<PAGE>
Registration No. 333-45343
As filed with the Securities and Exchange Commission
on February 26, 1999
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1 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: Continuous.
This filing is made pursuant to Rules 6c-3 and 6e-3(T) under the Investment
Company Act of 1940.
It is proposed that this filing will become effective (check the appropriate
box):
[ ] Immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] On (date) pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[X] On May 1, 1999 pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following:
[ ] This post-effective amendment designates a new effective date for
previously filed post-effective amendment.
Title of Securities Being Registered: Units of Interest in the Life Insurance
Separate Account of USAA Life Insurance Company under the Variable Universal
Life Insurance Policy.
ii
<PAGE>
RECONCILATION AND TIE BETWEEN ITEMS IN
FORM N-8B-2 AND THE PROSPECTUS
LIFE INSURANCE SEPARATE ACCOUNT OF
USAA LIFE INSURANCE COMPANY
ITEM NO. OF
FORM N-8B-2* CAPTION IN PROSPECTUS**
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***
* 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>
PROSPECTUS
[USAA LOGO APPEARS HERE]
USAA LIFE INSURANCE COMPANY
VARIABLE UNIVERSAL LIFE
MAY 1, 1999
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THIS PAGE INTENTIONALLY LEFT BLANK
<PAGE>
VARIABLE UNIVERSAL LIFE INSURANCE POLICY
Offered By
USAA LIFE INSURANCE COMPANY Prospectus dated:
9800 Fredericksburg Road, San Antonio, Texas 78288 May 1, 1999
Telephone: toll free 1-800-531-8303
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:
. Life insurance protection guaranteed by USAA Life. See "Policy
Benefits."
. 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.
. 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
beginning of this booklet.
ACCUMULATION UNITS OF THE VARIABLE FUND ACCOUNTS ARE NOT
DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY, THE USAA
FEDERAL SAVINGS BANK, ARE NOT INSURED BY THE FEDERAL DEPOSIT
IMPORTANT INSURANCE CORPORATION (FDIC) OR ANY OTHER GOVERNMENT AGENCY,
NOTICES ARE SUBJECT TO INVESTMENT RISKS, AND MAY LOSE VALUE.
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,
ANYONE 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.
<PAGE>
TABLE OF CONTENTS
PAGE
----
DEFINITIONS...................................................... 3
THE POLICY AT A GLANCE........................................... 7
QUESTIONS AND ANSWERS............................................ 10
POLICY INFORMATION............................................... 14
Policy Issuance............................................. 14
Who May Purchase a Policy.............................. 14
How to Purchase a Policy............................... 14
Effective Date of Your Policy.......................... 14
Premium Payments............................................ 14
Methods of Payment..................................... 14
Amount and Frequency of Payments....................... 15
Allocation of Premiums...................................... 15
Planned Periodic Premium Payments...................... 16
Annual Target Premium Payment.......................... 16
Investment Options.......................................... 16
Additions or Changes to Investment Options............. 18
Voting Privileges...................................... 18
Special Considerations................................. 19
Policy Lapse And Reinstatement.............................. 19
Lapse.................................................. 19
Grace Period........................................... 19
Guaranteed Death Benefit............................... 20
Reinstatement.......................................... 20
Charges and Deductions...................................... 21
Premium Charge......................................... 21
Monthly Deductions From Cash Value..................... 21
Separate Account Charges............................... 22
Transfer Charges....................................... 22
Surrender Charges...................................... 22
Other Charges.......................................... 23
Deduction of Charges................................... 23
Death Benefit............................................... 23
Choosing Between Option A and Option B................. 24
Illustrations of Option A and Option B................. 24
Changing Your Death Benefit Option..................... 25
Changing Your Policy's Specified Amount................ 25
Other Policy Benefits....................................... 26
Optional Insurance Benefits............................ 26
Benefits at Maturity................................... 27
Payment of Policy Benefits.................................. 27
Payment of Death Benefit............................... 27
Payment of Maturity Benefit............................ 27
Death Benefit Payment Options.......................... 28
Cash Value.................................................. 28
Calculating Your Value in the Variable Fund Accounts... 29
1
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Transfer of Value........................................ 30
Loans.................................................... 30
Loan Collateral................................. 30
Loan Interest................................... 30
Repayment of Indebtedness....................... 31
Effect of Policy Loans.......................... 31
Surrenders............................................... 31
Full Surrenders................................. 32
Partial Surrenders.............................. 32
Telephone Transactions................................... 32
Dollar Cost Averaging Program............................ 32
Free Look Right.......................................... 33
Postponement of Payments................................. 33
MORE POLICY INFORMATION....................................... 34
Owners and Beneficiaries................................. 34
Owners.......................................... 34
Beneficiaries................................... 34
Calculating Your Cost of Insurance....................... 34
Net Amount at Risk.............................. 35
Net Amount at Risk - More Than One Rate Class... 35
Cost of Insurance Rates......................... 35
Minimum Amount Insured................................... 36
The Contract............................................. 36
Incontestability......................................... 37
Misstatement of Age or Sex............................... 37
Suicide Exclusion........................................ 37
Non-Participating Policy................................. 38
Reports and Records...................................... 38
PERFORMANCE INFORMATION....................................... 39
OTHER INFORMATION............................................. 39
USAA Life................................................ 39
Directors of USAA Life.......................... 40
Officers (other than Directors)................. 41
Separate Account......................................... 43
Policy Distribution...................................... 43
Year 2000 Disclosure..................................... 43
Tax Matters.............................................. 44
Taxation of Policy Proceeds..................... 44
Taxation of USAA Life........................... 48
State Regulation of USAA Life............................ 49
Legal Matters............................................ 49
Independent Auditors..................................... 49
Registration Statement................................... 49
Financial Statements..................................... 50
2
<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. The Administrative Charge compensates
us for the start-up expenses we incur in issuing the Policy. The Administrative
Charge 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. It 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:
(1) your Policy's value that you invest in the Variable Fund Accounts;
(2) plus, if applicable, any value that you transfer from the Separate
Account to USAA Life's general account to secure any Policy loan;
(3) plus, any interest earnings we credit on the value held in the general
account;
(4) less, the amount of any outstanding loan including any unpaid loan
interest; and
(5) less any Monthly Deductions, transfer charges, and partial surrender
charges we apply through that date.
DATE OF RECEIPT means the date we actually receive the item at our Home Office,
subject to two exceptions:
(1) if we receive the item on a date other than a Valuation Date, the Date
of Receipt will be the following Valuation Date; and
(2) if we receive the item 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 we pay in accordance with the death benefit
option in effect on the Insured's death (1) reduced by any Indebtedness and any
due and unpaid Monthly Deductions, and (2) increased by any optional insurance
benefits provided by rider.
3
<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 (1) the premium payments you have paid, or (2) 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 if you pay a sufficient amount of premium,
we guarantee your Policy will not lapse during the first five Policy Years and
that we will pay a Death Benefit.
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 that we deduct from the Policy's cash
value. The Maintenance Charge compensates us for recurring administrative
expenses related to the maintenance of the Policy and the Separate Account. The
Maintenance Charge 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.
MONTHLY ANNIVERSARY means the same date of each succeeding month as the
Effective Date of your Policy.
4
<PAGE>
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 Separate 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 we receive 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
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. We
credit or charge the income, gains, and losses, realized or unrealized, from the
assets of the Separate Account against the Separate Account without regard to
our other income, gains or losses. We registered the Separate Account 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. The specified
amount is shown on the Policy Information Page.
5
<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. The Policy provides several Variable Fund
Accounts. Each Variable Fund Account corresponds to a particular Fund. Net
Premium Payments that you allocate to a Variable Fund Account are invested in a
particular Fund. We also refer to the Variable Fund Accounts as Accounts in
this Prospectus.
WE, OUR, US, or USAA Life means USAA Life Insurance Company.
YOU, YOUR or YOURS refers to the Owner of the Policy.
6
<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
INSURANCE BENEFITS
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
POLICY CHARGES AND DEDUCTIONS
PREMIUM CHARGE 3% from each premium payment received until 10 Annual Target Premium Payments paid
MONTHLY DEDUCTIONS FROM CASH VALUE
COST OF INSURANCE CHARGE/1/
(PER $1000 OF NET AMOUNT AT Current Monthly Guaranteed Monthly/2/
RISK) Issue Class Cost of Insurance Cost of Insurance
----------- ------------------ ---------------------
Per (000) Per (000)
MINIMUM MONTHLY COST OF
INSURANCE RATES
MALE, AGE 9 Standard $0.08 $0.12
MALE, AGE 26 Preferred Ultra $0.05 $0.12
FEMALE, AGE 9 Standard $0.08 $0.12
FEMALE, AGE 32 Preferred Ultra $0.03 $0.11
MAXIMUM MONTHLY COST OF
INSURANCE RATES
MALE, AGE 99 Standard $63.03 $83.33
MALE, AGE 99 Preferred Ultra $27.84 $83.33
FEMALE, AGE 99 Standard $61.32 $83.33
FEMALE, AGE 99 Preferred Ultra $20.55 $83.33
ADMINISTRATIVE CHARGE $10 (applies only during first Policy Year)
MAINTENANCE CHARGE $5
TERMINAL ILLNESS RIDER None
</TABLE>
- --------------
/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 1980 Commissioners Standard Ordinary Mortality Table.
7
<PAGE>
<TABLE>
<S> <C>
ACCIDENTAL DEATH BENEFIT RIDER $.07 per $1,000 coverage
CHILDREN TERM LIFE INSURANCE
RIDER $.50 per $1,000 coverage
EXTENDED MATURITY DATE RIDER None
WAIVER OF MONTHLY DEDUCTION Depends on age of Insured. We apply the Waiver of Monthly Deduction rates to the
RIDER amount of Monthly Deduction to be waived. The rates vary from a minimum of $.05 per
$1.00 of Monthly Deduction at ages 15-30 to a maximum of $.277 per $1.00 of Monthly
Deduction at age 59. The rates do not vary by underwriting class or sex.
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 Account/3/
FEDERAL INCOME TAX CHARGE Currently none/4/
SURRENDER CHARGES
PARTIAL SURRENDER
FULL SURRENDER
MINIMUM AND MAXIMUM SURRENDER Lesser of $25 or 2% of amount withdrawn
CHARGES: Maximum of 50% of Annual Target Premium Payment (declines each Policy Year to
0% after the 10/th/ Policy Year)
MINIMUM SURRENDER CHARGES PER
$1,000 OF INSURANCE
MALE, STANDARD Age 1 $2.45 at issue, grading to $0.00 after ten Policy Years
MALE, PREFERRED ULTRA Age 18 $1.76 at issue, grading to $0.00 after ten Policy Years
FEMALE, STANDARD Age 1 $2.41 at issue, grading to $0.00 after ten Policy Years
FEMALE, PREFERRED ULTRA Age 18 $1.53 at issue, grading to $0.00 after ten Policy Years
MAXIMUM SURRENDER CHARGES PER
$1,000 OF INSURANCE
MALE, STANDARD Age 80 $39.35 at issue, grading to $0.00 after ten Policy Years
MALE, PREFERRED ULTRA Age 80 $28.50 at issue, grading to $0.00 after ten Policy Years
FEMALE, STANDARD Age 80 $36.89 at issue, grading to $0.00 after ten Policy Years
FEMALE, PREFERRED ULTRA Age 80 $24.70 at issue, grading to $0.00 after ten Policy Years
</TABLE>
- --------------
/3/ We deduct the Mortality and Expense Charge on a daily basis at an annual
rate of 0.75% of the value of each Variable Fund Account.
/4/ We do not currently deduct a Federal Income Tax Charge 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.
8
<PAGE>
<TABLE>
<CAPTION>
FUND FEES AND OTHER EXPENSES
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/5/
----------- --------------- --------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
USAA LIFE
- ---------
INVESTMENT TRUST
- ----------------
MONEY MARKET FUND .20% .60% .15% .80% .35%
INCOME FUND .20% .35% .15% .55% .35%
GROWTH AND INCOME
FUND .20% .17% .15% .37% .35%
WORLD GROWTH FUND .20% .46% .45% .66% .65%
DIVERSIFIED ASSETS
FUND .20% .25% .15% .45% .35%
AGGRESSIVE GROWTH
FUND .50% .34% .20% .84% .70%
INTERNATIONAL FUND .65% .70% .45% 1.35% 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% .99% .10% 1.19% .30%
SMALL CAP INDEX FUND .35% 1.23% .10% 1.58% .45%
EAFE (R) EQUITY
INDEX FUND .45% 1.21% .20% 1.66% .65%
</TABLE>
- -------------------
/5/ We based the fee and expense figures shown with respect to each Fund 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. Bankers Trust may terminate such
expense reimbursements at its discretion.
9
<PAGE>
TRANSFERS
NUMBER OF FREE 6 per Policy Year
TRANSFERS
MINIMUM AMOUNT OF $250 (or remaining value in Variable Fund Account,
TRANSFER if less)
LOANS
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
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 1-800-531-8303 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."
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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."
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 (1) your Policy's Specified Amount, or
(2) 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."
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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."
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. Your Policy has 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 as 1/10/th/ 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."
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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
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, unless you have paid enough premiums
to qualify for the Guaranteed Death Benefit. 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."
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, plus any charges that we have deducted.
See "Free Look Right."
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POLICY INFORMATION
POLICY ISSUANCE
WHO MAY PURCHASE A POLICY
Any individual of legal age in a state where we may lawfully sell the
Policies 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 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-
8303.
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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 1/10/th/ of one percent, provided that the
total amount of your allocations equals 100%.
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
you specify 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 you specify 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.
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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 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 as 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. USAA is not affiliated with Bankers Trust Company, Fred Alger
Management, Inc., or Scudder, Kemper Investments, Inc.
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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.
<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.
Small Cap Index Fund To replicate as closely as possible the performance of the Russell
2000 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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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." You should not consider any deduction for the cost
of insurance after lapse 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.
If you fail to pay the necessary premium within the grace period, a Policy
lapse will occur terminating all insurance, including benefits provided by
rider. 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.
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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;
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.
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One advantage of reinstating a lapsed Policy is that we will not deduct the
first-year-only administrative charge again if it has already been paid. A
possible disadvantage of reinstatement is that you must pay or reinstate any
Policy Indebtedness.
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 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 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:
(1) the Specified Amount of insurance coverage and death benefit option you
select (both of which affect the net amount at risk to us),
(2) your cost of insurance RATE (which is based on the Insured's age, sex,
and rate class), and
(3) 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.
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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. We guarantee that this charge will not 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.
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. We
also refer to this charge as an "administrative processing fee." See "Partial
Surrenders" and "Deduction of Charges."
FULL SURRENDER CHARGE. For full surrenders prior to the end of the 10/th/
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
10/th/ Policy Year.
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<TABLE>
<CAPTION>
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.
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:
(1) your Policy's Specified Amount, or
(2) 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:
(1) your Policy's Specified Amount PLUS your cash value, or
(2) 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."
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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.
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).
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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.
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 would cause
your Policy not to qualify as life insurance for federal tax law purposes. You
must make requests for reduction in writing. For purposes of determining your
cost of insurance charge, we will apply any decrease in Specified
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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, we will reduce the Specified Amount and the cash
value by the amount of the partial surrender. Under death benefit Option B, we
will reduce only the cash value portion of the death benefit 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. We treat the early payment as a "lien" against Policy values.
We reduce the death benefit by the amount of the lien and any Policy loans, plus
accrued interest. We will continue to make Monthly Deductions after the early
payment. The Owner's access to the cash value of the Policy through Policy
loans, partial surrenders, or full surrender is limited to any excess of the
cash value over the amount of the lien. We charge interest on the amount of the
early payment and any unpaid Monthly Deductions. We require premium payments to
be made for cost of insurance that 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, we will terminate the Policy and no additional insurance benefits will
be 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). You can select an additional life insurance benefit
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.
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 100/th/ 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.
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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 1-800-531-8303. 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.
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."
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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.
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:
(1) on a daily basis with the investment experience of the Variable Fund
Accounts to which you have allocated your Net Premium Payments,
(2) to reflect the effect of various Policy transactions, such as
additional premium payments, partial surrenders, and Policy loans, and
(3) to reflect applicable charges and deductions.
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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:
(1) your Policy's value in each Variable Fund Account,
(2) plus, if applicable, any value held in our general account to secure
any Policy loan,
(3) plus any interest earnings credited on the value held in the general
account,
(4) less the amount of any outstanding Indebtedness,
(5) 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.
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 (1) the
number of units of each Variable Fund Account credited to your Policy by, (2)
the price of the units on that Date.
We determine the number of units to credit to you by dividing (1) the Net
Premium Payment you allocate to a Variable Fund Account by (2) 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. We calculate the
unit value of a Variable Fund Account on any Valuation Date 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 1-800-531-8303.
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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
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
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 age 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 Variable Fund Account(s) in the same proportion as each
Account's value has to the total Policy cash value on the date the loan starts.
Similarly, we will deduct interest from your Variable Fund Account(s) at the
beginning of each Policy Year in the same proportion as
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each Account's value has to the total Policy cash value as of that date. If
there is insufficient value in your Variable Fund Account(s) to pay the interest
in advance, your policy will enter its grace period.
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.
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. You may not repay loans
and unpaid loan interest in existence at the end of the grace period 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.
We will determine loan values 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." We will
terminate your Policy and all insurance 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 (1) your USAA number or
Policy number, (2) your name, and (3) 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.
DOLLAR COST AVERAGING PROGRAM
The Dollar Cost Averaging Program enables you to make regular, equal
investments over time into one or more of the Variable Fund Accounts, by
transferring a fixed dollar amount at regular intervals from one or more
Variable Fund Accounts under the Policy.
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To begin the Dollar Cost Averaging Program, you must have at least $5,000
in the Variable Fund Account from which you intend to transfer value. The
minimum amount that you may transfer is $100, or the remaining value of the
Account, if less. The transfers must be scheduled to occur over a period of at
least 12 months at monthly, quarterly, or semi-annual intervals, as you elect.
You may select this Program by submitting a written request to our Home
Office or by making a request by telephone. You may cancel your participation
in this Program in the same manner.
We will process transfers under the Dollar Cost Averaging Program to be
effective at the Accumulation Unit Values at the end of the Valuation Period
that includes the date of the transfer. No charges apply to transfers made under
the Dollar Cost Averaging Program.
We reserve the right to suspend, terminate, or modify the offering of the
Dollar Cost Averaging Program upon providing you written notice 30 days in
advance. Should we suspend or terminate the Program, the suspension or
cancellation will not affect any Policy for which the Dollar Cost Averaging
Program is already in effect.
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 (1) your premium payments, or (2) 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.
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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.
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 (1) the net amount at risk under your Policy by, (2) your cost of
insurance rate, and (3) dividing the resulting amount by 1000.
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NET AMOUNT AT RISK
We determine the net amount at risk by (1) subtracting your Policy's cash
value on any Monthly Anniversary from (2) 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, we will calculate the net amount at
risk 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, we will apportion the cash value 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, we will determine the net amount at risk 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.
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
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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
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. If higher
than the death benefit under Option A or Option B, we will pay you the Minimum
Amount Insured. 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:
MINIMUM INSURED AMOUNT AS A PERCENTAGE OF CASH VALUE
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INSURED'S 40 or
AGE* Under 45 50 55 60 65 70 75 to 90 95 and older
PERCENTAGE 250% 215% 185% 150% 130% 120% 115% 105% 100%
</TABLE>
- ---------------
* Last birthday at the beginning of the Policy Year. A more complete table
appears in your Policy.
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.
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.
The entire contract consists of:
(1) your Policy,
(2) your Policy application, and
(3) any supplemental applications, riders, endorsements, and
amendments.
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.
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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. Each 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, a new two-year contestable period
begins on 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.
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.
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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;
(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.
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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 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 $______________ on December 31, 1998. 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.
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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.
Name Principal Occupation (Past Five Years)
- ---- --------------------------------------
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, 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 since November 1996; 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 since September 1994; 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.
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.
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.
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<PAGE>
OFFICERS (OTHER THAN DIRECTORS). The officers of USAA Life, other than the
above named Directors, 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.
Name Principal Occupation (Past Five years)
- ---- -------------------------------------
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.
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.
Edward R. Dinstel Vice President, Life & Health Underwriting/Issue.
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.
Robert J. Flannery Vice President, Actuarial Valuation, since January
1998; prior thereto, 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.
James E. Goral Vice President, Medical Director since November 1998;
prior thereto, Physician, Diagnostic Clinic of San
Antonio since April 1995; prior thereto; Physician,
Southwest Medical Clinic since September 1979.
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 Insurance Counsel, 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.
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<PAGE>
Pattie S. McWilliams Vice President, Life/Annuity Service & Claims, since
September 1993.
James M. Middleton Vice President, Systems Integration & Program Control,
since September 1997; prior thereto, Assistant Vice
President, 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.
Bobby L. Casey Assistant Vice President, Life Accounting and Analysis,
since December 1998; prior thereto, Director of
Management Accounting (1987 - 90, 1991 -1992, 1995 to
1998), Director of Cash Management and Control &
Support (1993 - 1995), Director of Financial Statement
Reporting (1990-1991, 1992-1993).
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; prior thereto, 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. Roetzel Assistant Vice President, Plans & Administration, since
May 1998; prior thereto, Executive Director/Controller,
La 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.
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<PAGE>
You should also review the accompanying Fund prospectuses for a description
of the management of the Funds.
SEPARATE ACCOUNT
By a resolution of the Board of Directors of USAA Life, we established the
Separate Account 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 of USAA Life and receive neither
direct nor 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 serves as both principal underwriter and investment adviser
for the following 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.
YEAR 2000 DISCLOSURE
Like other organizations around the world, USAA Life could be adversely
affected by the so-called "Year
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2000 problem." The problem exists because many computer programs use only the
last two digits to refer to a year and may not properly recognize a year that
begins with a "20" instead of a "19." As a result, such programs might not
properly process and calculate information that relates to dates beginning
January 1, 2000 and beyond. USAA Life has spent much effort and money to
confront the Year 2000 problem and we expect to have our computer systems ready
for the year 2000 by mid-1999. In addition, we are assessing the Year 2000
readiness of the mutual funds in which the Separate Account invests. Although we
cannot say that you will experience no effect from this situation, we can tell
you that we are making a large effort to avoid any ill effects upon our Policy
Owners.
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. The discussion is general in nature, and
should not be considered tax advice, for which you should consult a qualified
tax adviser.
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.
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:
. the death benefit received by the beneficiary under your Policy will not
be subject to federal income tax; and
. 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.
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Whenever there is a "material change" under a Policy, the Policy will
generally be:
(1) treated as a new contract for purposes of determining whether the
Policy is a modified endowment contract, and
(2) 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 predetermined 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
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:
(1) 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
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(2) 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:
(1) to taxpayers 59 1/2 years of age or older,
(2) in the case of a disability (as defined in the Code), or
(3) 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.
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,
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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.
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 $650,000 (increasing annually 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
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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 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 we 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, we may make charges 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
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additional taxable income and income tax to USAA Life. The amount of additional
income tax, 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.
INDEPENDENT AUDITORS
The financial statements of the Separate Account for the period ended
December 31, 1998, and the consolidated financial statements of USAA Life as of
December 31, 1998 and 1997, and for each of the years in the three-year period
ended December 31, 1998, have been included in this Prospectus in reliance upon
the accompanying reports thereon of KPMG LLP, independent certified public
accountants, included elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
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.
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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. The financial statements of the Separate Account and USAA Life appear
on the pages that follow.
[TO BE FILED BY AMENDMENT]
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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.
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[LOGO OF USAA APPEARS HERE]
USAA Life Insurance Company
9800 Fredericksburg Road
San Antonio, Texas 78288
Copyright, 1999, USAA. All rights reserved.
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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.
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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.
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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 __ 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 (filed as Exhibit 2)./4/
KMPG Peat Marwick LLP, Independent Auditors (see Exhibit 6). (Filed
herewith.)
James C. Hackard, ASA, MAAA, Associate Actuary, USAA Life Insurance Company
(filed as Exhibit 9)./4/
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 encompass variable universal life insurance, March
30, 1998./4/
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(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./4/
(6)(a) Articles of Incorporation of USAA Life Insurance Company, as
amended./4/
(6)(b) Bylaws of USAA Life Insurance Company./4/
(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, amended and restated, to encompass
variable universal life insurance, February 26, 1998, and
amended and restated, November 18, 1998./2,5/
(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 Disbursing Agent for Funds added
to Trust, dated February 7, 1997./2/
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(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) Amended Participation Agreement by and between Scudder
Variable Life Investment Fund and USAA Life Insurance
Company, dated February 3, 1995, as amended May 21, 1998.
(Filed herewith.)
(8)(d)(ii) Amended Participating Contract and Policy Agreement by and
between Scudder Investor Services, Inc. and USAA Investment
Management Company, dated February 3, 1995, as amended April
29, 1998. (Filed herewith.)
(8)(d)(iii) Amended Reimbursement Agreement by and between Scudder
Kemper Investments, Inc. and USAA life Insurance Company,
dated February 3, 1995, as amended May 21, 1998. (Filed
herewith.)
(8)(d)(iv) Amended 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, dated February 3,
1995, as amended March 16, 1998. (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./4/
(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./4/
(8)(f)(i) Participation Agreement by and between BT Insurance Funds
Trust, Bankers Trust Company and USAA Life Insurance
Company, dated April 30, 1998./4/
(8)(f)(ii) Expense Allocation Agreement by and between Bankers Trust
Company and USAA Life Insurance Company, dated April 30,
1998./4/
(10)(a)(i) Revised Form of Application for the Variable Universal Life
Insurance Policy filed as Exhibit 1.(5)./4/
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(10)(a)(ii) Form of Application for Variable Universal Life Insurance
Policy Change./4/
(10)(b) Proposed Section 1035 Exchange Form./4/
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./4/
3. Not applicable.
4. Not applicable.
5. Financial Data Schedule. (See Exhibit 27 below.)
6. Consent of KPMG LLP, Independent Auditors. (To be filed by
amendment to this Registration Statement.)
7. Powers of Attorney for: Edwin L. Rosane, Robert G. Davis,
Bradford W. Rich, Josue Robles, Jr., Michael J.C. Roth, Janice E.
Marshall, William B. Tracy, Donald R. Walker, and James A.
Robinson./1/
8. Revised 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 James C. Hackard, ASA, MAAA, Associate
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./4/
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>
/4/ Previously filed on May 15, 1998, with the Pre-Effective Amendment to
Registrant's Form S-6 Registration Statement.
/5/ Incorporated herein by reference to Post-Effective Amendment No. 7,
filed on February 24, 1999, to the Form N-1A Registration Statement (File No.
33-82270) of USAA Life Investment Trust.
S-7
<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 22nd day
of February, 1999.
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-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/ROBERT G. DAVIS Chairman February 22, 1999
- ---------------------
Robert G. Davis
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/EDWIN L. ROSANE Director February 22, 1999
- ----------------------
Edwin L. Rosane
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/ BRADFORD W. RICH Director February 22, 1999
- ----------------------
Bradford W. Rich
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
/s/ JOSUE ROBLES, JR. Director February 22, 1999
- ----------------------
Josue Robles, Jr.
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/MICHAEL J.C. ROTH Director February 25, 1999
- ------------------------
Michael J.C. Roth
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/ JANICE E. MARSHALL Director February 23, 1999
- -----------------------
Janice E. Marshall
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
*/s/DONALD B. WALKER Director February 25, 1999
- ---------------------
Donald B. Walker
*Signed by Dwain A. Akins, Attorney-in-fact.
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 Senior Vice President and February 25, 1999
- ------------------------ Treasurer (Principal Financial
James A. Robinson and Accounting Officer)
S-16
<PAGE>
EXHIBIT INDEX
1.(8)(d)(i) Amended Participation Agreement by and between Scudder Variable
Life Investment Fund and USAA Life Insurance Company, dated
February 3, 1995, as amended May 21, 1998. (Filed herewith.)
1.(8)(d)(ii) Amended Participating Contract and Policy Agreement by and between
Scudder Investor Services, Inc. and USAA Investment Management
Company, dated February 3, 1995, as amended April 29, 1998. (Filed
herewith.)
1.(8)(d)(iii) Amended Reimbursement Agreement by and between Scudder, Kemper
Investments Inc. and USAA life Insurance Company, dated February
3, 1995, as amended May 21, 1998. (Filed herewith.)
1.(8)(d)(iv) Amended 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, dated February 3, 1995, as
amended March 16, 1998. (Filed herewith.)
6. Consent of KPMG LLP, Independent Auditors. (To be filed by amendment to
this Registration Statement.)
8. Revised 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. (Filed
herewith.)
S-17
<PAGE>
EXHIBIT 1.8(d)(i)
AMENDED PARTICIPATION AGREEMENT
<PAGE>
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
<PAGE>
Participating Insurance Company is a 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
2
<PAGE>
the average daily net 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
3
<PAGE>
behalf of any Portfolio is not greater 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
<PAGE>
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
7
<PAGE>
Fund, or (ii) may be based upon any untrue statement or alleged untrue statement
of a material fact contained in a registration statement or prospectus covering
Shares or any amendment thereof or supplement thereto or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading unless such statement or
omission was made in reliance upon information furnished to the Fund by the
Company or (iii) may be based on any untrue statement or alleged untrue
statement of a material fact contained in a registration statement or prospectus
covering insurance products sold by the Company, or any 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
8
<PAGE>
or other first legal process giving information of the nature of the claim shall
have been served upon it or upon such director, officer or controlling person
(or after the Company or such director, officer or controlling person shall have
received notice of such service on any designated agent), but failure to notify
the Fund of any claim shall not relieve it from any liability which it may have
to the 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
11
<PAGE>
irreconcilable conflict. The Company will recommend to its Participants that
they decline an offer to establish a new funding medium only if the Company
believes it is in the best interest of the Participants.
(d) The Trustees' determination of the existence of an irreconcilable
material conflict and its implications promptly shall be communicated to all
Participating Insurance Companies by written notice thereof delivered or mailed,
first class postage prepaid.
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.
12
<PAGE>
Shares held in any other insurance company general or separate account or sub-
account thereof will be voted in the proportion specified in the second
preceding sentence for shares attributable to policies.
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
13
<PAGE>
Trustees, following certification thereof by a Participating Insurance Company
given in accordance with Paragraph 10 that an irreconcilable conflict exists
among the interests of (i) all contract holders and policy holders of Variable
Insurance Products of all separate accounts or (ii) the interests of the
Participating Insurance Companies investing in the Fund. Notwithstanding
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
14
<PAGE>
diversification requirement of Section 817(h)(1) of the Code by having all or
part of its assets invested in U.S. Treasury securities which qualify for the
"Special Rule for Investments in United States Obligations" specified in Section
817(h)(3) of the Code.
The 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.
15
<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 April ___, 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.
16
<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 21st day of May, 1998.
SEAL SCUDDER VARIABLE LIFE
INVESTMENT FUND
By: /s/ William M. Thomas
---------------------
William M. Thomas
President
SEAL USAA LIFE INSURANCE COMPANY
By: /s/ Edwin L. Rosane
-------------------
Edwin L. Rosane
Its: President
47103
17
<PAGE>
EXHIBIT 1.8(d)(ii)
AMENDED PARTICIPATING CONTRACT AND POLICY AGREEMENT
<PAGE>
Scudder Investor Services, Inc.
Two International Place
Boston, Massachusetts 02110
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 Participating Insurance
<PAGE>
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 Delaware 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 1933 Act
and all applicable published instructions, rules and regulations
(the "Rules and Regulations") of the Securities and Exchange
Commission (the
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<PAGE>
"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 and conduct of your agents
and employees and for injury to such agents or employees or to
others through your agents or employees.
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<PAGE>
(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.
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
4
<PAGE>
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
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
5
<PAGE>
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
or 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.
(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
6
<PAGE>
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 the 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 shall 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
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 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
7
<PAGE>
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.
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.
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<PAGE>
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: /s/ Mark S. Casady
------------------
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: 4/29/98 By: /s/ John J. Dallahan
--------------------
John J. Dallahan
Senior Vice President,
Investments Services
Authorized Representative
10750 Robert F. McDermott Freeway
San Antonio, Texas 78288
47111
9
<PAGE>
EXHIBIT 1.8(d)(iii)
AMENDED REIMBURSEMENT AGREEMENT
<PAGE>
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
3
<PAGE>
losses, claims, damages, liabilities or 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
4
<PAGE>
giving information of the nature of the claims shall have been served upon
Scudder Kemper or upon such person (or after Scudder Kemper or such person shall
have received notice of such service on any designated agent), but failure to
notify the Company of any such claim shall not relieve the Company from any
liability which it 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 it or such director, officer or
6
<PAGE>
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 officers or directors in connection with
the issuance or sale of any Shares.
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<PAGE>
(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 or
the
8
<PAGE>
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 express
9
<PAGE>
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
10
<PAGE>
appeals thereof, and in that event Scudder Kemper shall bear the fees and
expenses associated with the conduct of the proceedings that it is so authorized
to control.
For purposes of this Paragraph 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 21st day of May, 1998.
SEAL SCUDDER KEMPER INVESTMENTS, INC.
By: /s/ Mark S. Casady
------------------
Mark S. Casady
Authorized Officer
SEAL USAA LIFE INSURANCE COMPANY
By: /s/ Edwin L. Rosane
-------------------
Name: Edwin L. Rosane
Title: President
45527
12
<PAGE>
EXHIBIT 1.8(d)(iv)
AMENDED LETTER AGREEMENT
<PAGE>
[LOGO OF USAA LIFE INSURANCE COMPANY APPEARS HERE]
March 16, 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.
March 16, 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.
March 16, 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.
March 16, 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.
March 16, 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: /s/ EDWIN L. ROSANE
-------------------
EDWIN L. ROSANE
President
USAA INVESTMENT
MANAGEMENT COMPANY
By: /s/ JOHN J. DALLAHAN
--------------------
JOHN J. DALLAHAN
Senior Vice President
Investments Services
<PAGE>
Scudder Kemper Investments, Inc.
March 16, 1998
Page 6
We hereby agree to and accept the provisions set out above.
SCUDDER KEMPER INVESTMENTS, INC.
By: /s/ MARK S. CASADY
------------------
SCUDDER INVESTOR SERVICES, INC.
By: /s/ MARK S. CASADY
------------------
SCUDDER VARIABLE LIFE INVESTMENT FUND
By: /s/ WILLIAM M. THOMAS
-----------------
44265
<PAGE>
EXHIBIT 6
CONSENT OF KPMG LLP
[TO BE FILED BY AMENDMENT]
<PAGE>
EXHIBIT 8
REVISED ILLUSTRATION
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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
</TABLE>
- --------------------------------------------------------------------------------
The purpose of this illustration is to show how the performance of the
underlying investment accounts could affect the policy cash values and death
benefit. The illustration is hypothetical and is not intended to be used to
project or predict investment results.
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 including the
affects of any outstanding loan.
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 and any
outstanding loans.
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
<PAGE>
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.
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 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.
<PAGE>
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.
<PAGE>
VARIABLE UNIVERSAL LIFE ILLUSTRATION
<TABLE>
<CAPTION>
<S> <C> <C>
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.
<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
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
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
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
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
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
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
THIS ILLUSTRATION CONTINUES TO THIS ILLUSTRATION CONTINUES TO
POLICY YEAR 100. POLICY YEAR 100.
</TABLE>
<TABLE>
<CAPTION>
TAX GUIDELINE PAYMENTS $ EXPENSES $ (INCLUDED IN ALL FIGURES) RATE CLASS: Preferred
<S> <C> <C> <C> <C>
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
</TABLE>
* 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.
<PAGE>
VARIABLE UNIVERSAL LIFE ILLUSTRATION
<TABLE>
<CAPTION>
<S> <C> <C>
INSURED: POLICY INFORMATION: BENEFIT RIDERS SELECTED:
John Doe Option: A None
USAA #987654 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>
<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
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
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
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
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
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
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
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
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
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
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
THIS ILLUSTRATION CONTINUES THIS ILLUSTRATION CONTINUES
TO POLICY YEAR 100. TO POLICY YEAR 100.
</TABLE>
<PAGE>
VARIABLE UNIVERSAL LIFE ILLUSTRATION
<TABLE>
<CAPTION>
<S> <C> <C>
INSURED: POLICY INFORMATION: BENEFIT RIDERS SELECTED:
John Doe Option: A None
USAA #987654 Initial Death Benefit: $100,000
Contract ID #0000125UI Monthly Premium Payment: $100
Male, Age 25
Quote Effective Date: 04/28/98
Prepared On: 04/28/98
</TABLE>
<TABLE>
<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
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
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
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
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
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
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
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
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
100 100 999,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000 999,000,000
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
THIS ILLUSTRATION CONTINUES THIS ILLUSTRATION CONTINUES
TO POLICY YEAR 100. TO POLICY YEAR 100.
</TABLE>
<PAGE>
VARIABLE UNIVERSAL LIFE ILLUSTRATION
<TABLE>
<CAPTION>
<S> <C> <C>
INSURED: POLICY INFORMATION: BENEFIT RIDERS SELECTED:
John Doe Option: A None
USAA #987654 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>
- --------------------------------------------------------------------------------
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>
<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
<PAGE>
Variable Universal Life Illustration
<TABLE>
<CAPTION>
<S> <C> <C>
INSURED: POLICY INFORMATION: BENEFIT RIDERS SELECTED:
John Doe Option: A None
USAA #987654 Initial Death Benefit: $100,000.00
Contract ID #0000125UI Monthly Premium Payment: $100.00
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.
<TABLE>
<CAPTION>
OPTIONAL BENEFITS
--------------------------------------------------------
$200,000
GUARANTEED MAINT. & EXTRA WAIVER $25,000 ACCIDENTAL TOTAL
COST PREMIUM ADMIN.* RISK MONTHLY CHILD DEATH GUARANTEED
YEAR AGE OF INS. $ CHARGE $ CHARGE $ CHARGE $ DEDUCT. $ RIDER BENEFIT COSTS $
- -------- --- ---------- -------- ------------- ---------- --------- ----- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
100 100 99,999,900 999,900 180 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 0 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 0 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 0 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 0 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 0 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 0 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 0 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 0 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 0 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 0 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 0 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 0 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 0 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 0 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 0 60 99,999,900 9,900 9,900 9,900 99,999,900
</TABLE>
* THIS INCLUDES A FIRST-YEAR ADMINISTRATIVE CHARGE OF $10 PER MONTH ($120),
FIRST YEAR ONLY.
<PAGE>
Variable Universal Life Illustration
<TABLE>
<CAPTION>
<S> <C> <C>
INSURED: POLICY INFORMATION: BENEFIT RIDERS SELECTED:
John Doe Option: A None
USAA #987654 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.
<TABLE>
<CAPTION>
OPTIONAL BENEFITS
----------------------------------------------------------
$200,000
CURRENT MAINT. & EXTRA WAIVER $25,000 ACCIDENTAL TOTAL
COST PREMIUM ADMIN.* RISK MONTHLY CHILD DEATH CURRENT
YEAR AGE OF INS. $ CHARGE $ CHARGE $ CHARGE $ DEDUCT. $ RIDER BENEFIT COSTS $
- ---- --- ---------- -------- ------------- ---------- --------- ------------ --------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
100 100 99,999,900 999,900 180 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 999,900 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 0 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 0 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 0 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 0 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 0 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 0 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 0 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 0 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 0 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 0 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 0 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 0 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 0 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 0 60 99,999,900 9,900 9,900 9,900 99,999,900
100 100 99,999,900 0 60 99,999,900 9,900 9,900 9,900 99,999,900
</TABLE>
* THIS INCLUDES A FIRST-YEAR ADMINISTRATIVE CHARGE OF $10 PER MONTH ($120),
FIRST YEAR ONLY.
