loans or
withdrawals will reduce the policy's values.
CUMULATIVE PREMIUM: The total of premium paid into the policy through the
number of policy year ends shown.
GUARANTEED DEATH BENEFIT: The guarantee that the policy will not lapse during
the first five years and that the death benefit will be paid if a sufficient
amount of target premium has been paid. (See the prospectus for details.)
SURRENDER CHARGE: The charge based on the Annual Target Premium. The Surrender
Charge declines each policy year until it is eliminated after policy year 10.
32281 05-98 ST
<PAGE>
PAYMENTS AND EXPENSES
Payments include the dollar amounts you pay into your policy. Expenses are the
fees you pay to administer and maintain your policy. (See the prospectus for
details.)
ANNUAL TARGET PREMIUM: An annual amount of premium payment that we establish
when the policy is issued and that is shown on the Policy Information Page. It
is used to determine whether a Premium Charge will be deducted from premium
payments, whether a surrender charge is imposed on a full surrender and
whether the Guaranteed Death Benefit applies.
TAX GUIDELINE PAYMENTS: The maximum amounts you may pay into your policy to
comply with Internal Revenue Service limitations. These payments include
Guideline Single, Guideline Annual, and Modified Endowment Contract ("MEC")
Guideline payments.
EXPENSES: The fees charged against your policy, including:
PREMIUM CHARGE: A premium charge of 3% is deducted from all premium payments
until the total amount of premium paid exceeds the Annual Target Premium
amount multiplied by ten. For example: if your Annual Target Premium was
$1,000, you are charged a 3% premium charge until you have paid $10,000 in
total premiums. You would not be charged any premium charge for subsequent
payments, assuming you made no changes in coverage.
MAINTENANCE CHARGE: A $5 monthly charge deducted from the policy's cash value
to cover recurring administrative expenses related to maintaining the policy.
This charge applies for the life of the policy.
ADMINISTRATIVE CHARGE: A $10 charge deducted each month in the first year of
the contract to cover start-up expenses incurred in issuing this policy. This
charge stops after the first 12 months of the policy.
COST OF INSURANCE: The monthly charges for life insurance protection including
any EXTRA RISK CHARGES for rated policies and any additional cost for optional
benefit riders. Two cost of insurance rates are used in this illustration:
guaranteed cost and projected cost. Whenever Guaranteed Expenses are shown,
the guaranteed cost of insurance is assumed to determine policy values.
Whenever Non-Guaranteed Expenses are shown, the current cost of insurance is
assumed to determine policy values. The
GUARANTEED cost of insurance is the guaranteed maximum expense that can be
deducted from the policy to cover insurance protection. The CURRENT cost of
insurance is the cost currently deducted to cover insurance protection. The
current cost of insurance could increase or decrease based on the company's
experience, but it will never be more than the guaranteed cost of insurance.
RATE CLASSES
Rate classes are groupings of insured individuals who present a substantially
similar insurance risk and are grouped as such for the purpose of setting
premium rates. There are five rate classes offered in this product: STANDARD,
STANDARD PLUS, PREFERRED, PREFERRED PLUS, AND PREFERRED ULTRA.
ACCESSING YOUR CASH VALUE
You can borrow or withdraw the cash surrender value from your Variable
Universal Life insurance policy without surrendering your policy. Both loans
and withdrawals will affect future cash value accumulations, premium payments,
and death benefits. (See the prospectus for details.)
POLICY LOANS: You may borrow part of your policy's cash value at a 6% interest
rate, paid in advance. Any loan remaining when the insured dies will be
deducted from the death benefit before the beneficiary is paid. The amount of
cash value you borrow will accumulate interest at the guaranteed rate of 4%
and will not participate in the performance of your selected variable fund
accounts. Your policy also offers Preferred Loans; see the prospectus for
details.
POLICY WITHDRAWALS: You have the option to withdraw from the cash value.
Withdrawals will reduce your cash value and reduce your death benefit. A
partial surrender charge equal to the amount of $25 or 2% of the amount
withdrawn is assessed for each withdrawal. Any gain included in a withdrawal
is taxable. If the total of all withdrawals is more than the total premiums
paid to date, USAA Life must report the amount that exceeds your premiums paid
as gross income to the IRS, making the amount subject to federal (and possibly
state and local) tax. Withdrawals or reductions in coverage made in the first
15 years of policy issue are subject to special tax rules. (See the prospectus
for more information and consult your tax advisor.)
POLICY LOANS AND/OR WITHDRAWALS MAY ADVERSELY AFFECT YOUR POLICY AND SUBJECT
IT TO PREMATURE TERMINATION. THIS IS ESPECIALLY TRUE IF INSUFFICIENT PREMIUM
HAS BEEN PAID.
IMPORTANT NOTICES
UNDERWRITING CRITERIA: USAA Life, at its discretion, may require a medical
examination and answers to medical, avocational, financial, and other
questions to evaluate insurability and rate classification.
SUICIDE CLAUSE: If death is caused by suicide within the first two years of
the contract, the total death benefit is equal to the premium paid, less any
indebtedness or any prior partial surrenders. This clause also applies to
optional death benefit riders. INCOME TAX: Tax consequences may result from
the limits and conditions of the Internal Revenue Code and IRS regulations.
USAA Life does not offer tax advice. Please consult your tax advisor.
CONTRACTS ADVERTISED: This illustration and other enclosed forms are valid
only for the state of [Name], where the assumed Policyowner resides. Form
numbers for the Variable Universal Life insurance contract and any optional
riders are : VUL 31747 ST 2-98, VUL 31837 ST 2-98, VUL 31838 ST 2-98, VUL
31839 ST 2-98, VUL 31851 ST 2-98, VUL 31852 ST 2-98.
32281 05-98 ST
<PAGE>
VARIABLE UNIVERSAL LIFE ILLUSTRATION
INSURED: POLICY INFORMATION: BENEFIT RIDERS SELECTED:
John Doe Option: A None
USAA #987654I Initial Death Benefit: $100,000
Contract ID #0000125UI Monthly Premium Payment: $100
Male, Age 35
Quote Effective Date: 04/28/98
Prepared On: 04/28/98
<TABLE>
<CAPTION>
GUARANTEED EXPENSES NON-GUARANTEED EXPENSES
6% HYPOTHETICAL GROSS RATE OF RETURN 6% HYPOTHETICAL GROSS RATE OF RETURN
[--------------------------------------------] [----------------------------------------------]
(XX.XXXX% Net Rate of Return) (XX.XXXX% Net Rate of Return)
TOTAL CASH CASH
ANNUAL CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AGE PREMIUM $ VALUE $ VALUE $ BENEFIT $ VALUE $ VALUE $ BENEFIT $
- ---- --- --------- ------- ------- ----------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,0000,00 999,0000,00 999,0000,00
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,0000,00 999,0000,00 999,0000,00
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,0000,00 999,0000,00 999,0000,00
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,0000,00 999,0000,00 999,0000,00
100 100 999,000 999,000,000 999,000,000 999,000,000 999,0000,00 999,0000,00 999,0000,00
THIS ILLUSTRATION CONTINUES TO POLICY YEAR 100. THIS ILLUSTRATION CONTINUES TO POLICY YEAR 100.
</TABLE>
<TABLE>
<S> <C> <C>
TAX GUIDELINE PAYMENTS $ EXPENSES $ (INCLUDED IN ALL FIGURES) RATE CLASS: Preferred
Guideline Single: 999,000,000 First-Year Admin.: 10/month
Guideline Annual: 99,000,000 Maintenance: 5/month each year
MEC Guideline: 99,000,000 Premium Charge: 3% of all premiums up to
10 annual target premiums
Commissions: None
ANNUAL TARGET PREMIUM $ 999,000,000
<FN>
* IF SUFFICIENT ACCUMULATED TARGET PREMIUMS HAVE BEEN PAID IN ACCORDANCE
WITH THE GUARANTEED DEATH BENEFIT PROVISION OF THE CONTRACT, THEN THE
ACTUAL DEATH BENEFIT WILL BE THE SPECIFIED AMOUNT.
</FN>
</TABLE>
32281 05-98 ST
<PAGE>
VARIABLE UNIVERSAL LIFE ILLUSTRATION
INSURED: POLICY INFORMATION: BENEFIT RIDERS SELECTED:
John Doe Option: A None
USAA #987654I Initial Death Benefit: $100,000
Contract ID #0000125UI Monthly Premium Payment: $100
Male, Age 35
Quote Effective Date: 04/28/98
Prepared On: 04/28/98
<TABLE>
<CAPTION>
GUARANTEED EXPENSES NON-GUARANTEED EXPENSES
12% HYPOTHETICAL GROSS RATE OF RETURN 12% HYPOTHETICAL GROSS RATE OF RETURN
[--------------------------------------------] [----------------------------------------------]
(XX.XXXX% Net Rate of Return) (XX.XXXX% Net Rate of Return)
TOTAL CASH CASH
ANNUAL CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AGE PREMIUM $ VALUE $ VALUE $ BENEFIT $ VALUE $ VALUE $ BENEFIT $
- ---- --- --------- ------- ------- ----------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,0000,00 999,0000,00 999,0000,00
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,0000,00 999,0000,00 999,0000,00
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,0000,00 999,0000,00 999,0000,00
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,0000,00 999,0000,00 999,0000,00
100 100 999,000 999,000,000 999,000,000 999,000,000 999,0000,00 999,0000,00 999,0000,00
THIS ILLUSTRATION CONTINUES TO POLICY YEAR 100. THIS ILLUSTRATION CONTINUES TO POLICY YEAR 100.
</TABLE>
32281 05-98 ST
<PAGE>
VARIABLE UNIVERSAL LIFE ILLUSTRATION
INSURED: POLICY INFORMATION: BENEFIT RIDERS SELECTED:
John Doe Option: A None
USAA #987654I Initial Death Benefit: $100,000
Contract ID #0000125UI Monthly Premium Payment: $100
Male, Age 35
Quote Effective Date: 04/28/98
Prepared On: 04/28/98
<TABLE>
THIS NOTICE APPLIES TO ALL HYPOTHETICAL VALUES FOR EACH HYPOTHETICAL GROSS
RATE OF RETURN SHOWN IN THIS ILLUSTRATION. THE POLICY YEAR-END VALUES SHOWN
ASSUME THAT PLANNED PREMIUM PAYMENTS ARE MADE ON THE FIRST DAY OF EACH PAYMENT
PERIOD. THE VALUES FOR THE COLUMNS ARE HYPOTHETICAL AND ARE NOT GUARANTEED.
THE PERFORMANCE OF YOUR SELECTED VARIABLE FUND ACCOUNTS MAY PRODUCE ACTUAL
VALUES OTHER THAN THOSE SHOWN IN THIS ILLUSTRATION. ACTUAL RESULTS MAY BE MORE
OR LESS FAVORABLE THAN THOSE SHOWN. REFER TO THE INTRODUCTORY INFORMATION ON
THIS ILLUSTRATION FOR AN EXPLANATION OF TERMS USED THROUGHOUT. THE
HYPOTHETICAL VALUES ILLUSTRATED ARE BASED ON THE NET RATE OF RETURN AND
REFLECT THE DEDUCTION OF THE COST OF INSURANCE, ADMINISTRATIVE, MAINTENANCE
AND PREMIUM CHARGES. SEE THE PROSPECTUS FOR FURTHER DETAILS.
<CAPTION>
GUARANTEED EXPENSES NON-GUARANTEED EXPENSES
0% HYPOTHETICAL GROSS RATE OF RETURN 0% HYPOTHETICAL GROSS RATE OF RETURN
[--------------------------------------------] [----------------------------------------------]
(XX.XXXX% Net Rate of Return) (XX.XXXX% Net Rate of Return)
TOTAL CASH CASH
ANNUAL CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AGE PREMIUM $ VALUE $ VALUE $ BENEFIT $ VALUE $ VALUE $ BENEFIT $
- ---- --- --------- ------- ------- ----------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 *999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,0000,00 999,0000,00 999,0000,00
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,0000,00 999,0000,00 999,0000,00
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,0000,00 999,0000,00 999,0000,00
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 999,000 999,000,000 999,000,000 999,000,000 999,0000,00 999,0000,00 999,0000,00
100 100 999,000 999,000,000 999,000,000 999,000,000 999,0000,00 999,0000,00 999,0000,00
THIS ILLUSTRATION CONTINUES TO POLICY YEAR 100. THIS ILLUSTRATION CONTINUES TO POLICY YEAR 100.
</TABLE>
32281 05-98 ST
<PAGE>
VARIABLE UNIVERSAL LIFE ILLUSTRATION
INSURED: POLICY INFORMATION: BENEFIT RIDERS SELECTED:
John Doe Option: A None
USAA #987654I Initial Death Benefit: $100,000
Contract ID #0000125UI Monthly Premium Payment: $100
Male, Age 35
Quote Effective Date: 04/28/98
Prepared On: 04/28/98
SUMMARY PAGE
This summary gives the cumulative premium projected through the ages requested
and compares three hypothetical gross rates of return for guaranteed (maximum)
and non-guaranteed (current) expenses. The values shown with a 0% hypothetical
gross rate of return are based on guaranteed expenses. The values for a 6% and
12% hypothetical gross rate of return are based on CURRENT EXPENSES ONLY.
<TABLE>
<CAPTION>
GUARANTEED EXPENSES NON-GUARANTEED EXPENSES
0% HYPOTHETICAL GROSS RATE OF RETURN 6% HYPOTHETICAL GROSS RATE OF RETURN
[--------------------------------------------] [----------------------------------------------]
(XX.XXXX% Net Rate of Return) (XX.XXXX% Net Rate of Return)
CASH CASH
CUMULATIVE CASH SURRENDER DEATH CASH SURRENDER DEATH
YEAR AGE PREMIUM $ VALUE $ VALUE $ BENEFIT $ VALUE $ VALUE $ BENEFIT $
- ---- --- --------- ------- ------- ----------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
100 100 99,999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 99,999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 99,999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 99,999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
100 100 99,999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
</TABLE>
<TABLE>
<CAPTION>
NON-GUARANTEED EXPENSES
12% HYPOTHETICAL GROSS RATE OF RETURN
(XX.XXXX% Net Rate of Return)
[---------------------------------------------]
CASH
CUMULATIVE CASH SURRENDER DEATH
YEAR AGE PREMIUM $ VALUE $ VALUE $ BENEFIT $
- ---- --- --------- ------- ------- -----------
<S> <C> <C> <C> <C> <C>
100 100 99,999,000 999,000,000 999,000,000 999,000,000
100 100 99,999,000 999,000,000 999,000,000 999,000,000
100 100 99,999,000 999,000,000 999,000,000 999,000,000
100 100 99,999,000 999,000,000 999,000,000 999,000,000
100 100 99,999,000 999,000,000 999,000,000 999,000,000
</TABLE>
32281 05-98 ST
<PAGE>
SIGNATURE PAGE
CUSTOMER: I HAVE RECEIVED A COPY OF THIS ILLUSTRATION AND I UNDERSTAND THAT
ANY NON-GUARANTEED ELEMENTS ILLUSTRATED ARE SUBJECT TO CHANGE AND CAN BE
HIGHER OR LOWER THAN THE VALUES ILLUSTRATED. MY ACCOUNT REPRESENTATIVE HAS
INFORMED ME OF THE CHANGING NATURE OF THESE VALUES.
SIGNED: ___________________________________ DATE: ___________________________
USAA Life Insurance Company certifies that this illustration has been
presented to the applicant and that the applicant has been informed that any
non-guaranteed elements illustrated are subject to change. No statements that
are inconsistent with the illustration have been made by the authorized
representative of USAA Life Insurance Company.
This illustration is based on the options you requested. Because the policy
you purchase may differ from that which has been illustrated, you will be
provided with an illustration that conforms to your policy at the time it is
issued. You will be asked to sign and return the conforming illustration to
acknowledge that, when applying for insurance, you were told and understood
that any non-guaranteed elements illustrated are subject to change and actual
results may be more or less favorable.
_____________________________________ ____________
KING MAWHINNEY, CLU, CHFC, FLMI, REBC DATE
VICE PRESIDENT, LIFE SALES
32281 05-98 ST
<PAGE>
VARIABLE UNIVERSAL LIFE ILLUSTRATION
INSURED: POLICY INFORMATION: BENEFIT RIDERS SELECTED:
John Doe Option: A None
USAA #987654I Initial Death Benefit: $100,000
Contract ID #0000125UI Monthly Premium Payment: $100
Male, Age 35
Quote Effective Date: 04/28/98
Prepared On: 04/28/98
<TABLE>
VARIABLE UNIVERSAL LIFE GUARANTEED ANNUAL COSTS
(WITH 6% HYPOTHETICAL GROSS RATE OF RETURN)
(XX.XXXX% Net Rate of Return)
This table illustrates the GUARANTEED COST for the base policy and any
optional riders selected based on the mid-point hypothetical gross rate of
return identified above. The cash value and death benefits illustrated on the
previous pages assume that the cost for the options selected have been
subtracted from your total cash value.
<CAPTION>
OPTIONAL BENEFITS
[-------------------------------------------------------------]
$200,000
Guaranteed Maint. Waiver Accidental Total
Cost & Admin.* Extra Risk Monthly $25,000 Death Guaranteed
Year Age of Ins. $ Fee $ Charge $ Deduct. $ Child Rider Benefit Costs $
- ---- --- --------- ------- ---------- ---------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
100 100 99,999,900 180 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
<FN>
* THIS INCLUDES A FIRST-YEAR ADMINISTRATIVE FEE OF $10 PER MONTH ($120),
FIRST YEAR ONLY.
</FN>
</TABLE>
32281 05-98 ST
<PAGE>
VARIABLE UNIVERSAL LIFE ILLUSTRATION
VARIABLE UNIVERSAL LIFE ILLUSTRATION
INSURED: POLICY INFORMATION: BENEFIT RIDERS SELECTED:
John Doe Option: A None
USAA #987654I Initial Death Benefit: $100,000
Contract ID #0000125UI Monthly Premium Payment: $100
Male, Age 35
Quote Effective Date: 04/28/98
Prepared On: 04/28/98
<TABLE>
VARIABLE UNIVERSAL LIFE CURRENT ANNUAL COSTS
(WITH 6% HYPOTHETICAL GROSS RATE OF RETURN)
(XX.XXXX% Net Rate of Return)
This table illustrates the CURRENT COST for the amount of insurance and any
optional riders selected based on the mid-point hypothetical gross rate of
return identified above. The cash value and death benefits illustrated on the
previous pages assume that the cost for the options selected have been
subtracted from your total cash value.
<CAPTION>
OPTIONAL BENEFITS
[-------------------------------------------------------------]
$200,000
Guaranteed Maint. Waiver Accidental Total
Cost & Admin.* Extra Risk Monthly $25,000 Death Current
Year Age of Ins. $ Fee $ Charge $ Deduct. $ Child Rider Benefit Costs $
- ---- --- --------- ------- ---------- ---------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
100 100 99,999,900 180 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
<FN>
* THIS INCLUDES A FIRST-YEAR ADMINISTRATIVE FEE OF $10 PER MONTH ($120),
FIRST YEAR ONLY.
</FN>
</TABLE>
32281 05-98 ST
EXHIBIT 9
ACTUARIAL OPINION AND CONSENT
May 15, 1998
USAA Life Insurance Company
9800 Fredericksburg Road
San Antonio, Texas 78288
Gentlemen:
This opinion is furnished in connection with this amendment to the
registration statement filed by USAA Life Insurance Company for Variable
Universal Life Insurance Contracts ("Contract") under the Securities Act of
1933. The prospectus included in Pre-Effective Amendment No. 1 to Registration
Statement No. 333-45343 on From S-6 describes the Contracts. The Contract form
was prepared under my direction, and I am familiar with the Registration
Statement and Exhibits thereto. In my opinion:
The methodology for computing cash values, cash surrender values and death
benefits as described in the form of illustration in Exhibit No. 8 is
consistent with the provisions of the Contract.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of my name under the heading "Experts"
in the Prospectus.
Sincerely,
/s/JAMES C. HACKARD
-------------------
James C. Hackard, ASA, MAAA
Associate Actuary
