<PAGE>
Registration Nos. 333-63843
811-09007
As filed with the Commission on May 27, 1999
__________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
Pre-Effective Amendment No. 1 [X]
Post-Effective Amendment No. [_]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [_]
Amendment No. 3 [X]
THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK
SEPARATE ACCOUNT USL VA-R
(Exact Name of Registrant)
THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK
(Name of Depositor)
125 Maiden Lane
New York, NY 10038
(Address of Depositor's Principal Executive Offices) (Zip Code)
(713) 831-8471
(Depositor's Telephone Number, including Area Code)
Pauletta P. Cohn, Esq.
Associate General Counsel and Secretary
American General Life Companies
2727 Allen Parkway
Houston, TX 77019
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: As soon as practicable after the
effective date of this Registration Statement.
Title of Securities Being Registered:
Units of interest in The United States Life Insurance Company in the City of
New York Separate Account USL VA-R under variable annuity certificates.
Registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until Registrant shall file another
amendment which specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933 or until the Registration Statement shall become effective on such
date as the Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK
PROFILE OF THE SELECT RESERVE(SM)
FLEXIBLE PAYMENT VARIABLE AND FIXED GROUP DEFERRED ANNUITY CERTIFICATES
This Profile summarizes information you should know before investing in a
Certificate. The Certificates are more fully described in the Prospectus that
accompanies this Profile. Please read the Prospectus carefully.
1. THE CERTIFICATES. The Select Reserve(SM) Certificates ("Certificates") are
flexible payment variable and fixed group deferred annuity certificates issued
by The United States Life Insurance Company in the City of New York ("USL").
They are primarily designed for investment of after-tax money in non-qualified
annuities in order to provide retirement income. Because of a minimum initial
purchase payment of $50,000, the Certificates may not be suitable for many tax-
qualified plan programs. However, you may wish to use a Certificate for
programs such as a rollover individual retirement annuity.
You may use the Divisions of The United States Life Insurance Company in the
City of New York Separate Account USL VA-R ("Separate Account") for a variable
investment return under a Certificate. Variable returns are based on one or
more series of the mutual funds listed in Section 4, below. You may also use
USL's Fixed Account, for investment in Guarantee Periods with guaranteed
principal and interest.
The Divisions of the Separate Account offer an opportunity to realize better
returns than those guaranteed under the Guarantee Periods. The Divisions
involve risk, however, and you can lose money. You may make transfers among the
Divisions and Guarantee Periods.
The Certificates have an accumulation phase and an annuity phase. During the
accumulation phase, earnings accumulate on a tax-deferred basis and are taxed as
income when you make a withdrawal. When you begin receiving regular annuity
payments, a portion of each payment is taxable. Various distribution methods
are available during the accumulation phase and the annuity phase.
The amount accumulated under your Certificate during the accumulation phase will
determine the amount of annuity payments during the annuity phase.
2. ANNUITY PAYMENTS. Your Certificate's value may be applied to any one of the
following annuity payout options (assuming that you are the annuitant): (1)
Life Annuity - monthly payments during your life; (2) Life Annuity - Period
Certain - monthly payments, during your life, but with payments continuing to
the beneficiary for the balance of the 10, 15 or 20 years (as you choose) if you
die before the end of the chosen period; (3) Joint and Last Survivor-Life -
monthly payments during your life and the life of another payee, with payments
continuing during the lifetime of the survivor; (4) Certain Period - monthly
payments to you or another payee and on your death or the death of the other
payee to a beneficiary for a specified period of time between 5 and 40 years,
with no life contingencies;
<PAGE>
(5) Specified Dollar Amount - monthly payments in amounts not less than $125 nor
more than $200 per year for each $1,000 of the original amount due, with the
balance to a beneficiary if the person receiving the payments dies prior to
completion of the payments.
With the exception of option 5, you may choose annuity payments under the above
options to be made on a fixed or variable basis. The dollar amount of your
payments on a variable basis will depend upon the investment performance of the
Divisions. Option 5 is available only on a fixed basis. A payee receiving
variable (but not fixed) annuity payments under option 4 may elect at any time
to terminate the option and receive the commuted (current) value of the annuity.
3. PURCHASE. You can purchase a Certificate by submitting an application. The
minimum initial purchase payment is $50,000. You may contribute additional
amounts of $5,000 or more at any time during the accumulation phase.
4. INVESTMENT OPTIONS. Through the Divisions, you may invest in one or more of
the following series of the mutual funds named below:
<TABLE>
<S> <C> <C>
AMERICAN GENERAL SERIES NAVELLIER VARIABLE INSURANCE ROYCE CAPITAL FUND
PORTFOLIO COMPANY SERIES FUND, INC. . Royce Premier
. Money Market Fund . Navellier Growth Portfolio
Portfolio . Royce Total Return
HOTCHKIS AND WILEY Portfolio
VARIABLE TRUST OFFITBANK VARIABLE
. Hotchkis and Wiley Equity INSURANCE FUND, INC. WRIGHT MANAGED BLUE
Income VIP Portfolio . OFFITBANK VIF- CHIP SERIES TRUST
. Hotchkis and Wiley Low Emerging Markets Fund . Wright International
Duration VIP Portfolio . OFFITBANK VIF- Blue Chip Portfolio
High Yield Fund . Wright Selected Blue
LEVCO SERIES TRUST . OFFITBANK VIF- Chip Portfolio
. LEVCO Equity Value Fund Total Return Fund
. OFFITBANK VIF-
U.S. Government
Securities Fund
</TABLE>
You may also invest in a Guarantee Period. Currently, USL offers a one-year
Guarantee Period. Other Guarantee Periods may be offered, in the future, with
different interest rates and durations.
5. EXPENSES. We deduct a daily charge for mortality and expense risks at an
annual rate of 0.36%, and a daily charge for administration expenses at an
annual rate of 0.04%, of the average daily net asset value of a Division.
There also are investment series charges, ranging from 0.54% to 2.00% of the
average annual assets of the series listed in Section 4, above, depending on the
series involved. Charges for state premium and other applicable taxes ("premium
taxes") may also apply at the time you elect to start receiving annuity
payments.
Page 2
<PAGE>
The first two columns in the following chart show the Certificate charges and
the investment series charges. The third column, "Total Annual Charges," shows
the total of the charges in the first two columns. The last two columns provide
two examples of the total annual charges, in dollars, that you would pay under a
Certificate, assuming that you invest $1,000 in a Certificate that earns 5%
annually and that you withdraw your money: (1) at the end of year 1, and (2) at
the end of year 10. The column for year 1 shows the total annual charges for
that year. The column for year 10 shows the aggregate of all the annual charges
assessed for the 10 years. The examples assume that there are no charges for
premium taxes.
<TABLE>
<CAPTION>
EXAMPLES OF
TOTAL ANNUAL TOTAL ANNUAL TOTAL ANNUAL
CERTIFICATE SERIES TOTAL ANNUAL CHARGES AT END OF:
INVESTMENT SERIES CHARGES CHARGES CHARGES 1 YEAR 10 YEARS
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Hotchkis and Wiley Equity Income VIP 0.40% 1.15% 1.55% $16 $185
Hotchkis and Wiley Low Duration VIP 0.40% 0.58% 0.98% $10 $120
LEVCO Equity Value 0.40% 1.10% 1.50% $15 $179
Navellier Growth 0.40% 1.50% 1.90% $19 $222
OFFITBANK VIF-Emerging Markets 0.40% 1.50% 1.90% $19 $222
OFFITBANK VIF-High Yield 0.40% 1.15% 1.55% $16 $200
OFFITBANK VIF-Total Return 0.40% 0.80% 1.20% $12 $145
OFFITBANK VIF-U.S. Government 0.40% 0.60% 1.00% $10 $122
Securities
Royce Premier 0.40% 1.35% 1.75% $18 $206
Royce Total Return 0.40% 1.35% 1.75% $18 $206
Wright International Blue Chip 0.40% 2.00% 2.40% $25 $309
Wright Selected Blue Chip 0.40% 1.27% 1.67% $17 $198
Money Market 0.40% 0.54% 0.94% $10 $121
</TABLE>
The charges reflect any expense reimbursement or waiver. For more information,
see the Fee Table in the Prospectus.
6. TAXES. Usually, you pay taxes on earnings only when distributions are made
from your Certificate. You may also pay a 10% penalty on the taxable portion of
distributions received prior to age 59 1/2.
7. ACCESS TO YOUR MONEY. Prior to the annuity starting date, you may receive
distributions under your Certificate through the following withdrawal options:
(1) partial withdrawals of at least $100 may be taken at any time, and (2)
systematic withdrawals paid monthly, quarterly, semiannually or annually,
subject to a $100 minimum for each payment.
You also have access to your Certificate's value by surrendering the
Certificate. You may do this at any time prior to the annuity starting date.
During the annuity payout period, a person receiving variable payments, under a
certain period option, may also surrender the Certificate. Withdrawals and
surrenders may be subject to income tax and a tax penalty.
Page 3
<PAGE>
8. PERFORMANCE. During the accumulation phase, your Certificate's value in the
Divisions may fluctuate, reflecting the investment performance of the Divisions
you have selected. The following chart shows hypothetical total returns for
Divisions whose corresponding series have at least one full calendar year of
operations. The returns shown are based on the actual historical performance of
the corresponding series. They reflect all charges and deductions of the series
and the Divisions that would have been made during the periods shown. Thus, the
chart reflects all of the charges in the third column of the chart in Section 5,
above, for the Divisions included below. If also included, premium taxes would
reduce the performance numbers shown below. Past performance is not a guarantee
of future results.
<TABLE>
<CAPTION>
CALENDAR YEAR
Division 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LEVCO Equity Value 15.52% N/A N/A N/A N/A N/A N/A N/A N/A N/A
OFFITBANK VIF -Emerging (16.70)% 5.77% N/A N/A N/A N/A N/A N/A N/A N/A
Markets
OFFITBANK VIF- 3.89% 11.20% N/A N/A N/A N/A N/A N/A N/A N/A
High Yield
Royce Premier 8.48% 16.32% N/A N/A N/A N/A N/A N/A N/A N/A
Wright International 7.96% 5.06% 16.62% 9.34% N/A N/A N/A N/A N/A N/A
Blue Chip
Wright Selected (3.03)% 31.21% 21.99% 25.43% N/A N/A N/A N/A N/A N/A
Blue Chip
Money Market 4.74% 4.49% 4.32% 4.85% 3.11% 2.01% 2.57% 4.83% 7.18% 8.24%
</TABLE>
9. DEATH BENEFIT. If you die before the annuity starting date, the beneficiary
will receive a death benefit. The death benefit is the Certificate value at the
time we receive proof of death and a written request specifying the manner of
payment, less premium taxes. However, if death occurs prior to age 81, and
before the annuity starting date, the death benefit is the greater of (1) the
death benefit in the preceding sentence or (2) the sum of all purchase payments
you have paid under the Certificate, less any partial withdrawals and premium
taxes.
10. OTHER INFORMATION.
TAX-QUALIFIED PLANS. Please consult your tax adviser before purchasing a
Certificate as a rollover from an existing tax-qualified retirement plan,
including another individual retirement account or annuity under Section 408 of
the Internal Revenue Code. Any discussion of taxes in this Profile does not
apply to such a Certificate.
FREE LOOK. You can examine your Certificate for a period of 10 days after you
receive it, and return it to us for a refund. Your refund will equal your
Certificate's value, reflecting any investment gain or loss in the Divisions you
have specified.
Page 4
<PAGE>
AUTOMATIC REBALANCING. You can have your money automatically rebalanced among
the Divisions quarterly, semiannually, or annually in order to retain the
proportional investments you select.
REPORTS. We will mail to Certificate owners or annuitants any reports and
communications required by law. The toll-free number for daily Division values
is 1-800-246-1924.
11. INQUIRIES. If you need more information, please contact your registered
representative. You may also contact us at:
The United States Life Insurance Company in the City of New York
Administrative Center
P.O. Box 1401
Houston, Texas 77251-1401
Telephone 1-800-246-1924 and 1-713-831-3505.
Page 5
<PAGE>
SELECT RESERVE(SM)
FLEXIBLE PAYMENT VARIABLE AND
FIXED DEFERRED ANNUITY CERTIFICATES
OFFERED BY
THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK
ADDRESS FOR SERVICES: ADMINISTRATIVE CENTER ADDRESS FOR PAYMENTS:
P.O. BOX 1401
HOUSTON, TEXAS 77251-1401 1-800-246-1924; 1-713-831-3505 HOUSTON, TEXAS
The United States Life Insurance Company in the City of New York ("USL") is
offering, under a group annuity master contract, the flexible payment variable
and fixed deferred annuity certificates (the "Certificates") described in this
Prospectus.
You may use The United States Life Insurance Company in the City of New York
Separate Account USL VA-R ("the Separate Account") for a variable investment
return under the Certificates based on one or more series of the mutual funds
named below, as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
AMERICAN GENERAL SERIES PORTFOLIO NAVELLIER VARIABLE INSURANCE SERIES ROYCE CAPITAL FUND
COMPANY FUND, INC. . Royce Premier
. Money Market Fund . Navellier Growth Portfolio Portfolio
. Royce Total Return
HOTCHKIS AND WILEY OFFITBANK VARIABLE Portfolio
VARIABLE TRUST INSURANCE FUND, INC.
. Hotchkis and Wiley Equity . OFFITBANK VIF- WRIGHT MANAGED BLUE
Income VIP Portfolio Emerging Markets Fund CHIP SERIES TRUST
. Hotchkis and Wiley Low Duration VIP . OFFITBANK VIF- . Wright International
Portfolio High Yield Fund Blue Chip Portfolio
. OFFITBANK VIF- . Wright Selected Blue
LEVCO SERIES TRUST Total Return Fund Chip Portfolio
. LEVCO Equity Value . OFFITBANK VIF-
Fund U.S. Government
Securities Fund
</TABLE>
You may also use USL's guaranteed interest option. This option currently has
one Guarantee Period, with a guaranteed interest rate.
This Prospectus provides you with information that you should have before
investing in the Certificates. Please read the Prospectus carefully and keep it
for future reference.
For additional information about the Certificates, you may request a copy of the
Statement of Additional Information (the "Statement"), dated [
], 1999. We have filed the Statement with the Securities and Exchange
Commission ("SEC") and have incorporated it by reference into this Prospectus.
The "Contents" of the Statement appears at page 44 of this Prospectus. You may
obtain a free copy of the Statement if you write or call our Administrative
Center, which is located at 2727-A Allen Parkway, Houston, Texas 77019-2191.
The telephone number is 1-800-246-1924. You may obtain the Statement through
the SEC's Web site at http://www.sec.gov.
You should rely only on the information contained in this document or that we
have referred you to. We have not authorized anyone to provide you with
information that is different.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of the Prospectus. Any representation to the contrary is a
criminal offense. The Certificates are not available in all states.
This Prospectus is valid only if you also receive current fund prospectuses of
the American General Series Portfolio Company, Hotchkis and Wiley Variable
Trust, LEVCO Series Trust, Navellier Variable Insurance Series Fund, Inc.,
OFFITBANK Variable Insurance Fund, Inc., Royce Capital Fund, and Wright Managed
Blue Chip Series Trust.
This Prospectus is dated [ ], 1999
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Definitions................................................................................ 4
Fee Table.................................................................................. 7
Communications to Us....................................................................... 9
Performance Information.................................................................... 9
Financial Ratings........................................................................ 10
Other Information........................................................................ 11
Financial Information...................................................................... 11
USL........................................................................................ 11
Separate Account USL VA-R.................................................................. 12
The Series................................................................................. 12
Voting Privileges........................................................................ 15
The Fixed Account.......................................................................... 16
Guarantee Periods........................................................................ 16
Crediting Interest....................................................................... 17
New Guarantee Periods.................................................................... 17
Certificate Issuance and Purchase Payments................................................. 18
Minimum Requirements..................................................................... 18
Payments................................................................................. 19
Cancellation............................................................................. 19
Owner Account Value........................................................................ 20
Variable Account Value................................................................... 20
Fixed Account Value...................................................................... 20
Transfer, Automatic Rebalancing, Surrender and Partial Withdrawal of Owner Account Value... 21
Transfers................................................................................ 21
Automatic Rebalancing.................................................................... 22
Surrenders............................................................................... 22
Partial Withdrawals...................................................................... 23
Annuity Period and Annuity Payment Options................................................. 23
Annuity Commencement Date................................................................ 23
Application of Owner Account Value....................................................... 24
Fixed and Variable Annuity Payments...................................................... 24
Annuity Payment Options.................................................................. 25
Election of Annuity Payment Option....................................................... 25
Availability of Annuity Payment Options.................................................. 26
Transfers................................................................................ 27
Death Proceeds............................................................................. 27
Death Proceeds Before the Annuity Commencement Date...................................... 27
Death Proceeds After the Annuity Commencement Date....................................... 29
Proof of Death........................................................................... 29
Charges Under the Certificates............................................................. 30
Premium Taxes............................................................................ 30
Transfer Charges......................................................................... 30
Charge to the Separate Account........................................................... 30
Miscellaneous............................................................................ 31
Systematic Withdrawal Plan............................................................... 31
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Reduction in Administrative Expense Charge............................................... 31
Other Aspects of the Certificates.......................................................... 32
Owners, Annuitants, and Beneficiaries; Assignments....................................... 32
Reports.................................................................................. 32
Rights Reserved by Us.................................................................... 33
Payment and Deferment.................................................................... 33
Federal Income Tax Matters................................................................. 34
General.................................................................................. 34
Non-Qualified Certificates............................................................... 34
Individual Retirement Annuities ("IRAs")................................................. 36
Roth IRAs................................................................................ 38
Simplified Employee Pension Plans........................................................ 39
Simple Retirement Accounts............................................................... 39
Other Qualified Plans.................................................................... 39
Private Employer Unfunded Deferred Compensation Plans.................................... 40
Federal Income Tax Withholding and Reporting............................................. 41
Taxes Payable by USL and the Separate Account............................................ 41
Distribution Arrangements.................................................................. 41
Services Agreements........................................................................ 42
Legal Matters.............................................................................. 42
Year 2000 Considerations................................................................... 42
Other Information on File.................................................................. 44
Contents of Statement of Additional Information............................................ 44
</TABLE>
3
<PAGE>
DEFINITIONS
WE, OUR AND US - The United States Life Insurance Company in the City of New
York ("USL").
YOU AND YOUR - a reader of this Prospectus who is contemplating making purchase
payments or taking any other action in connection with a Certificate. This is
generally the Owner of a Certificate.
ACCOUNT VALUE - the sum of your Fixed Account Value and Variable Account Value
after deduction of any fees. We may subtract certain other charges from your
Account Value in the case of transfers or distribution of your Account Value.
ACCUMULATION UNIT - a measuring unit used in calculating your interest in a
Division of the Separate Account before the Annuity Commencement Date.
ADMINISTRATIVE CENTER - our annuity service center to which you should direct
all requests, instructions and other communications. Our Administrative Center
is located at 2727-A Allen Parkway, Houston, Texas 77019-2191. The mailing
address for services is P.O. Box 1401, Houston, Texas 77251-1401. The mailing
address for purchase payments is __________________________.
ANNUITANT - the person named as Annuitant in the application for a Certificate
and on whose life annuity payments may be based.
ANNUITY COMMENCEMENT DATE - the date on which we begin making payments under an
Annuity Payment Option, unless you elect a single sum payment instead.
ANNUITY PAYMENT OPTION - one of the ways in which you can request us to make
annuity payments to you. An Annuity Payment Option will control the amount of
each payment, how often we make payments, and for how long we make payments.
ANNUITY PERIOD - the period of time during which we make annuity payments under
an Annuity Payment Option.
ANNUITY UNIT - a measuring unit used to calculate the amount of Variable Annuity
Payments.
BENEFICIARY - the person who will receive any proceeds due under a Certificate
following the death of an Owner or an Annuitant.
CERTIFICATE - an individual annuity Certificate offered by this Prospectus.
CERTIFICATE ANNIVERSARY - each anniversary of the date of issue of the
Certificate.
CERTIFICATE YEAR - each year beginning with the date of issue of the
Certificate.
CODE - the Internal Revenue Code of 1986, as amended.
CONTINGENT ANNUITANT - a person whom you designate under a Non-Qualified
Certificate to become the Annuitant if the Annuitant dies before the Annuity
Commencement Date and the Contingent Annuitant is alive when the Annuitant dies.
4
<PAGE>
CONTINGENT BENEFICIARY - a person whom you designate to receive any proceeds due
under a Certificate following the death of an Owner or an Annuitant, if the
Beneficiary has died but the Contingent Beneficiary is alive when the proceeds
become payable.
DIVISION - one of the several different investment options into which the
Separate Account is divided. Each Division invests in shares of a Series.
FIXED ACCOUNT - the name of the investment option that allows you to allocate
purchase payments to USL's General Account.
FIXED ACCOUNT VALUE - the sum of your net purchase payments and transfers in the
Fixed Account, plus accumulated interest less any partial withdrawals and
transfers you make out of the Fixed Account.
FIXED ANNUITY PAYMENTS - annuity payments that are fixed in amount and do not
vary with the investment experience of any Division of the Separate Account.
GENERAL ACCOUNT - all assets of USL other than those in the Separate Account or
any other legally segregated separate account established by USL.
GUARANTEED INTEREST RATE - the rate of interest we credit during any Guarantee
Period, on an effective annual basis.
GUARANTEE PERIOD - the period for which we credit a Guaranteed Interest Rate.
HOME OFFICE - our office at the following address and phone number: The United
States Life Insurance Company in the City of New York, 125 Maiden Lane, New
York, N.Y. 10038; 1-212-709-6000. (You should, however, contact your sales
representative or our Administrative Center for all services. Purchase payments
should be mailed to the address for payments shown on the first page of this
Prospectus.)
NON-QUALIFIED - not eligible for the kind of federal income tax treatment that
occurs with retirement plans allowed by Sections 401, 403, 408 or 408A of the
Code.
OWNER - the holder of record of a Certificate, except that the employer or
trustee may be the Owner of the Certificate in connection with a retirement
plan.
QUALIFIED - eligible for the kind of federal income tax treatment that occurs
with retirement plans under sections 401, 403, 408 or 408A of the Code.
SEPARATE ACCOUNT - the segregated asset account of USL named The United States
Life Insurance Company in the City of New York Separate Account USL VA-R which
invests purchase payments under the Certificates.
SERIES - an individual portfolio of a mutual fund that you may choose for
investment under the Certificates. Currently, the Series are part of either the
American General Series Portfolio Company, Hotchkis and Wiley Variable Trust,
LEVCO Series Trust, Navellier Variable Insurance Series Fund, Inc., OFFITBANK
Variable Insurance Fund, Inc., Royce Capital Fund, and Wright Managed Blue Chip
Series Trust.
VALUATION DATE - a day when we are open for business. However, a day is not a
Valuation Date, if the Series in which a Division invests does not calculate the
value of its shares on that day.
5
<PAGE>
VALUATION PERIOD - the period that starts at the close of regular trading on the
New York Stock Exchange on a Valuation Date and ends at the close of regular
trading on the New York Stock Exchange on the next Valuation Date.
VARIABLE ACCOUNT VALUE - the sum of your account values in the Separate Account
Divisions. Your account value in a Separate Account Division is the value of a
Division's Accumulation Unit multiplied by the number of Accumulation Units you
have in that Division.
VARIABLE ANNUITY PAYMENTS - annuity payments that vary in amount based on the
investment earnings and losses of one or more of the Divisions.
WRITTEN - signed, dated, and in a form satisfactory to us and received at our
Administrative Center. You must use special forms we or your sales
representative provide to elect an Annuity Option.
6
<PAGE>
FEE TABLE
The purpose of this Fee Table is to assist you in understanding the various
costs and expenses that you will bear directly or indirectly under a
Certificate. The table reflects expenses of the Separate Account and the
Series. We may also deduct amounts for state premium taxes or similar
assessments, where applicable.
PARTICIPANT TRANSACTION CHARGES
Front-End Sales Charge Imposed on Purchases................. 0%
Surrender Charge............................................ 0%
(computed as a percentage of purchase payments surrendered)
Transfer Charge............................................. $0/1/
ANNUAL CERTIFICATE FEE........................................... $0
SEPARATE ACCOUNT ANNUAL EXPENSES (as a percentage of average
daily net asset value)
Mortality and Expense Risk Charge........................... 0.36%
Administrative Expense Charge............................... 0.04%
----
Total Separate Account Annual Expenses......................... 0.40%
====
_______________________
/1/ This charge is $25 after the 12th transfer during each Certificate Year
before the Annuity Commencement Date. Certain exceptions apply.
7
<PAGE>
<TABLE>
<CAPTION>
THE SERIES' ANNUAL EXPENSES/1,2/ (as a percentage of average daily Variable Account Value)
Management Other Annual
Fees After Expenses Expenses
Expense After Expense After Expense
Reimbursement Reimbursement Reimbursement
and Waiver/4/ and Waiver/4/ and Waiver/4/
--------------- --------------- ---------------
<S> <C> <C> <C>
Hotchkis and Wiley Equity Income VIP 0.75% 0.40% 1.15%
Hotchkis and Wiley Low Duration VIP 0.46% 0.12% 0.58%
LEVCO Equity Value 0.00% 1.10% 1.10%
Navellier Growth 0.85% 0.65% 1.50%
OFFITBANK VIF-Emerging Markets 0.00% 1.50% 1.50%
OFFITBANK VIF-High Yield 0.66% 0.49% 1.15%
OFFITBANK VIF-Total Return3 0.00% 0.80% 0.80%
OFFITBANK VIF-U. S. Government Securities 0.00% 0.60% 0.60%
Royce Premier 0.00% 1.35% 1.35%
Royce Total Return 0.00% 1.35% 1.35%
Wright International Blue Chip 0.00% 2.00% 2.00%
Wright Selected Blue Chip 0.00% 1.27% 1.27%
Money Market 0.50% 0.04% 0.54%
</TABLE>
- - ----------
/1/ The Series' advisers or managers have entered into administrative
services agreements with USL. The advisers or managers pay fees to USL for
these services. The fees do not have a direct relationship to the Series'
Annual Expenses. (See "Services Agreements.")
/2/ We estimate other expenses for the current fiscal year for the Hotchkis
and Wiley Equity Income VIP, Hotchkis and Wiley Low Duration VIP, Navellier
Growth, OFFITBANK VIF-Total Return, OFFITBANK VIF-U.S. Government Securities,
and Royce Total Return Series, because these Series do not have financial
statements covering a period of at least ten months.
/3/ OFFITBANK VIF-Total Return may invest a portion of its assets in shares
of OFFITBANK VIF-High Yield, OFFITBANK VIF-Emerging Markets, and OFFITBANK VIF-
U.S. Government Securities. Shareholders of OFFITBANK VIF-Total Return will
indirectly bear the expenses of the underlying funds at the rates stated above.
/4/ If expense reimbursements and fee waivers were terminated, management
fees and other expenses would have been as shown in the following table.
<TABLE>
<CAPTION>
Management Other Total Annual
Fees Expenses Expenses
---------- --------- ------------
<S> <C> <C> <C>
Hotchkis and Wiley Equity Income VIP 0.75% 7.06% 7.81%
Hotchkis and Wiley Low Duration VIP 0.46% 5.10% 5.56%
LEVCO Equity Value 0.85% 1.19% 2.04%
Navellier Growth 0.85% 69.32% 70.17%
OFFITBANK VIF- Emerging Markets 0.90% 2.02% 2.92%
OFFITBANK VIF- High Yield 0.85% 0.70% 1.55%
OFFITBANK VIF-Total Return2 0.80% 11.56% 12.36%
OFFITBANK VIF-U. S. Government Securities 0.00% 0.60% 0.60%
Royce Premier 1.00% 6.05% 7.05%
Royce Total Return 1.00% 17.08% 18.08%
Wright International Blue Chip 0.80% 4.36% 5.16%
Wright Selected Blue Chip 0.65% 1.46% 2.11%
Money Market 0.50% 0.04% 0.54%
</TABLE>
8
<PAGE>
Example/5/ Whether or not you surrender or annuitize at the end of the
applicable time period, the following expenses would apply to a
$1,000 investment if you assume a 5% annual return on assets:
<TABLE>
<CAPTION>
If all amounts are allocated
to a Division that invests in
one of the following Series: 1 year 3 years 5 years/5/ 10 years/5/
- - ----------------------------------- ------ ------- ---------- ----------
<S> <C> <C> <C> <C>
Hotchkis and Wiley Equity Income VIP $16 $49 N/A N/A
Hotchkis and Wiley Low Duration VIP $10 $31 N/A N/A
LEVCO Equity Value $15 $47 N/A N/A
Navellier Growth $19 $60 N/A N/A
OFFITBANK VIF-Emerging Markets $19 $60 $103 $222
OFFITBANK VIF-High Yield $16 $50 $ 88 $200
OFFITBANK VIF-Total Return $12 $38 N/A N/A
OFFITBANK VIF-U. S. Government Securities $10 $32 N/A N/A
Royce Premier $18 $55 $ 95 $206
Royce Total Return $18 $55 N/A N/A
Wright International Blue Chip $25 $78 $136 $309
Wright Selected Blue Chip $17 $53 $ 91 $198
Money Market $10 $30 $ 53 $121
</TABLE>
___________________________________
/5/ In this Example, "N/A" reflects SEC rules that require Hotchkis and Wiley
Equity Income VIP, Hotchkis and Wiley Low Duration VIP, LEVCO Equity Value,
Navellier Growth, OFFITBANK VIF-Total Return, OFFITBANK VIF-U.S. Government
Securities, and Royce Total Return to complete the Example for only the one and
three year periods.
The Example is not a representation of past or future expenses. Actual
expenses may be greater or less than those shown. The assumed 5% annual rate of
return is not an estimate or a guarantee of future investment performance. The
Example assumes an estimated Average Account Value of $50,000.
COMMUNICATIONS TO US
You should include, in communications to us, your Certificate number, your name,
and, if different, the Annuitant's name. You may direct communications to the
addresses and phone numbers on the first page of this Prospectus.
Unless this Prospectus states differently, we will consider purchase payments or
other communications to be received on the date we actually receive them, if
they are in proper form. However, we will consider purchase payments to be
received on the next Valuation Date if we receive them (1) after the close of
regular trading on the New York Stock Exchange or (2) on a date that is not a
Valuation Date.
PERFORMANCE INFORMATION
From time to time, we may include in advertisements and other sales materials
several types of performance information for the Divisions. This information
may include "average annual total return" and "cumulative total return." The
Hotchkis and Wiley Low Duration VIP Division, OFFITBANK VIF-High Yield Division
and OFFITBANK VIF-U.S. Government Securities Division may also advertise
"yield." The Money Market Division may advertise "yield" and "effective yield."
9
<PAGE>
The performance information that we may present is not an estimate or guarantee
of future investment performance and does not represent the actual investment
experience of amounts invested by a particular Owner. Additional information
concerning a Division's performance appears in the Statement.
Total Return and Yield Quotations. Average annual total return and cumulative
total return figures measure the net income of a Division and any realized or
unrealized gains or losses of the underlying investments in the Division, over
the period stated. Average annual total return figures are annualized and
represent the average annual percentage change in the value of an investment in
a Division over the period stated. Cumulative total return figures represent
the cumulative change in value of an investment in a Division for various
periods stated.
Yield is a measure of the net dividend and interest income earned over a
specific one-month or 30-day period (seven-day period for the Money Market
Division), expressed as a percentage of the value of the Division's Accumulation
Units. Yield is an annualized figure, which means that we assume that the
Division generates the same level of net income over a one-year period and
compound that income on a semi-annual basis. We calculate the effective yield
for the Money Market Division similarly, but include the increase due to assumed
compounding. The Money Market Division's effective yield will be slightly
higher than its yield due to this compounding effect.
Average annual total return figures reflect deduction of all recurring charges
and fees applicable under the Certificate to all Owner accounts, including the
following:
. the Mortality and Expense Risk Charge, and
. the Administrative Expense Charge.
Division Performance. The investment performance for each Division that invests
in a corresponding Series of the Trust will reflect the investment performance
of that Series for the periods stated. This information appears in the
Statement. For periods before the date the Certificates became available, we
calculate the performance information for a Division on a hypothetical basis. In
so doing, we reflect deductions of current Separate Account fees and charges
under the Certificate from the historical performance of the corresponding
Series. We may waive or reimburse certain fees or charges applicable to the
Certificate. Such waivers or reimbursements will affect each Division's
performance results.
Information about the experience of the investment advisers to the Series of the
Fund appears in the prospectus for the Fund.
FINANCIAL RATINGS
USL may advertise or report to Owners its ratings as an insurance company by the
A. M. Best Company. Each year, A. M. Best reviews the financial status of
thousands of insurers, culminating in the assignment of Best's Ratings. These
ratings reflect A.M. Best's current opinion of the relative financial strength
and operating performance of an insurance company in comparison to the norms of
the life/health industry. Best's Ratings range from A++ to F.
10
<PAGE>
USL may also advertise or report to Owners its ratings as to claims-paying
ability by the Standard & Poor's Corporation. A Standard & Poor's insurance
claims-paying ability rating is an assessment of an operating insurance
company's financial capacity to meet the obligations of its insurance policies
in accordance with their terms. Standard & Poor's ratings range from AAA to D.
USL may additionally advertise its ratings as to claims-paying ability by the
Duff & Phelps Credit Rating Co. A Duff & Phelps' claims-paying ability rating
is an assessment of a company's insurance claims-paying ability. Duff & Phelps'
ratings range from AAA to CCC.
Current ratings from A.M. Best, Standard & Poor's, and Duff & Phelps Credit
Rating Co. may be used from time to time in any advertising about the
Certificates, as well as in any reports that publish the ratings.
The ratings reflect the claims-paying ability and financial strength of USL.
They are not a rating of investment performance that purchasers of insurance
products funded through separate accounts, such as the Separate Account, have
experienced or are likely to experience in the future.
OTHER INFORMATION
USL may also advertise endorsements from organizations, individuals or other
parties that recommend USL or the Certificates. USL may occasionally include in
advertisements (1) comparisons of currently taxable and tax-deferred investment
programs, based on selected tax brackets, or (2) discussions of alternative
investment vehicles and general economic conditions.
FINANCIAL INFORMATION
The financial statements of USL appear in the Statement. Please see the first
page of this Prospectus for information on how to obtain a copy of the
Statement. You should consider the financial statements of USL only as bearing
on the ability of USL to meet its contractual obligations under the
Certificates. The financial statements do not bear on the investment
performance of the Separate Account. (See "Contents of Statement of Additional
Information.") There are no financial statements for the Separate Account as it
had not yet begun operations as of the date of this Prospectus.
USL
USL is a stock life insurance company, organized under the laws of the State of
New York in 1850. USL is an indirect, wholly-owned subsidiary of American
General Corporation, a diversified financial services holding company engaged
primarily in the insurance business. USL is principally involved in writing
life insurance policies and annuity contracts in the State of New York. The
commitments under the Certificates are USL's, and American General Corporation
has no legal obligation to back those commitments.
USL is a member of the Insurance Marketplace Standards Association ("IMSA").
IMSA is a voluntary membership organization created by the life insurance
industry to promote ethical market conduct for
11
<PAGE>
individual life insurance and annuity products. USL's membership in IMSA applies
only to USL and not its products.
SEPARATE ACCOUNT USL VA-R
USL established the Separate Account on August 8, 1997. The Separate Account is
registered as a unit investment trust under the Investment Company Act of 1940
("1940 Act").
Each Division of the Separate Account is part of USL's general business, and the
assets of the Separate Account belong to USL. Under New York law and the terms
of the Certificates, the assets of the Separate Account will not be chargeable
with liabilities arising out of any other business that USL may conduct. These
assets will be held exclusively to meet USL's obligations under variable annuity
Certificates. Furthermore, USL credits or charges the Separate Account with the
income, gains, and losses from the Separate Account's assets, whether or not
realized, without regard to other income, gains, or losses of USL.
THE SERIES
The Separate Account has 13 Divisions funding the variable benefits under the
Certificates. These Divisions invest in shares of one or more series of
American General Series Portfolio Company, Hotchkis and Wiley Variable Trust,
LEVCO Series Trust, Navellier Variable Insurance Series Fund, Inc., OFFITBANK
Variable Insurance Fund, Inc., Royce Capital Fund and Wright Managed Blue Chip
Series Trust (collectively, the "Underlying Funds").
The Underlying Funds offer shares of these Series, without sales charges,
exclusively to insurance company variable annuity and variable life insurance
separate accounts and not directly to the public. The Underlying Funds also
offer shares to variable annuity and variable life insurance separate accounts
of insurers that are not affiliated with USL.
We do not foresee any disadvantage to you 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 owners to conflict.
For example, violation of the federal tax laws by one separate account investing
in one of the Underlying Funds could cause the contracts or certificates funded
through another separate account to lose their tax-deferred status. Such a
result might require us to take remedial action. A separate account may have to
withdraw its participation in the Underlying Fund, if a material irreconcilable
conflict arises among separate accounts. In that event, the Underlying Fund may
have to liquidate portfolio securities at a loss to pay for a separate account's
redemption of Trust or Fund shares. At the same time, the Boards of Trustees
and the Boards of Directors of the Underlying Funds, and we, will monitor events
for any material irreconcilable conflicts that may possibly arise and determine
what action, if any, to take to remedy or eliminate the conflict.
12
<PAGE>
The Series of the Underlying Funds and their management are as follows:
<TABLE>
<CAPTION>
INVESTMENT COMPANY SERIES ADVISER/MANAGER
- - ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
American General Series Portfolio Money Market Fund The Variable Annuity Life
Company Insurance Company
- - ------------------------------------------------------------------------------------------------------------
Hotchkis and Wiley Variable Trust Hotchkis and Wiley Equity Hotchkis and Wiley
Income VIP Portfolio
Hotchkis and Wiley Low
Duration VIP Portfolio
- - ------------------------------------------------------------------------------------------------------------
LEVCO Series Trust LEVCO Equity Value John A. Levin and Co., Inc.
Fund
- - ------------------------------------------------------------------------------------------------------------
Navellier Variable Insurance Series Navellier Growth Navellier & Associates, Inc.
Fund, Inc. Portfolio
- - ------------------------------------------------------------------------------------------------------------
OFFITBANK Variable Insurance Fund, OFFITBANK VIF-Emerging OFFITBANK*
Inc. Markets Fund
OFFITBANK VIF-High Yield
Fund
OFFITBANK VIF-Total
Return Fund
OFFITBANK VIF- U.S.
Government Securities
Fund
- - ------------------------------------------------------------------------------------------------------------
Royce Capital Fund Royce Premier Portfolio Royce & Associates, Inc.
Royce Total Return
Portfolio
- - ------------------------------------------------------------------------------------------------------------
Wright Managed Blue Chip Series Trust Wright International Blue Wright Investors' Service, Inc.
Chip Portfolio
Wright Selected Blue Chip
Portfolio
- - ------------------------------------------------------------------------------------------------------------
</TABLE>
*On May 13, 1999, OFFITBANK entered into an agreement with the Wachovia
Corporation ("Wachovia") pursuant to which OFFITBANK Holdings, Inc., the sole
shareholder of OFFITBANK, will merge with Wachovia. OFFITBANK will continue to
operate under its own name as a distinct Wachovia company and it is not
anticipated that the investment process or personnel at OFFITBANK will be
affected by the proposed merger. Subject to the approval of federal and state
regulators, the merger is anticipated to close in the third quarter of 1999.
13
<PAGE>
The investment objective of each Series is as follows:
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------
SERIES INVESTMENT OBJECTIVE
- - ------------------------------------------------------------------------------------------------------------------
<S> <C>
Money Market Fund Liquidity, protection of capital and current income through investments in short-term
money market instruments. Shares of the Money Market Fund are neither insured nor
guaranteed by the U.S. Government. There is no assurance that this Fund will be able
to maintain a stable net asset value of $1.00 per share.
- - ------------------------------------------------------------------------------------------------------------------
Hotchkis and Wiley Provide current income and long-term growth of income, accompanied by growth of
Equity Income VIP capital. Invests primarily in domestic equity securities.
Portfolio
- - ------------------------------------------------------------------------------------------------------------------
Hotchkis and Wiley Low Maximize total return, consistent with preservation of capital. Invests in a
Duration VIP Portfolio diversified portfolio of fixed-income securities of varying maturities with a
portfolio duration of one to three years.
- - ------------------------------------------------------------------------------------------------------------------
LEVCO Equity Value Fund Achieve long-term growth of capital by emphasizing the preservation of capital and
control of volatility. A research intensive, value oriented stock selection process
is used in constructing a diversified portfolio.
- - ------------------------------------------------------------------------------------------------------------------
Navellier Growth Achieve long-term growth of capital primarily through investment in companies with
Portfolio appreciation potential.
- - ------------------------------------------------------------------------------------------------------------------
OFFITBANK VIF-Emerging Provide investors with a competitive total investment return by focusing on current
Markets Fund yield and opportunities for capital appreciation primarily by investing in corporate
and sovereign debt securities of emerging market countries.
- - ------------------------------------------------------------------------------------------------------------------
OFFITBANK VIF-High High current income, with capital appreciation as a secondary objective. Invests
Yield Fund primarily in U.S. corporate fixed income securities which are rated below investment
grade or unrated at the time of investment.
- - ------------------------------------------------------------------------------------------------------------------
OFFITBANK VIF- Total Maximize total return from a combination of capital appreciation and current income by
Return Fund investing in a diversified portfolio of fixed income securities, including U.S.
Government or agencies' obligations, investment grade fixed income, high yield and
fixed income securities and securities of other investment companies. An SEC
exemptive order permits this Fund to purchase shares of any of the existing or any new
Series of the OFFITBANK Variable Insurance Fund, Inc.
- - ------------------------------------------------------------------------------------------------------------------
OFFITBANK VIF- U.S. Current income consistent with preservation of capital. Invests at least 80% of its
Government Securities assets in U.S. Government obligations.
Fund
- - ------------------------------------------------------------------------------------------------------------------
Royce Premier Portfolio Long-term growth and, as a secondary objective, current income. Invests in a limited
number of equity securities of small-cap companies viewed by Royce & Associates, Inc.
as having superior financial characteristics and/or unusually attractive business
prospects.
- - ------------------------------------------------------------------------------------------------------------------
Royce Total Return Equal focus on both long-term growth of capital and current income. Invests primarily
Portfolio in a diversified portfolio of dividend-paying securities of small and micro-cap
companies selected on a value basis.
- - ------------------------------------------------------------------------------------------------------------------
Wright International Long-term capital appreciation by investing primarily in equity securities of
Blue Chip Portfolio well-established, non-U.S. companies that meet the advisor's quality standards.
- - ------------------------------------------------------------------------------------------------------------------
Wright Selected Blue Long-term capital appreciation and, as a secondary objective, reasonable current
Chip Portfolio income, by investing primarily in equity securities of well-established U.S. companies
that meet the Advisor's quality standards.
- - ------------------------------------------------------------------------------------------------------------------
</TABLE>
We automatically reinvest any dividends or capital gain distributions that we
receive on shares of the Series held under Certificates. We reinvest at the
Series' net asset value on the date payable. Dividends and distributions will
reduce the net asset value of each share of the corresponding Series and
increase the number of shares outstanding of the Series by an equivalent value.
However, these dividends and distributions do not change your Account Value.
14
<PAGE>
Before selecting any Division, you should carefully read the Underlying Fund
Prospectus. The Prospectus provides more complete information about the Series
in which the Division invests, including investment objectives and policies,
charges and expenses. An Underlying Fund may accompany its Prospectus with a
summary of the Prospectus called a "profile."
You can find information about the investment performance of a Series of the
Underlying Funds and information about the business experience of the investment
advisers to the Series in the Prospectuses. You may obtain additional copies of
a Prospectus by contacting our Administrative Center at the addresses and phone
numbers on the first page of this Prospectus. When making your request, please
specify the Series of the Underlying Fund in which you are interested.
High yielding fixed-income securities such as those in which the OFFITBANK VIF-
High Yield, Emerging Markets and Total Return Divisions invest are subject to
greater market fluctuations and risk of loss of income and principal than
investments in lower yielding fixed-income securities. You should carefully
read the Underlying Fund Prospectuses for each Series in which these Divisions
invest and consider your ability to assume the risks of making an investment in
these Divisions.
VOTING PRIVILEGES
The following people may give us voting instructions for Series' shares held in
the Separate Account Divisions attributable to their Certificate:
. You, as the Owner, before the Annuity Commencement Date, and
. The Annuitant or other payee, during the Annuity Period.
We will vote according to such instructions at meetings of shareholders of the
Series.
We will determine who is entitled to give voting instructions and the number of
votes for which they may give directions as of the record date for a meeting.
We will calculate the number of votes in fractions. We will calculate the
number of votes for any Series as follows:
. For each Owner before the Annuity Commencement Date, we will divide
(1) the Owner's Variable Account Value invested in the corresponding
Division by (2) the net asset value of one share of that Series.
. For each Annuitant or payee during the Annuity Period, we will divide
(1) our liability for future Variable Annuity Payments to the
Annuitant or payee by (2) the value of an Annuity Unit. We will
calculate our liability for future Variable Annuity Payments based on
the mortality assumptions and the assumed interest rate that we use in
determining the number of Annuity Units under a Certificate and the
value of an Annuity Unit.
We will vote all shares of each Series owned by the Separate Account as follows:
. Shares for which we receive instructions, in accordance with those
instructions, and
. Shares for which we receive no instructions, in the same proportion
as the shares for which we receive instructions.
15
<PAGE>
Shares of each Series may be owned by separate accounts of insurance companies
other than us. We understand that each Series will see that all insurance
companies vote shares uniformly.
We believe that our voting instruction procedures comply with current federal
securities law requirements. However, we reserve the right to modify these
procedures to conform with legal requirements and interpretations that are put
in effect or modified from time to time.
THE FIXED ACCOUNT
Amounts in the Fixed Account or supporting Fixed Annuity Payments become part of
our General Account. We have not registered interests in the General Account
under the Securities Act of 1933, and we have not registered the General Account
as an investment company under the 1940 Act based on federal law exclusion and
exemption. The staff of the Securities and Exchange Commission has advised us
that it has not reviewed the disclosures in this Prospectus that relate to the
Fixed Account or Fixed Annuity Payments. At the same time, we have legal
responsibility for the accuracy and completeness of this Prospectus.
Our obligations for the Fixed Account are legal obligations of USL. Our General
Account assets support these obligations. These General Account assets also
support our obligations under other insurance and annuity contracts.
Investments purchased with amounts allocated to the Fixed Account are the
property of USL. Owners have no legal rights in such investments.
GUARANTEE PERIODS
Account Value that the Owner allocates to the Fixed Account earns a Guaranteed
Interest Rate beginning with the date of the allocation. This Guaranteed
Interest Rate continues for the number of years that the Owner selects from
among the Guarantee Periods that we then offer.
At the end of a Guarantee Period, we will allocate your Account Value in that
Guarantee Period, including interest you have earned, to a new Guarantee Period
of the same length. In the alternative, the Owner may submit a Written request
to us to allocate this amount to a different Guarantee Period or Periods or to
one or more of the Divisions of the Separate Account. We must receive this
Written request at least three business days before the end of the Guarantee
Period.
We will contact the Owner regarding the scheduled Annuity Commencement Date, if
the Owner has not provided the necessary Written request and the renewed
Guarantee Period extends beyond the scheduled Annuity Commencement Date.
The first day of the new Guarantee Period (or other reallocation) will be the
day after the end of the prior Guarantee Period. We will notify the Owner in
writing at least 15 days and not more than 45 days before the end of any
Guarantee Period.
If the Owner's Account Value in a Guarantee Period is less than $500, we reserve
the right to transfer, without charge, the balance to the Money Market Division
at the end of that Guarantee Period. However, we will transfer the balance to
another Division selected by the Owner, if we have received Written instructions
to transfer the balance to that Division.
16
<PAGE>
CREDITING INTEREST
We declare the Guaranteed Interest Rates from time to time as market conditions
dictate. We tell an Owner the Guaranteed Interest Rate for a chosen Guarantee
Period at the time we receive a purchase payment, make a transfer, or renew a
Guarantee Period. We may credit a different interest rate to one Guarantee
Period than to another Guarantee Period that is the same length but that began
on a different date. The minimum Guaranteed Interest Rate is an effective
annual rate of 3%.
Proceeds from an exchange, rollover or transfer will accrue interest in the
following manner, if you allocate them to the Fixed Account within 60 days
following the date of application for a Certificate:
. We credit interest to such proceeds during the Guarantee Period
chosen.
. We will calculate interest at a rate that is the higher of:
(a) the current interest rate we use on the date of application for
the Guarantee Period selected; or
(b) the current interest rate that we use on the date we receive the
proceeds.
Proceeds that we receive more than 60 days after the date the application is
signed receive interest at the rate in effect on the date we receive the
proceeds.
We credit interest to the Fixed Account starting with the date we receive the
proceeds. The interest rate we use remains the same for the duration of the
applicable Guarantee Period.
USL's management makes the final determination of the Guaranteed Interest Rates
to be declared. USL cannot predict or assure the level of any future Guaranteed
Interest Rates in excess of the minimum Guaranteed Interest Rate stated in your
Certificate.
You may obtain information concerning the Guaranteed Interest Rates that apply
to the various Guarantee Periods at any time from your sales representative or
from the addresses or telephone numbers on the first page of this Prospectus.
NEW GUARANTEE PERIODS
Each allocation or transfer of an amount to a Guarantee Period starts the
running of a new Guarantee Period for that amount. That new Guarantee Period
will earn a Guaranteed Interest Rate that will continue unchanged until the end
of that Period. The Guaranteed Interest Rate will never be less than the
minimum Guaranteed Interest Rate stated in your Certificate.
We may offer one or more Guarantee Periods with a required dollar cost averaging
feature. (See "Transfers.") Currently, we make available a one-year Guarantee
Period and no others. However, we reserve the right to change the Guarantee
Periods that we make available at any time, except that we will always make
available a one-year Guarantee Period.
17
<PAGE>
CERTIFICATE ISSUANCE AND PURCHASE PAYMENTS
The minimum initial purchase payment is $50,000. The minimum subsequent
purchase payment is $5,000. We reserve the right to modify these minimums at our
discretion.
Your application to purchase a Certificate must be on a Written application that
we provide and that you sign. USL and American General Securities Incorporated,
as distributor of the Certificates, may agree on a different medium or format
for the application. When a purchase payment accompanies an application to
purchase a Certificate and you have properly completed the application, we will
either:
. process the application, credit the purchase payment, and issue the
Certificate, or
. reject the application and return the purchase payment within two
Valuation Dates after receipt of the application.
If you have not completed the application or have not completed it correctly, we
will request additional documents or information within five Valuation Dates
after receipt of the application.
If we have not received a correctly completed application within five Valuation
Dates after receipt of the purchase payment at our Administrative Center, we
will return the purchase payment immediately. However, you may specifically
consent to our retaining the purchase payment until you complete the
application. In that case, we will credit the initial purchase payment as of
the end of the Valuation Period in which we receive the last information
required to process the application.
We will credit subsequent purchase payments as of the end of the Valuation
Period in which we receive them along with any required Written identifying
information.
We reserve the right to reject any application or purchase payment for any
reason.
MINIMUM REQUIREMENTS
If your Account Value in any Division falls below $500 because of a partial
withdrawal from the Certificate, we reserve the right to transfer, without
charge, the remaining balance to the Money Market Division.
If your Account Value in any Division falls below $500 because of a transfer to
another Division or to the Fixed Account, we reserve the right to transfer the
remaining balance in that Division, without charge and pro rata, to the
investment option or options to which the transfer was made.
We will waive these minimum requirements for transfers under the automatic
rebalancing program. (See "Automatic Rebalancing.")
If your total Account Value falls below $10,000, we may cancel the Certificate.
We consider such a cancellation a full surrender of the Certificate. We will
provide you with 60 days advance notice of any cancellation in these
circumstances.
18
<PAGE>
So long as the Account Value does not fall below $10,000, you do not have to
make further purchase payments. You may, however, elect to make subsequent
purchase payments at any time before the Annuity Commencement Date, if the Owner
and Annuitant are still living.
PAYMENTS
You should make checks for subsequent purchase payments payable to The United
States Life Insurance Company in the City of New York and forward them directly
to the address for payments shown on the first page of this Prospectus, unless
we ask you to use another address. We also accept purchase payments by wire or
by exchange from another insurance company. You may obtain further information
about how to make purchase payments by either of these methods from your sales
representative or from us at the addresses and telephone numbers on the first
page of this Prospectus.
You may make purchase payments pursuant to employer-sponsored plans only with
our agreement.
Your purchase payments are allocated to the Divisions of the Separate Account or
the Guarantee Periods of the Fixed Account as of the date we credit the purchase
payments to your Certificate. In your application form, you select (in whole
percentages) the amount of each purchase payment that you are allocating to each
Division and Guarantee Period. You can change these allocation percentages at
any time by Written notice to us.
We issue the Certificates under a group annuity master contract that we have
issued to the trustee of a group trust. We established the group trust under
Delaware law. The master contract provides for rights under the Certificates
and further provides that nothing in the master contract will invalidate or
impair any right granted to an Owner. The master contract does not provide any
material ownership rights to the master contract owner and, in particular, does
not authorize the master contract owner to surrender the master contract.
CANCELLATION
You may cancel your Certificate by delivering it or mailing it with a Written
cancellation request to our Administrative Center or to your sales
representative, before the close of business on the 10th day after you receive
the Certificate. If you send these items by mail, properly addressed and
postage prepaid, we will consider them received at our Administrative Center on
the date we actually receive them.
We will refund to you the sum of:
. any purchase payments allocated to a Guarantee Period of the Fixed
Account,
. your Account Value allocated to the Divisions of the Separate
Account, and
. any additional amount deducted for premium taxes.
19
<PAGE>
OWNER ACCOUNT VALUE
Before the Annuity Commencement Date, your Account Value under a Certificate is
the sum of your Variable Account Value and Fixed Account Value, as discussed
below.
VARIABLE ACCOUNT VALUE
As of any Valuation Date before the Annuity Commencement Date:
. Your Variable Account Value is the sum of your Variable Account
Values in each Division of the Separate Account.
. Your Variable Account Value in a Division is the product of the
number of your Accumulation Units in that Division multiplied by the
value of one such Accumulation Unit as of that Valuation Date.
There is no guaranteed minimum Variable Account Value. To the extent that your
Account Value is allocated to the Separate Account, you bear the entire
investment risk.
We credit Accumulation Units in a Division to you when you allocate purchase
payments or transfer amounts to that Division. Similarly, we redeem
Accumulation Units when you transfer or withdraw amounts from a Division or when
we pay certain charges under the Certificate. We determine the value of these
Accumulation Units at the end of the Valuation Date on which we make the credit
or charge.
The value of an Accumulation Unit for a Division on any Valuation Date is equal
to the previous value of that Division's Accumulation Unit multiplied by that
Division's net investment factor for the Valuation Period ending on that
Valuation Date.
The net investment factor for a Division is determined by dividing (1) the net
asset value per share of the Series' shares held by the Division, determined at
the end of the current Valuation Period, plus the per share amount of any
dividend or capital gains distribution made for the Series' shares held by the
Division during the current Valuation Period, by (2) the net asset value per
share of the Series' shares held in the Division determined at the end of the
previous Valuation Period. We then subtract from that result a factor
representing the mortality risk, expense risk and administrative expense charge.
FIXED ACCOUNT VALUE
As of any Valuation Date before the Annuity Commencement Date:
. Your Fixed Account Value is the sum of your Fixed Account Value in
each Guarantee Period.
. Your Fixed Account Value in any Guarantee Period is equal to the
following amounts, in each case increased by accrued interest at the
applicable Guaranteed Interest Rate: (1) the amount of net purchase
payments, renewals and transferred amounts allocated to the Guarantee
Period, less (2) the amount of any transfers or withdrawals out of
the Guarantee Period, including withdrawals to pay applicable
charges.
20
<PAGE>
USL guarantees the Fixed Account Value. USL bears the investment risk for
amounts allocated to the Fixed Account, except to the extent that USL may vary
the Guaranteed Interest Rate for future Guarantee Periods (subject to the
minimum Guaranteed Interest Rate stated in your Certificate).
TRANSFER, AUTOMATIC REBALANCING, SURRENDER AND PARTIAL
WITHDRAWAL OF OWNER ACCOUNT VALUE
TRANSFERS
You can transfer your Account Value beginning 30 days after we issue your
Certificate and before the Annuity Commencement Date. The following rules
apply:
. You may transfer your Account Value at any time among the available
Divisions of the Separate Account and Guarantee Periods. Transfers
will be effective at the end of the Valuation Period in which we
receive your Written transfer request.
. If a transfer causes your Account Value in any Division or Guarantee
Period to fall below $500, we reserve the right to transfer the
remaining balance in that Division or Guarantee Period in the same
proportions as the transfer request.
. You may make up to 12 transfers each Certificate Year without charge.
We will charge you $25 for each additional transfer.
. You may transfer no more than 25% of the Account Value you allocated
to a Guarantee Period at its inception during any Certificate Year.
This 25% limitation does not apply to transfers (1) within 15 days
before or after the end of the Guarantee Period in which you held the
transferred amounts, or (2) a renewal at the end of the Guarantee
Period to the same Guarantee Period.
We reserve the right to defer any transfers from the Fixed Account to any
Division for up to six months.
You may establish an automatic transfer plan. (We also refer to this plan as a
dollar cost averaging plan.) Under this plan, we will automatically transfer
amounts from the Money Market Division or the one-year Guarantee Period (or any
other Guarantee Period that is available at that time) to one or more other
Divisions. By transferring a set amount on a regular schedule instead of
transferring the total amount at one particular time, you may reduce the risk of
investing in the corresponding Division only when the price is high. An
automatic transfer plan does not guarantee a profit and it does not protect
against a loss if market prices decline. You will select:
. the amount we are to transfer under the plan;
. the frequency of the transfers--either monthly, quarterly, semi-
annually, or annually; and
. the duration of the plan.
Transfers under any automatic transfer plan will:
21
<PAGE>
. not count towards the 12 free transfers each Certificate Year,
. not incur a $25 charge,
. not be subject to the 25% limitation on transfers from a Guarantee
Period, and
. not be subject to the Account Value minimum requirement described
above.
You may obtain additional information about how to establish an automatic
transfer plan from your sales representative or from us at the telephone numbers
and addresses on the first page of this Prospectus. You cannot have an
automatic transfer plan in effect at the same time you have Automatic
Rebalancing, described below, in effect.
We have not designed the Certificates for professional market timing
organizations or other entities using programmed and frequent transfers. We may
not unilaterally terminate or discontinue transfer privileges. However, we
reserve the right to suspend such privileges for a reasonable period.
AUTOMATIC REBALANCING
You may arrange for Automatic Rebalancing among the Separate Account Divisions
if your Certificate has an Account Value of $25,000 or more at the time we
receive the application for Automatic Rebalancing. You may apply for Automatic
Rebalancing either at issue or after issue, and you may subsequently discontinue
it.
Under Automatic Rebalancing, we transfer funds among the Separate Account
Divisions to maintain the percentage allocation you have selected for each
Division. At your election, we will make these transfers on a quarterly, semi-
annual or annual basis, measured from the Certificate Anniversary date. A
Certificate Anniversary date that falls on the 29th, 30th, or 31st of the month
will result in Automatic Rebalancing starting with the 1st of the next month.
Automatic Rebalancing does not permit transfers to or from any Guarantee Period.
Transfers under Automatic Rebalancing will not count towards the 12 free
transfers each Certificate Year and will not incur a $25 charge. You cannot
have Automatic Rebalancing in effect at the same time you have an automatic
transfer plan, described above, in effect.
SURRENDERS
At any time before the Annuity Commencement Date and while the Annuitant is
still living, the Owner may make a full surrender from a Certificate.
We will pay you the following upon full surrender:
. your Account Value at the end of the Valuation Period in which we
receive a Written surrender request,
. minus any applicable premium tax.
22
<PAGE>
Our current practice is to require that you return the Certificate with any
request for a full surrender.
After a full surrender, or if the Owner's Account Value falls to zero, all
rights of the Owner, Annuitant or any other person under the Certificate will
end.
All collateral assignees of record must consent to any full surrender.
PARTIAL WITHDRAWALS
Your Written request for a partial withdrawal should specify the Divisions of
the Separate Account, or the Guarantee Periods of the Fixed Account, from which
you wish to make the partial withdrawal. We will take the withdrawal pro rata
from the Divisions and Guarantee Periods, if (1) you do not tell us how to make
the withdrawal, or (2) we cannot make the withdrawal as you requested.
Partial withdrawal requests must be for at least $100 or, if less, all of your
Account Value. If your remaining Account Value in a Division or Guarantee
Period would be less than $500 as a result of the withdrawal (except for the
Money Market Division), we reserve the right to transfer the remaining balance
to the Money Market Division. We will do this without charge. We may deny your
request for a partial withdrawal if it would reduce your Account Value below
$10,000.
We will always pay you the amount of your partial withdrawal request (except
that we may deny your request for a partial withdrawal if it would reduce your
Account Value below $10,000). Therefore, the value of your Accumulation Units
and Fixed Account interests that we redeem will equal the amount of the
withdrawal request, plus any applicable premium tax. You can also tell us to
take income tax from the amount you want withdrawn.
We also make available a systematic withdrawal plan. Under this plan, you may
make automatic partial withdrawals in amounts and at periodic intervals that you
specify. The terms and conditions that apply to other partial withdrawals will
also apply to this plan. You may obtain additional information about how to
establish a systematic withdrawal plan from your sales representative or from us
at the addresses and telephone numbers on the first page of this Prospectus. We
reserve the right to modify or terminate the systematic withdrawal plan at any
time.
The Code imposes a penalty tax on certain premature surrenders or withdrawals.
See the "Federal Income Tax Matters" section for a discussion of this and other
tax implications of total surrenders and systematic and other partial
withdrawals. The section also discusses tax withholding requirements.
All collateral assignees of record must consent to any partial withdrawals.
ANNUITY PERIOD AND ANNUITY PAYMENT OPTIONS
ANNUITY COMMENCEMENT DATE
The Annuity Commencement Date may be any day of any month between the
Annuitant's 50th and 90th birthday. You may select the Annuity Commencement
Date on the Certificate application. You
23
<PAGE>
may also change a previously selected date any time before that date by
submitting a Written request, subject to our approval.
See "Federal Income Tax Matters" for a discussion of the penalties that may
result from distributions prior to the Annuitant's reaching age 59 1/2 under any
Certificate or after April 1 of the year following the calendar year in which
the Annuitant reaches age 70 1/2 under certain Qualified Certificates.
APPLICATION OF OWNER ACCOUNT VALUE
We will automatically apply your Variable Account Value in any Division to
provide Variable Annuity Payments based on that Division and your Fixed Account
Value to provide Fixed Annuity Payments. However, we will apply your Account
Value in different proportions, if you give us Written instructions at least 30
days before the Annuity Commencement Date.
We deduct any applicable state and local premium taxes from the amount of
Account Value that we apply to an Annuity Payment Option. Subject to any such
adjustments, we apply your Variable and Fixed Account Values to an Annuity
Payment Option, as discussed below, as of the end of the Valuation Period that
contains the 10th day before the Annuity Commencement Date.
FIXED AND VARIABLE ANNUITY PAYMENTS
We will determine your first monthly Fixed or Variable Annuity Payment using the
annuity tables in the Certificate and the amount of your Account Value that is
applied to provide the Fixed or Variable Annuity Payments.
We determine the amount of each monthly Fixed Annuity Payment thereafter based
on the terms of the Annuity Payment Option selected.
We determine the amount of each monthly Variable Annuity Payment thereafter as
follows:
. We convert the Account Value that we apply to provide Variable Annuity
Payments to a number of Annuity Units. We do this by dividing the
amount of the first Variable Annuity Payment by the value of an
Annuity Unit of a Division as of the end of the Valuation Period that
includes the 10th day before the Annuity Commencement Date. This
number of Annuity Units remains constant for any Annuitant.
. We determine the amount of each subsequent Variable Annuity Payment by
multiplying the number of Annuity Units by the value of an Annuity
Unit as of the end of the Valuation Period that contains the 10th day
before the date of each payment.
. If we base the Variable Annuity Payments on more than one Division, we
perform these calculations separately for each Division.
. The value of an Annuity Unit at the end of a Valuation Period is the
value of the Annuity Unit at the end of the previous Valuation Period,
multiplied by the net investment factor (see "Variable Account Value")
for the Valuation Period, with an offset for the 3.5% assumed interest
rate used in the Certificate's annuity tables.
24
<PAGE>
The Certificate's annuity tables use a 3.5% assumed interest rate. A Variable
Annuity Payment based on a Division will be greater than the previous month, if
the Division's investment return for the month is at an annual rate greater than
3.5%. Conversely, a Variable Annuity Payment will be less than the previous
month, if the Division's investment return is at an annual rate less than 3.5%.
ANNUITY PAYMENT OPTIONS
Sixty to ninety days before the scheduled Annuity Commencement Date, we will (1)
notify you that the Certificate is scheduled to mature, and (2) request that you
select an Annuity Payment Option.
If you have not selected an Annuity Payment Option ten days before the Annuity
Commencement Date, we will proceed as follows:
. we will extend the Annuity Commencement Date to the Annuitant's 90th
birthday, if the scheduled Annuity Commencement Date is any date
prior to the Annuitant's 90th birthday; or
. we will pay the Account Value, less any applicable charges and
premium taxes, in one sum to you, if the scheduled Annuity
Commencement Date is the Annuitant's 90th birthday.
The Code imposes minimum distribution requirements on the Annuity Payment Option
you choose for a Qualified Certificate. (See "Federal Income Tax Matters.") We
are not responsible for monitoring or advising Owners whether they are meeting
the minimum distribution requirements, unless we have received a specific
Written request to do so.
ELECTION OF ANNUITY PAYMENT OPTION
You may elect an Annuity Payment Option only if the initial annuity payment
meets the following minimum requirements:
. where you elect only Fixed or Variable Annuity Payments, the initial
payment must be at least $20; or
. where you elect a combination of Variable and Fixed Annuity Payments,
the initial payment must be at least $10 on each basis.
If the initial annuity payment falls below these amounts, we will reduce the
frequency of annuity payments. If the initial payment still falls below these
amounts, we will make a single payment to the Annuitant or other properly-
designated payee equal to your Account Value. We will deduct premium tax from
such payment, if it is required in your state.
You may elect the annuity option for payments to a Beneficiary, if you or the
Annuitant dies. If you have not made this election, the Beneficiary may do so
within 60 days after your or the Annuitant's death. (See "Death Proceeds.")
Thereafter, the Beneficiary will have all the remaining rights and powers under
the Certificate and be subject to all of its terms and conditions. We will make
the first annuity payment at the beginning of the second month following the
month in which we approve the settlement request. We will credit Annuity Units
based on Annuity Unit Values at the end of the Valuation Period that contains
the 10th day before the beginning of that second month.
25
<PAGE>
When an Annuity Payment Option becomes effective, you must deliver the
Certificate to our Administrative Center, in exchange for a payment contract
providing for the option elected.
We provide information about the relationship between the Annuitant's gender and
the amount of annuity payments, including any requirements for gender-neutral
annuity rates and in connection with certain employee benefit plans under
"Gender of Annuitant" in the Statement. (See "Contents of Statement of
Additional Information.")
AVAILABLE ANNUITY PAYMENT OPTIONS
Each Annuity Payment Option, except Option 5, is available on both a fixed and
variable basis. Option 5 is available on a fixed basis only.
OPTION 1 - LIFE ANNUITY - We make annuity payments monthly during the lifetime
of the Annuitant. These payments stop with the last payment due before the
death of the Annuitant. We do not guarantee a minimum number of payments under
this arrangement. For example, the Annuitant or other payee might receive only
one annuity payment, if the Annuitant dies before the second annuity payment.
OPTION 2 - LIFE ANNUITY WITH 120, 180, OR 240 MONTHLY PAYMENTS CERTAIN - We make
annuity payments monthly during the lifetime of an Annuitant. In addition, we
guarantee that the Beneficiary will receive monthly payments for the remainder
of the period certain, if the Annuitant dies during that period.
OPTION 3 - JOINT AND LAST SURVIVOR LIFE ANNUITY - We make annuity payments
monthly during the lifetime of the Annuitant and another payee and during the
lifetime of the survivor of the two. We stop making payments with the last
payment before the death of the survivor. We do not guarantee a minimum number
of payments under this arrangement. For example, the Annuitant or other payee
might receive only one annuity payment if both die before the second annuity
payment. The election of this option is ineffective if either one dies before
the Annuity Commencement Date. In that case, the survivor becomes the sole
Annuitant, and we do not pay death proceeds because of the death of the other
Annuitant.
OPTION 4 - PAYMENTS FOR A DESIGNATED PERIOD - We make annuity payments monthly
to an Annuitant or other properly-designated payee, or at his or her death, to
the Beneficiary, for a selected number of years ranging from five to 40. If
this option is selected on a variable basis, the designated period may not
exceed the life expectancy of the Annuitant or other properly-designated payee.
Under the fourth Option, we make no mortality guarantee, even though we reduce
Variable Annuity Payments as a result of a charge to the Separate Account that
is partially for mortality risks. (See "Charge to the Separate Account.")
A payee receiving Variable (but not Fixed) Annuity Payments under Option 4 can
elect at any time to commute (terminate) the option and receive the current
value of the annuity option in a single sum. The current value of an annuity
under Option 4 is the value of all remaining annuity payments, assumed to be
level, discounted to present value at an annual rate of 3.5%. We calculate that
value the next time we determine values after receiving your Written request for
payment. The election of a single sum payment under Option 4 is the only way
you may terminate any Annuity Payment Option once annuity payments have started.
26
<PAGE>
OPTION 5 - PAYMENTS OF A SPECIFIC DOLLAR AMOUNT - We pay the amount due in equal
monthly installments of a designated dollar amount until the remaining balance
is less than the amount of one installment. The amount of each installment may
not be less than $125 or more than $200 each year per $1,000 of the original
amount due. If the person receiving these payments dies, we continue to make
the remaining payments to the Beneficiary. Payments under this option are
available on a fixed basis only. To determine the remaining balance at the end
of any month, we decrease the balance at the end of the previous month by the
amount of any installment paid during the month. We then apply, to the
remainder, interest at a rate not less than 3.5% compounded annually. If the
remaining balance at any time is less than the amount of one installment, we
will pay the balance as the final payment under the option.
The Code may treat the election of Option 4 or Option 5 in the same manner as a
surrender of the total account. For tax consequences of such treatment, see
"Federal Income Tax Matters." In addition, the Code may not give tax-deferred
treatment to subsequent earnings.
ALTERNATIVE AMOUNT UNDER FIXED LIFE ANNUITY OPTIONS - In the case of Fixed
Annuity Payments under one of the first three Annuity Payment Options described
above, we make a special election available. In that case, the Owner (or the
Beneficiary, if the Owner has not elected a payment option) may elect monthly
payments based on single payment immediate fixed annuity rates we offer at that
time. This provision allows the Annuitant or other properly-designated payee to
receive the fixed annuity purchase rate in effect for new single payment
immediate annuity certificates, if it is more favorable.
In place of monthly payments, you may elect payments on a quarterly, semi-annual
or annual basis. In that case, we determine the amount of each annuity payment
on a basis consistent with that described above for monthly payments.
TRANSFERS
After the Annuity Commencement Date, the Annuitant or other properly-designated
payee may make six transfers every Certificate Year among the available
Divisions of the Separate Account or from the Divisions to a Fixed Annuity
Payment Option. We will assess no charge for the transfer. We do not permit
transfers from a Fixed to a Variable Annuity Payment Option. If a transfer
causes the value in any Division to fall below $500, we reserve the right to
transfer the remaining balance in that Division in the same proportion as the
transfer request. We make transfers effective at the end of the Valuation
Period in which we receive the Written transfer request at our Administrative
Center. We reserve the right to terminate or restrict transfers at any time.
DEATH PROCEEDS
DEATH PROCEEDS BEFORE THE ANNUITY COMMENCEMENT DATE
The death proceeds described below are payable to the Beneficiary under the
Certificate if any of the following events occurs before the Annuity
Commencement Date:
27
<PAGE>
. the Annuitant dies, and no Contingent Annuitant has been named under
a Non-Qualified Certificate;
. the Annuitant dies, and we also receive proof of death of any named
Contingent Annuitant; or
. the Owner (including the first to die in the case of joint Owners) of
a Non-Qualified Certificate dies, regardless of whether the deceased
Owner was also the Annuitant. (However, if the Beneficiary is the
Owner's surviving spouse, or the Owner's surviving spouse is a joint
Owner, the surviving spouse may elect to continue the Certificate as
described later in this section.)
If the deceased Owner was a joint Owner, we will pay the death proceeds to the
surviving joint Owner. In this case, we will treat the surviving joint Owner as
the Beneficiary, and we will not recognize any other designation of Beneficiary.
However, joint Owners may provide written instructions to pay death proceeds in
a different manner.
Before age 81, the death proceeds will equal the greater of:
. the sum of all net purchase payments made (less any premium taxes we
deducted previously and all prior partial withdrawals); or
. the Owner's Account Value as of the end of the Valuation Period in
which we receive, at our Administrative Center, proof of death and
the Written request as to the manner of payment.
At age 81 and afterward, the death proceeds will equal the Account Value.
In all cases, we will deduct any applicable premium taxes.
We will pay the death proceeds to the Beneficiary as of the date the proceeds
become payable. Such date is the end of the Valuation Period in which we
receive:
. proof of the Owner's or Annuitant's death, and
. a Written request from the Beneficiary specifying the manner of
payment.
If the Owner has not already done so, the Beneficiary may, within 60 days after
the date the death proceeds become payable, elect to receive the death proceeds
as (1) a single sum or (2) in the form of one of the Annuity Payment Options
provided in the Certificate. (See "Annuity Payment Options.") If we do not
receive a request specifying the manner of payment, we will make a single
payment, based on values we determine at that time.
If the Owner (including the first to die if there are joint Owners) under a Non-
Qualified Certificate dies before the Annuity Commencement Date, we will
distribute all amounts payable under the Certificate in accordance with the
following rules:
. We will distribute all amounts:
(a) within five years of the date of death, or
28
<PAGE>
(b) if the Beneficiary elects, as annuity payments, beginning within
one year of the date of death and continuing over a period not
extending beyond the life or life expectancy of the Beneficiary.
. If the Beneficiary is the Owner's surviving spouse, the spouse may
elect to continue the Certificate as the new Owner. If the original
Owner was the Annuitant, the surviving spouse may also elect to
become the new Annuitant. This election is also available to the
surviving spouse who is a joint Owner, even if the surviving spouse
is not the Beneficiary. In this case, we will treat the surviving
spouse as the Beneficiary, and we will not recognize any other
designation of Beneficiary.
. If the Owner is not a natural person, these distribution requirements
apply at the death of the primary Annuitant, within the meaning of
the Code. Under a parallel section of the Code, similar requirements
apply to retirement plans for which we issue Qualified Certificates.
Failure to satisfy the requirements described in this section may result in
serious adverse tax consequences.
DEATH PROCEEDS AFTER THE ANNUITY COMMENCEMENT DATE
If the Annuitant dies on or after the Annuity Commencement Date, the amounts
payable to the Beneficiary or other properly-designated payee are any continuing
payments under the Annuity Payment Option in effect. (See "Annuity Payment
Options.") In such case, the payee will:
. have all the remaining rights and powers under a Certificate, and
. be subject to all the terms and conditions of the Certificate.
Also, if the Annuitant dies on or after the Annuity Commencement Date, no
previously named Contingent Annuitant can become the Annuitant.
If the payee under a Non-Qualified Certificate dies after the Annuity
Commencement Date, we will distribute any remaining amounts payable under the
terms of the Annuity Payment Option at least as rapidly as under the method of
distribution in effect when the payee died. If the payee is not a natural
person, this requirement applies upon the death of the primary Annuitant, within
the meaning of the Code.
Under a parallel section of the Code, similar requirements apply to retirement
plans for which we issue Qualified Certificates.
Failure to satisfy the requirements described in this section may result in
serious adverse tax consequences.
PROOF OF DEATH
We accept the following as proof of any person's death:
. a certified death certificate;
. a certified decree of a court of competent jurisdiction as to the
finding of death;
29
<PAGE>
. a written statement by a medical doctor who attended the deceased at
the time of death; or
. any other proof satisfactory to us.
Once we have paid the death proceeds, the Certificate terminates, and our
obligations are complete.
CHARGES UNDER THE CERTIFICATES
PREMIUM TAXES
When applicable, we will deduct premium taxes imposed by certain states. We may
deduct such amount either at the time the tax is imposed or later. We may
deduct the amount as follows:
. from purchase payment(s) when received;
. from the Owner's Account Value at the time annuity payments begin;
. from the amount of any partial withdrawal; or
. from proceeds payable upon termination of the Certificate for any
other reason, including death of the Owner or Annuitant, or surrender
of the Certificate.
If premium tax is paid, USL may reimburse itself for the tax when making the
deduction under the second, third, and fourth items on the list, immediately
above, by multiplying the sum of Purchase Payments being withdrawn by the
applicable premium tax percentage.
Applicable premium tax rates depend upon the Owner's then-current place of
residence. Applicable rates currently range from 0% to 3.5%. The rates are
subject to change by legislation, administrative interpretations, or judicial
acts. We will not make a profit on this charge.
TRANSFER CHARGES
We describe the charges to pay for the expense of making transfers under
"Transfer, Automatic Rebalancing, Surrender and Partial Withdrawal of Owner
Account Value - Transfers" and "Annuity Period and Annuity Payment Options -
Transfers." These charges are not designed to yield a profit.
CHARGE TO THE SEPARATE ACCOUNT
We deduct from Separate Account assets a daily charge at an annualized rate of
0.40% (which we may change, but which will never exceed 0.66%) of the average
daily net asset value of the Separate Account attributable to the Certificates.
This charge (1) offsets administrative expenses and (2) compensates us for
assuming mortality and expense risks under the Certificate. The 0.40% charge
divides into 0.04% for administrative expenses and 0.36% for assumption of
mortality and expense risk.
30
<PAGE>
We do not expect to earn a profit on that portion of the charge that is for
administrative expenses. However, we do expect to derive a profit from the
portion that is for the assumption of mortality and expense risks. There is no
necessary relationship between the amount of administrative charges deducted for
a given Certificate and the amount of expenses actually attributable to that
Certificate.
In assuming the mortality risk, we incur the risks that
. our actuarial estimate of mortality rates may prove erroneous,
. Annuitants will live longer than expected, and
. more Owners or Annuitants than expected will die at a time when the
death benefit we guarantee is higher than the net surrender value of
their interests in the Certificates.
In assuming the expense risk, we incur the risk that the revenues from the
expense charges under the Certificates (charges that we guarantee will not
increase) will not cover our expense of administering the Certificates.
MISCELLANEOUS
Each Series pays charges and expenses out of its assets. The prospectus for
each Series describes the charges and expenses.
We reserve the right to impose charges or establish reserves for any federal or
local taxes that we incur today or may incur in the future and that we deem
attributable to the Certificates.
SYSTEMATIC WITHDRAWAL PLAN
You may make automatic partial withdrawals, at periodic intervals, through a
systematic withdrawal program. Minimum payments are $100. You may choose from
payment schedules of monthly, quarterly, semi-annual, or annual payments. You
may start, stop, increase, or decrease payments. You may elect to (1) start
withdrawals as early as 30 days after the issue date of the Certificate and (2)
take withdrawals from the Fixed Account or any Division. Systematic withdrawals
are subject to the terms and conditions applicable to other partial withdrawals.
REDUCTION IN ADMINISTRATIVE EXPENSE CHARGE
We may reduce the Administrative Expense Charge imposed under certain Qualified
Certificates for employer-sponsored plans. Any such reductions will reflect
differences in costs or services and will not be unfairly discriminatory as to
any person. Differences in costs and services result from factors such as
reduced sales expenses or administrative efficiencies relating to serving a
large number of employees of a single employer and functions assumed by the
employer that we otherwise would have to perform.
31
<PAGE>
OTHER ASPECTS OF THE CERTIFICATES
Only an officer of USL can agree to change or waive the provisions of any
Certificate. The Certificates are non-participating, which means they are not
entitled to share in any dividends, profits or surplus of USL.
OWNERS, ANNUITANTS, AND BENEFICIARIES; ASSIGNMENTS
You, as the Owner of a Certificate, will be the same as the Annuitant, unless
you choose a different Annuitant when you purchase a Certificate. In the case
of joint ownership, both Owners must join in the exercise of any rights or
privileges under the Certificate. You choose the Annuitant and any Contingent
Annuitant in the application for a Certificate and may not change that choice.
You choose the Beneficiary and any Contingent Beneficiary when you purchase a
Certificate. You may change a Beneficiary or Contingent Beneficiary before the
Annuity Commencement Date, while the Annuitant is still alive. The payee may
make this change after the Annuity Commencement Date.
We will make any designation of a new Beneficiary or Contingent Beneficiary
effective as of the date it is signed. However, the change in designation will
not affect any payments we make or action we take before we receive the Written
request. We also need the Written consent of any irrevocably-named Beneficiary
or Contingent Beneficiary before we make a change. Under certain retirement
programs, the law may require spousal consent to name or change a Beneficiary to
a person other than the spouse. We are not responsible for the validity of any
designation of a Beneficiary or Contingent Beneficiary.
If the Beneficiary or Contingent Beneficiary is not living at the time we are to
make any payment, you as the Owner will be the Beneficiary. If you are not then
living, your estate will be the Beneficiary.
In the case of joint ownership, we will treat the surviving joint Owner as the
Beneficiary upon the death of a joint Owner. We will not recognize any other
designation of Beneficiary, unless joint Owners provide written instructions to
pay death proceeds in a different manner.
Owners and other payees may assign their rights under Qualified Certificates
only in certain narrow circumstances referred to in the Certificates. Owners
and other payees may assign their rights under Non-Qualified Certificates,
including their ownership rights. We take no responsibility for the validity of
any assignment. Owners must make a change in ownership rights in Writing and
send a copy to our Administrative Center. We will make the change effective on
the date it was made. However, we are not bound by a change until the date we
record it. The rights under a Certificate are subject to any assignment of
record at our Administrative Center. An assignment or pledge of a Certificate
may have adverse tax consequences. (See "Federal Income Tax Matters.")
REPORTS
We will mail to Owners (or anyone receiving payments following the Annuity
Commencement Date), any reports and communications required by applicable law.
We will mail to the last known address of record. You should give us prompt
written notice of any address change.
32
<PAGE>
RIGHTS RESERVED BY US
Upon notice to the Owner, we may modify a Certificate to the extent necessary in
order to:
. reflect a change in the Separate Account or any Division;
. create new separate accounts;
. operate the Separate Account in any form permitted under the 1940 Act
or in any other form permitted by law;
. transfer any assets in any Division to another Division, to one or
more separate accounts, or to the Fixed Account;
. add, combine or remove Divisions in the Separate Account, or combine
the Separate Account with another separate account;
. add, restrict or remove Guarantee Periods of the Fixed Account;
. make any new Division available to you on a basis we determine;
. substitute, for the shares held in any Division, the shares of
another Series or the shares of another investment company or any
other investment permitted by law;
. make any changes required by the Code or by any other law, regulation
or interpretation in order to continue treatment of the Certificate
as an annuity;
. commence deducting premium taxes or adjust the amount of premium
taxes deducted in accordance with state law that applies; or
. make any changes required to comply with the rules of any Series.
When required by law, we will obtain (1) your approval of changes and (2) the
approval of any appropriate regulatory authority.
PAYMENT AND DEFERMENT
We will normally pay amounts surrendered or withdrawn from a Certificate within
seven calendar days after the end of the Valuation Period in which we receive
the Written surrender or withdrawal request at our Administrative Center. A
Beneficiary may request the manner of payment of death proceeds within 60 days
after the death proceeds become payable. If we do not receive a Written request
specifying the manner of payment, we will pay the death benefit as a single sum,
normally within seven calendar days after the end of the Valuation Period that
contains the last day of the 60 day period. We reserve the right, however, to
defer payments or transfers out of the Fixed Account Value for up to six months.
Also, we reserve the right to defer payment of that portion of your Account
Value that is attributable to a purchase payment made by check for a reasonable
period of time (not to exceed 15 days) to allow the check to clear the banking
system.
33
<PAGE>
Finally, we reserve the right to defer payment of any surrender, annuity
payment, or death proceeds out of the Variable Account Value if:
. the New York Stock Exchange is closed other than customary weekend
and holiday closings, or trading on the New York Stock Exchange is
restricted as determined by the Securities and Exchange Commission
("SEC");
. the SEC determines that an emergency exists, as a result of which
disposal of securities held in a Division is not reasonably
practicable or it is not reasonably practicable to fairly determine
the Variable Account Value; or
. the SEC by order permits the delay for the protection of Owners.
We may also postpone transfers and allocations of Account Value among the
Divisions and the Fixed Account under these circumstances.
FEDERAL INCOME TAX MATTERS
GENERAL
We cannot comment on all of the federal income tax consequences associated with
the Certificates. Federal income tax law is complex. Its application to a
particular person may vary according to facts peculiar to the person.
Consequently, we do not intend for you to take this discussion as tax advice.
You should consult with a competent tax adviser before purchasing a Certificate.
We base this discussion on our understanding of the law, regulations and
interpretations existing on the date of this Prospectus. Congress, in the past,
has enacted legislation changing the tax treatment of annuities in both the
Qualified and the Non-Qualified markets and may do so again in the future. The
Treasury Department may issue new or amended regulations or other
interpretations of existing tax law. The courts may also interpret the tax law
in ways that affect the tax treatment of annuities. Any such change could have
a retroactive effect. We suggest that you consult your legal or tax adviser on
these issues.
The discussion does not address federal estate and gift tax, social security
tax, or any state or local tax consequences associated with the Certificates.
NON-QUALIFIED CERTIFICATES
Purchase Payments. Purchasers of a Certificate that does not qualify for
special tax treatment and is "Non-Qualified" may not deduct from their gross
income the amount of purchase payments made.
Tax Deferral Before Annuity Commencement Date. Owners who are natural persons
are not taxed currently on (1) increases in their Account Value resulting from
interest earned in the Fixed Account, or (2) the investment experience of the
Separate Account so long as the Separate Account complies with certain
diversification requirements. These requirements mean that the Separate Account
must
34
<PAGE>
invest in Series that are "adequately diversified" in accordance with Treasury
Department regulations. We do not control the Series, but we have received
commitments from the investment advisers to the Series to use their best efforts
to operate the Series in compliance with these diversification requirements. A
Certificate investing in a Series that failed to meet the diversification
requirements would subject Owners to current taxation of income in the
Certificate for the period of such diversification failure (and any subsequent
period). Income means the excess of the Account Value over the Owner's
investment in the Certificate (discussed below).
Control over allocation of values among different investment alternatives may
cause Owners or persons receiving annuity payments to be treated as the owners
of the Separate Account's assets for tax purposes. However, current regulations
do not provide guidance as to how to avoid this result. We reserve the right to
amend the Certificates in any way necessary to avoid this result. The Treasury
Department has stated that it may establish standards through regulations or
rulings. These standards may apply only prospectively, although they could
apply retroactively if the Treasury Department considers the standards not to
reflect a new position.
Owners that are not natural persons -- that is, Owners such as corporations --
are taxed currently on annual increases in their Account Value, unless an
exception applies. Exceptions apply for, among other things, Owners that are
not natural persons but that hold a Certificate as an agent for a natural
person.
Taxation of Annuity Payments. Part of each annuity payment received after the
Annuity Commencement Date is excludible from gross income.
In the case of Fixed Annuity Payments, the excludible portion is found by
multiplying:
. the amount paid, by
. the ratio of the investment in the Certificate (discussed below) to
the expected return under the Fixed Annuity Payment Option.
In the case of Variable Annuity Payments, the excludible portion is the
investment in the Certificate divided by the number of expected payments.
In both cases, the remaining portion of each annuity payment, and all payments
made after the investment in the Certificate has been reduced to zero, are
included in the payee's income. Should annuity payments stop on account of the
death of the Annuitant before the investment in the Certificate has been fully
paid out, the payee is allowed a deduction for the unpaid amount. If the payee
is the Annuitant, the deduction is taken on the final tax return. If the payee
is a Beneficiary, that Beneficiary may receive the balance of the total
investment as payments are made or on the Beneficiary's final tax return. An
Owner's "investment in the Certificate" is the amount equal to the portions of
purchase payments made by or on behalf of the Owner that have not been excluded
or deducted from the individual's gross income, less amounts previously received
under the Certificate that were not included in income.
Taxation of Partial Withdrawals and Total Surrenders. Partial withdrawals from
a Certificate are includible in income to the extent that the Owner's Account
Value exceeds the investment in the Certificate. In the event you surrender a
Certificate in its entirety, the amount of your investment in the
35
<PAGE>
Certificate is excludible from income, and any amount you receive in excess of
your investment in the Certificate is includible in income. All annuity
contracts or Certificates we issue to the same Owner during any calendar year
are aggregated for purposes of determining the amount of any distribution that
is includible in gross income.
Penalty Tax on Premature Distributions. In the case of such a distribution,
there may be imposed a federal tax penalty equal to 10% of the amount treated as
taxable income. The penalty tax will not apply, however, to distributions:
. made on or after the recipient reaches age 59 1/2,
. made on account of the recipient's becoming disabled,
. that are made after the death of the Owner before the Annuity
Commencement Date or of the payee after the Annuity Commencement Date
(or if such person is not a natural person, that are made after the
death of the primary Annuitant, as defined in the Code); or
. that are part of a series of substantially equal periodic payments
made at least annually over the life (or life expectancy) of the
Annuitant or the joint life (or joint life expectancies) of the
Annuitant and the Beneficiary, provided such payments are made for a
minimum of 5 years and the distribution method is not changed before
the recipient reaches age 59 1/2 (except in the case of death or
disability).
Premature distributions may result for example, from the following:
. an early Annuity Commencement Date,
. an early surrender,
. partial withdrawal from a Certificate, including a partial withdrawal
under a systematic withdrawal plan,
. assignment of a Certificate, or
. the early death of an Annuitant, unless the third clause listed above
involving the death of the Owner, applies.
Payment of Death Proceeds. Special rules apply to the distribution of any death
proceeds payable under the Certificate. (See "Death Proceeds.")
Assignments and Loans. An assignment, loan, or pledge under a Non-Qualified
Certificate is taxed in the same manner as a partial withdrawal, as described
above. Repayment of a loan or release of an assignment or pledge is treated as
a new purchase payment.
Individual Retirement Annuities ("IRAs")
Purchase Payments. Individuals who are not active participants in a tax-
qualified retirement plan may, in any year, deduct from their taxable income
purchase payments for an IRA equal to the lesser of
36
<PAGE>
$2,000 or 100% of the individual's earned income. In the case of married
individuals filing a joint return, the deduction will, in general, be the lesser
of $4,000 or 100% of the combined earned income of both spouses, reduced by any
deduction for an IRA purchase payment allowed to the spouse. Single persons who
participate in a tax-qualified retirement plan and who have adjusted gross
income not in excess of $31,000 may fully deduct their IRA purchase payments.
Those who have adjusted gross income in excess of $41,000 will not be able to
deduct purchase payments. For those with adjusted gross income in the range
between $31,000 and $41,000, the deduction decreases to zero, based on the
amount of income. Beginning in 2000, that income range will increase, as
follows:
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005 and
thereafter
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$32,000 $33,000 $34,000 $40,000 $45,000 $50,000
to to to to to to
$42,000 $43,000 $44,000 $50,000 $55,000 $60,000
- - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
Similarly, the otherwise deductible portion of an IRA purchase payment will be
phased out, in the case of married individuals filing joint tax returns, with
adjusted gross income between $51,000 and $61,000, and in the case of married
individuals filing separately, with adjusted gross income between $0 and
$10,000. (A husband and wife who file separate returns and live apart at all
times during the taxable year are not treated as married individuals.)
Beginning in 2000, the income range over which the otherwise deductible portion
of an IRA purchase payment will be phased out for married individuals filing
joint tax returns will increase as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005 2006 2007 and
thereafter
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$52,000 $53,000 $54,000 $60,000 $65,000 $70,000 $75,000 $ 80,000
t0 to to to to to to to
$62,000 $63,000 $64,000 $70,000 $75,000 $80,000 $85,000 $100,000
- - ----------------------------------------------------------------------------------------------------------------------
</TABLE>
A married individual filing a joint tax return, who is not an active participant
in a tax-qualified retirement plan, but whose spouse is an active participant in
such a plan, may, in any year, deduct from his or her taxable income purchase
payments for an IRA equal to the lesser of $2,000 or 100% of the individual's
earned income. For the individual, the adjusted gross income range over which
the otherwise deductible portion of an IRA purchase payment will be phased out
is $150,000 to $160,000.
Tax Free Rollovers. Amounts may be transferred, in a tax-free rollover, from
(1) a tax-qualified plan to an IRA or (2) from one IRA to another IRA if, the
transfer meets certain conditions. All taxable distributions ("eligible
rollover distributions") from tax-qualified plans are eligible to be rolled over
with the exception of:
. annuities paid over a life or life expectancy,
. installments for a period of ten years or more; and
. required minimum distributions under section 401(a)(9) of the Code.
Rollovers may be accomplished in two ways. First, we may pay an eligible
rollover distribution directly to an IRA (a "direct rollover"). Second, we may
pay the distribution directly to the Annuitant
37
<PAGE>
and then, within 60 days of receipt, the Annuitant may roll the amount over to
an IRA. However, any amount that was not distributed as a direct rollover will
be subject to 20% income tax withholding.
Distributions from an IRA. Amounts received under an IRA as annuity payments,
upon partial withdrawal or total surrender, or on the death of the Annuitant,
are included in the Annuitant's or other recipients' income. If nondeductible
purchase payments have been made, a pro rata portion of such distributions may
not be includible in income. A 10% penalty tax is imposed on the amount
includible in gross income from distributions that occur before the Annuitant
reaches age 59 1/2 and that are not made on account of death or disability, with
certain exceptions. These exceptions include:
. distributions that are part of a series of substantially equal
periodic payments made at least annually over the life (or life
expectancy) of the Annuitant or the joint lives (or joint life
expectancies) of the Annuitant and the Beneficiary; provided such
payments are made for a minimum of five years and the distribution
method is not changed before the recipient reaches age 59 1/2 (except
in the case of death or disability),
. distributions for medical expenses in excess of 7.5% of the
Annuitant's adjusted gross income and withdrawals for medical
insurance (without regard to the 7.5% AGI floor) if the individual
has received unemployment compensation under federal or state law for
at least 12 consecutive weeks under certain conditions,
. distributions for qualified first-time home purchases for the
individual, a spouse, children, grandchildren, or ancestor of the
individual or the individual's spouse, subject to a $10,000 lifetime
maximum; and
. distributions for higher education expenses for the individual, a
spouse, children, or grandchildren.
Distributions of minimum amounts required by the Code must commence by April 1
of the calendar year following the calendar year in which the Annuitant reaches
age 70 1/2 or retires (whichever is later). Additional distribution rules apply
after the death of the Annuitant. These rules are similar to those governing
distributions on the death of an Owner (or other payee during the Annuity
Period) under a Non-Qualified Certificate. (See "Death Proceeds.") Failure to
comply with the minimum distribution rules will result in a penalty tax of 50%
of the amount by which the minimum distribution required exceeds the actual
distribution.
ROTH IRAS
Individuals may purchase a new type of non-deductible IRA, known as a Roth IRA.
Purchase payments for a Roth IRA are limited to $2,000 per year. This permitted
contribution is phased out for adjusted gross income between $95,000 and
$110,000 in the case of single taxpayers, between $150,000 and $160,000 in the
case of married taxpayers filing joint returns, and between $0 and $10,000 in
the case of married taxpayers filing separately. An overall $2,000 annual
limitation continues to apply to all of a taxpayer's IRA contributions,
including Roth IRAs and non-Roth IRAs.
An individual may make a rollover contribution from a non-Roth IRA to a Roth
IRA, unless the individual has adjusted gross income over $100,000 or the
individual is a married taxpayer filing a separate return. The individual must
pay tax on any portion of the IRA being rolled over that represents
38
<PAGE>
income or a previously deductible IRA contribution. There are no similar
limitations on rollovers from a Roth IRA to another Roth IRA.
Qualified distributions from Roth IRAs are entirely tax-free. A qualified
distribution requires that (1) the individual has held the Roth IRA for at least
five years, and (2) the distribution is made either after the individual reaches
age 59 1/2, on the individual's death or disability, or as qualified first-time
home purchase. Qualified Distributions for a qualified first-time home
purchase, are subject to a $10,000 lifetime maximum for the individual, a
spouse, child, grandchild, or ancestor of such individual or the individual's
spouse.
SIMPLIFIED EMPLOYEE PENSION PLANS
Eligible employers may establish an IRA plan known as a simplified employee
pension plan ("SEP"), if certain requirements are met. An employee may make
contributions to a SEP in accordance with the rules applicable to IRAs discussed
above. Employer contributions to an employee's SEP are deductible by the
employer and are not currently includible in the taxable income of the employee,
provided that total employer contributions do not exceed the lesser of 15% of an
employee's compensation or $30,000.
SIMPLE RETIREMENT ACCOUNTS
Eligible employers may establish an IRA plan known as a simple retirement
account ("SRA"), if they meet certain requirements. Under an SRA, the employer
contributes elective employee compensation deferrals up to a maximum of $6,000 a
year to the employee's SRA. The employer must, in general, make a fully vested
matching contribution for employee deferrals up to a maximum of 3% of
compensation.
OTHER QUALIFIED PLANS
Purchase Payments. Purchase payments made by an employer under a pension,
profit sharing, or annuity plan qualified under section 401 or 403(a) of the
Code, not in excess of certain limits, are deductible by the employer. The
purchase payments are also excluded from the current income of the employee.
Distributions Before the Annuity Commencement Date. Purchase payments
includible in an employee's taxable income (less any amounts previously received
that were not includible in the employee's taxable income) represent the
employee's "investment in the Certificate." Amounts received before the Annuity
Commencement Date under a Certificate in connection with a section 401 or 403(a)
plan are generally allocated on a pro-rata basis between the employee's
investment in the Certificate, and other amounts. A lump-sum distribution will
not be includible in income in the year of distribution if the employee
transfers, within 60 days of receipt, all amounts received (less the employee's
investment in the Certificate), to another tax-qualified plan, to an individual
retirement account or an IRA in accordance with the rollover rules under the
Code.
However, any amount that is not distributed as a direct rollover will be subject
to 20% income tax withholding. (See "Tax Free Rollovers.") Special tax
treatment may be available, for tax years beginning before December 31, 1999, in
the case of certain lump-sum distributions that are not rolled over to another
plan or IRA.
39
<PAGE>
A 10% penalty tax is imposed on the amount includible in gross income from
distributions that occur before the employee reaches age 59 1/2 and that are not
made on account of death or disability, with certain exceptions. These
exceptions include distributions that are:
. part of a series of substantially equal periodic payments made at
least annually beginning after the employee separates from service
and made over the life (or life expectancy) of the employee or the
joint lives (or joint life expectancies) of the employee and the
Beneficiary, provided such payments are made for at least 5 years and
the distribution method is not changed before the recipient reaches
age 59 1/2 (except in the case of death or disability),
. made after the employee's separation from service on account of early
retirement after attaining age 55,
. made to pay for qualified higher education or first-time home buyer
expenses,
. made to an alternate payee pursuant to a qualified domestic relations
order, if the alternate payee is the spouse or former spouse of the
employee; or
. distributions for medical expenses in excess of 7.5% of the
Annuitant's adjusted gross income and withdrawals for medical
insurance (without regard to the 7.5% AGI floor) if the individual
has received unemployment compensation under federal or state law for
at least 12 consecutive weeks under certain conditions.
Annuity Payments. A portion of annuity payments received under Certificates for
section 401 and 403(a) plans after the Annuity Commencement Date may be
excludible from the employee's income, in the manner discussed above, in
connection with Variable Annuity Payments, under "Non-Qualified Certificates -
Taxation of Annuity Payments." The difference is that, here, the number of
expected payments is determined under a provision in the Code. Distributions of
minimum amounts required by the Code generally must commence by April 1 of the
calendar year following the calendar year in which the employee reaches age 70
1/2 (or retires, if later). Failure to comply with the minimum distribution
rules will result in a penalty tax of 50% of the amount by which the minimum
distribution required exceeds the actual distribution.
Self-Employed Individuals. Various special rules apply to tax-qualified plans
established by self-employed individuals.
PRIVATE EMPLOYER UNFUNDED DEFERRED COMPENSATION PLANS
Purchase Payments. Private taxable employers may establish unfunded, Non-
Qualified deferred compensation plans for a select group of management or highly
compensated employees and/or for independent contractors. To avoid current
taxation these benefits must be subject to a substantial risk of forfeiture.
These types of programs allow individuals to defer (1) receipt of up to 100% of
compensation that would otherwise be includible in income, and (2) payment of
federal income taxes on the amounts.
40
<PAGE>
Deferred compensation plans represent a contractual promise on the part of the
employer to pay current compensation at some future time. The Certificate is
owned by the employer and is subject to the claims of the employer's creditors.
The individual has no right or interest in the Certificate and is entitled only
to payment from the employer's general assets in accordance with plan
provisions. Purchase payments are not currently deductible by the employer until
benefits are included in the taxable income of the employee.
Taxation of Distributions. Amounts that an individual receives from a private
employer deferred compensation plan are includible in gross income for the
taxable year in which such amounts are paid or otherwise made available.
FEDERAL INCOME TAX WITHHOLDING AND REPORTING
Amounts distributed from a Certificate, to the extent includible in taxable
income, are subject to federal income tax withholding.
In some cases, if you own more than one Qualified annuity contract, the
contracts may be considered together to determine whether the federal tax law
requirement for minimum distributions after age 70 1/2, or retirement in
appropriate circumstances, has been satisfied. You may rely on distributions
from another annuity contract or certificate to satisfy the minimum distribution
requirement under a Qualified Certificate we issued. However, you must sign a
waiver releasing us from any liability to you for not calculating and reporting
the amount of taxes and penalties payable for failure to make required minimum
distributions under the Certificate.
TAXES PAYABLE BY USL AND THE SEPARATE ACCOUNT
USL is taxed as a life insurance company under the Code. The operations of the
Separate Account are part of the total operations of USL and are not taxed
separately. Under existing federal income tax laws, USL is not taxed on
investment income derived by the Separate Account (including realized and
unrealized capital gains) with respect to the Certificates. USL reserves the
right to allocate to the Certificates any federal, state or other tax liability
that may result in the future from maintenance of the Separate Account or the
Certificates.
Certain Series may elect to pass through to USL any taxes withheld by foreign
taxing jurisdictions on foreign source income. Such an election will result in
additional taxable income and income tax to USL. The amount of additional income
tax, however, may be more than offset by credits for the foreign taxes withheld
that the Series will also pass through. These credits may provide a benefit to
USL.
DISTRIBUTION ARRANGEMENTS
Individuals who sell the Certificates will be licensed by state insurance
authorities as agents of USL. The individuals will also be registered
representatives of (1) American General Securities Incorporated ("AGSI"), the
principal underwriter of the Certificates, or (2) other broker-dealer firms.
However, some individuals may be representatives of firms that are exempt from
broker-dealer regulation. AGSI and any non-exempt broker-dealer firms are
registered with the Securities and Exchange Commission under the Securities
Exchange Act of 1934 as broker-dealers and are members of the National
Association of Securities Dealers, Inc.
41
<PAGE>
AGSI is an affiliate of USL. AGSI's principal business address is 2727 Allen
Parkway, Houston, Texas 77019-2191. USL offers the Certificates on a continual
basis. USL does not pay any compensation for distribution of the Certificates.
SERVICES AGREEMENTS
American General Life Companies ("USLC") is party to a general services
agreement with USL. AGLC, an affiliate of USL, is a corporation incorporated in
Delaware on November 24, 1997. Its address is 2727-A Allen Parkway, Houston,
Texas 77019-2191. Under this agreement, AGLC provides services to USL,
including most of the administrative, data processing, systems, customer
services, product development, actuarial, auditing, accounting and legal
services for USL and the Certificates.
USL has entered into administrative services agreements with the advisers or
managers for the mutual funds that offer shares to the Divisions. USL receives
fees for the administrative services it performs. These fees do not result in
any additional charges under the Certificates that are not described under
"Charges under the Certificates."
LEGAL MATTERS
We are not involved in any legal matters about the Separate Account that would
be considered material to the interests of Owners. Pauletta P. Cohn, Esquire,
Associate General Counsel of AGLC has passed upon the legality of the
Certificates described in this Prospectus. Freedman, Levy, Kroll & Simonds,
Washington, D.C., has advised USL on certain federal securities law matters.
YEAR 2000 CONSIDERATIONS
Internal Systems. USL's ultimate parent, American General Corporation (AGC), has
numerous technology systems that are managed on a decentralized basis. AGC's
Year 2000 readiness efforts are being undertaken by its key business units with
centralized oversight. Each business unit, including USL, has developed and is
implementing a plan to minimize the risk of a significant negative impact on its
operations.
While the specifics of the plans vary, the plans include the following
activities: (1) perform an inventory of our information technology and non-
information technology systems; (2) assess which items in the inventory may
expose us to business interruptions due to Year 2000 issues; (3) reprogram or
replace systems that are not Year 2000 ready; (4) test systems to prove that
they will function into the next century as they do currently; and (5) return
the systems to operations. As of December 31, 1998, substantially all of our
critical systems are Year 2000 ready and have been returned to operations.
However, activities (3) through (5) for certain systems are ongoing, with vendor
upgrades expected to be received during the first half of 1999.
Third Party Relationships. We have relationships with various third parties who
must also be Year 2000 ready. These third parties provide (or receive)
resources and services to (or from) USL and
42
<PAGE>
include organizations with which we exchange information. Third parties include
vendors of hardware, software, and information services; providers of
infrastructure services such as voice and data communications and utilities for
office facilities; investors; customers; distribution channels; and joint
venture partners. Third parties differ from internal systems in that we exercise
less, or no, control over Year 2000 readiness. We developed a plan to assess and
attempt to reduce the risks associated with the potential failure of third
parties to achieve Year 2000 readiness. The plan includes the following
activities: (1) identify and classify third party dependencies; (2) research,
analyze, and document Year 2000 readiness for critical third parties; and (3)
test critical hardware and software products and electronic interfaces. As of
December 31, 1998, AGC has identified and assessed approximately 700 critical
third party dependencies, including those relating to USL. A more detailed
evaluation will be completed during first quarter 1999 as part of our
contingency planning efforts. Due to the various stages of third parties' Year
2000 readiness, our testing activities will extend through 1999.
Contingency Plans. USL and its affiliates have commenced contingency planning
to reduce the risk of Year 2000-related business failures. The contingency
plans, which address both internal systems and third party relationships,
include the following activities: (1) evaluate the consequences of failure of
business processes with significant exposure to Year 2000 risk; (2) determine
the probability of a Year 2000-related failure for those processes that have a
high consequence of failure; (3) develop an action plan to complete contingency
plans for those processes that rank high in consequence and probability of
failure; and (4) complete the applicable action plans. We are currently
developing contingency plans and expect to substantially complete all
contingency planning activities during the second quarter of 1999.
Risks and Uncertainties. Based on our plans to make internal systems ready for
Year 2000, to deal with third party relationships, and to develop contingency
actions, we believe that we will experience at most isolated and minor
disruptions of business processes following the turn of the century. Such
disruptions are not expected to have a material effect on USL's future results
of operations, liquidity, or financial condition. However, due to the size and
complexity of this project, risks and uncertainties exist, and we cannot predict
a most reasonably likely worst case scenario. If conversion of our internal
systems is not completed on a timely basis (due to non-performance by
significant third-party vendors, lack of qualified personnel to perform the Year
2000 work, or other unforeseen circumstances in completing our plans), or if
critical third parties fail to achieve Year 2000 readiness on a timely basis,
the Year 2000 issues could have a material adverse impact on our operations
following the turn of the century.
Costs. Through December 31, 1998, USL has incurred, and anticipates that it
will continue to incur, costs for internal staff, third-party vendors, and other
expenses to achieve Year 2000 readiness. The cost of activities related to Year
2000 readiness has not had a material adverse effect on our results of
operations or financial condition. In addition, we have elected to accelerate
the planned replacement of certain systems as part of the Year 2000 plans.
Costs of the replacement systems are not passed to Divisions of the Separate
Account.
43
<PAGE>
OTHER INFORMATION ON FILE
We have filed a Registration Statement with the Securities and Exchange
Commission under the Securities Act of 1933 for the Certificates described in
this Prospectus. We have not included all of the information in the
Registration Statement and its exhibits. Statements contained in this
Prospectus concerning the group master contract, Certificates and other legal
instruments are intended to be summaries. For a complete statement of their
terms, you should refer to the documents that we filed with the Securities and
Exchange Commission.
We will send you a Statement on request without charge. Its contents are as
follows:
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
General Information..................................................... 2
Regulation and Reserves................................................. 2
Independent Auditors.................................................... 4
Services................................................................ 4
Principal Underwriter................................................... 4
Annuity Payments........................................................ 5
Gender of Annuitant................................................... 5
Misstatement of Age or Gender and Other Errors....................... 5
Change of Investment Adviser or Investment Policy....................... 5
Performance Data for the Divisions...................................... 5
Average Annual Total Return Calculations.............................. 5
Cumulative Total Return Calculations.................................. 6
Hypothetical Performance.............................................. 6
Money Market Division Yield and Effective Yield Calculations.......... 7
Performance Comparisons............................................... 8
Effect of Tax-Deferred Accumulation..................................... 9
Financial Statements.................................................... 10
Index to Financial Statements........................................... 11
44
<PAGE>
(THE FOLLOWING DOCUMENTS ARE NOT PART OF A PROSPECTUS.)
SELECT RESERVE VARIABLE ANNUITY
DISCLOSURES AND FORMS SECTION
INDEX
<TABLE>
<CAPTION>
<S> <C>
Individual Retirement Annuity Disclosure Statement and Financial Disclosure............................... page 1
1035 Exchange Instructions................................................................................ page 9
Qualified and Non-Qualified Funds Transfer Instructions................................................... page 10
Assignment and Transfer Request........................................................................... page 11
Service Request Form...................................................................................... page 13
Change of Beneficiary Form................................................................................ page 15
Statement of Additional Information Request Form.......................................................... page 17
</TABLE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK.]
<PAGE>
(THIS DOCUMENT IS NOT PART OF A PROSPECTUS)
INDIVIDUAL RETIREMENT ANNUITY DISCLOSURE STATEMENT
INTRODUCTION
THIS DISCLOSURE STATEMENT IS DESIGNED FOR OWNERS OF IRAS ISSUED BY THE UNITED
STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK ON OR AFTER JUNE 1, 1999.
This Disclosure Statement is not part of your annuity certificate but contains
general and standardized information which must be furnished to each person who
is issued an Individual Retirement Annuity. You must refer to your annuity
certificate to determine your specific rights and obligations thereunder.
REVOCATION
If you are purchasing a new or rollover IRA, then if for any reason you, as a
recipient of this Disclosure Statement, decide within 20 days from the date your
annuity certificate is delivered that you do not desire to retain your IRA,
written notification to the Company must be mailed, together with your annuity
certificate, within that period. If such notice is mailed within 20 days,
current annuity certificate value or contributions if required, without
adjustments for any applicable sales commissions or administrative expenses,
will be refunded.
MAIL NOTIFICATION OF REVOCATION AND YOUR ANNUITY CERTIFICATE TO:
The United States Life Insurance Company in the City of New York
Administrative Center
P. O. Box 1401
Houston, Texas 77251-1401
Phone No. (800) 246-1924 and (713) 831-3505.
ELIGIBILITY
Under Internal Revenue Code ("Code") Section 219, if you are not an active
participant (see A. below), you may make a contribution of up to the lesser of
$2,000 or 100% of compensation and take a deduction for the entire amount
contributed. If you are a married individual filing a joint return, and your
compensation is less than your spouse's, the total deduction will, in general,
be the lesser of $4,000 or 100% of the combined earned income of both spouses,
reduced by any deduction for an IRA purchase payment allowed to your spouse. If
you are an active participant, but have an adjusted gross income (AGI) below a
certain level (see B. below), you may still make a deductible contribution. If,
however, you or your spouse is an active participant and your combined AGI is
above the specified level, the amount of the deductible contribution you may
make to an IRA will be phased down and eventually eliminated.
A. ACTIVE PARTICIPANT
You are an "active participant" for a year if you are covered by a retirement
plan. You are covered by a "retirement plan" for a year if your employer or
union has a retirement plan under which money is added to your account or you
are eligible to earn retirement credits. For example, if you are covered under
a profit-sharing plan, certain government plans, a salary reduction arrangement
(such as a tax sheltered annuity arrangement or a 401(k) plan), a Simplified
Employee Pension program (SEP), any Simple Retirement Account or a plan which
promises you a retirement benefit which is based upon the
Page 1
<PAGE>
number of years of service you have with the employer, you are likely to be an
active participant. Your Form W-2 for the year should indicate your
participation status.
You are an active participant for a year even if you are not yet vested in your
retirement benefit. Also, if you make required contributions or voluntary
employee contributions to a retirement plan, you are an active participant. In
certain plans, you may be an active participant even if you were only with the
employer for part of the year.
You are not considered an active participant if you are covered in a plan only
because of your service as 1) an Armed Forces Reservist for less than 90 days of
active service, or 2) a volunteer firefighter covered for firefighting service
by a government plan. Of course, if you are covered in any other plan, these
exceptions do not apply.
If you are married, (i) filed a separate tax return, and did not live with your
spouse at any time during the year, or (ii) filed a joint return and have a
joint AGI of less than $150,000, your spouse's active participation will not
affect your ability to make deductible contributions. If you are married and
file jointly, your deduction will be phased out between an AGI of $150,000 to
$160,000.
B. ADJUSTED GROSS INCOME (AGI)
If you are an active participant, you must look at your Adjusted Gross Income
for the year (if you and your spouse file a joint tax return, you use your
combined AGI) to determine whether you can make a deductible IRA contribution.
Your tax return will show you how to calculate your AGI for this purpose. If
you are at or below a certain AGI level, called the Threshold Level, you are
treated as if you were not an active participant and can make a deductible
contribution under the same rules as a person who is not an active participant.
If you are single, the Threshold Level is $30,000. If you are married and file
a joint tax return, the Threshold Level is $50,000. If you are married but file
a separate tax return, the Threshold Level will be $0.
For taxable years beginning in 1999, the Threshold Levels for single individuals
and for married individuals filing jointly will increase as follows:
Threshold Level
For taxable years beginning in: Single Married (filing jointly)
---------------------------------- -----------------
1999 $31,000 $51,000
2000 $32,000 $52,000
2001 $33,000 $53,000
2002 $34,000 $54,000
2003 $40,000 $60,000
2004 $45,000 $65,000
2005 $50,000 $70,000
2006 $50,000 $75,000
2007 and thereafter $50,000 $80,000
Page 2
<PAGE>
A married individual filing a joint tax return, who is not an active
participant, but whose spouse is, may, in any year, make deductible IRA
contributions equal to the lesser of $2,000 or 100% of the individual's earned
income. The Threshold Level for such individual is $150,000.
If your AGI is less than $10,000 above your Threshold Level, you will still be
able to make a deductible contribution, but it will be limited in amount. The
amount by which your AGI exceeds your Threshold Level
(AGI - Threshold Level) is called your Excess AGI. The Maximum Allowable
Deduction is $2,000. In the case of a married individual filing jointly and
earning less than his or her spouse, the maximum Allowable Deduction is the
lesser of $2,000 or the spouse's income, less any deductible IRA contributions
or contributions to a Roth IRA. You can estimate your Deduction Limit as
follows:
(Your Deduction Limit may be slightly higher if you use this formula rather than
the table provided by the IRS.)
$10,000 - Excess AGI x Maximum Allowable Deduction = Deduction Limit
--------------------
$10,000
For the taxable year beginning in 2007, the deduction limit for married
individuals filing jointly will be determined as follows:
$10,000 - Excess AGI
--------------------
$20,000 x Maximum Allowable Deduction = Deduction Limit
You must round up the result to the next highest $10 level (the next highest
number which ends in zero). For example, if the result is $1,525, you must
round it up to $1,530. If the final result is below $200 but above zero, your
Deduction Limit is $200. Your Deduction Limit cannot, in any event, exceed 100%
of your compensation.
EXAMPLE 1: Ms. Smith, a single person, is an active participant and has an
AGI of $36,619. In 1998, she would calculate her deductible IRA
contribution as follows:
Her AGI is $36,619
Her Threshold Level is $30,000
Her Excess AGI is (AGI - Threshold Level) or ($36,619-$30,000) =
$6,619
Her Maximum Allowable Deduction is $2,000
So, her IRA deduction limit is:
$10,000 - $6,619
----------------
$10,000 x $2,000 = $676 (rounded to $680)
Page 3
<PAGE>
EXAMPLE 2: Mr. and Mrs. Young file a joint tax return. Each spouse earns
more than $2,000 and one is an active participant. Their 1999 combined AGI
is $55,255. Neither spouse contributed to a Roth IRA. They may each
contribute to an IRA and calculate their deductible contributions to each
IRA as follows:
Their AGI is $55,255
Their Threshold Level is $51,000
Their Excess AGI is (AGI - Threshold Level) or ($55,255 - $51,000) =
$4,255
The Maximum Allowable Deduction for each spouse is $2,000
So, each spouse may compute his or her IRA deduction limit as follows:
$10,000 - $4,255
----------------
$10,000 x $2,000 = $1,149 (rounded to $1,150)
EXAMPLE 3: If, in Example 2, Mr. Young did not earn any compensation, each
spouse could still contribute to an IRA and calculate their deductible
contribution to each IRA as in Example 2.
EXAMPLE 4: In 1998, Mr. Jones, a married person, files a separate tax
return and is an active participant. He has $1,500 of compensation and
wishes to make a deductible contribution to an IRA.
His AGI is $1,500
His Threshold Level is $0
His Excess AGI is (AGI - Threshold Level) or $1,500-$0) = $1,500
His Maximum Allowable Deduction is $2,000
So, his IRA deduction limit is:
$10,000 - $1,500 x $2,000 = $1,700
----------------
$10,000
Even though his IRA deduction limit under the formula is $1,700, Mr.
Jones may not deduct an amount in excess of his compensation, so, his
actual deduction is limited to $1,500.
NON-DEDUCTIBLE CONTRIBUTIONS TO IRAs
Even if you are above the Threshold Level and thus may not make a deductible
contribution of up to $2,000 (or up to $4,000 in the case of married individuals
filing a joint return), you may still contribute up to the lesser of 100% of
compensation or $2,000 to an IRA ($4,000 in the case of married individuals
filing a joint return). The amount of your contribution which is not deductible
will be a non-deductible contribution to the IRA. You may also choose to make a
contribution non-deductible even if you could have deducted part or all of the
contribution. Interest or other earnings on your IRA contribution, whether from
deductible or non-deductible contributions, will not be taxed until taken out of
your IRA and distributed to you.
Page 4
<PAGE>
If you make a non-deductible contribution to an IRA, you must report the amount
of the non-deductible contribution to the IRS on Form 8606 as a part of your tax
return for the year.
You may make a $2,000 contribution (or up to $4,000 in the case of married
individuals filing a joint return) at any time during the year, if your
compensation for the year will be at least $2,000 (or up to $4,000 in the case
of married individuals filing a joint return), without having to know how much
will be deductible. When you fill out your return, you may then figure out how
much is deductible.
You may withdraw an IRA contribution made for a year any time before April 15 of
the following year. If you do so, you must also withdraw the earnings
attributable to that portion and report the earnings as income for the year for
which the contribution was made. If some portion of your contribution is not
deductible, you may decide either to withdraw the non-deductible amount, or to
leave it in the IRA and designate that portion as a non-deductible contribution
on your tax return.
IRA DISTRIBUTIONS
Generally, IRA distributions which are not rolled over (see "Rollover IRA
Rules," below) are included in your gross income in the year they are received.
Non-deductible IRA contributions, however, are made using income which has
already been taxed (that is, they are not deductible contributions). Thus, the
portion of the IRA distributions consisting of non-deductible contributions will
not be taxed again when received by you. If you make any non-deductible IRA
contributions, each distribution from your IRA(s) will consist of a non-taxable
portion (return of deductible contributions, if any, and account earnings).
Thus, you may not take a distribution which is entirely tax-free. The following
formula is used to determine the non-taxable portion of your distributions for a
taxable year:
Remaining
Non-Deductible Contributions
----------------------------
Year-End Total IRA Balances x Total Distributions = Nontaxable Distributions
(for the year) (for the year)
To figure the year-end total IRA balance, you treat all of your IRAs as a single
IRA. This includes all regular IRAs (whether accounts or annuities), as well as
Simplified Employee Pension (SEP) IRAs, and Rollover IRAs. You also add back
the distributions taken during the year.
EXAMPLE: An individual makes the following contributions to his or her IRA(s).
YEAR DEDUCTIBLE NON-DEDUCTIBLE
---- ----------- --------------
1990....................$2,000
1991.................... 1,800
1994.................... 1,000...........$1,000
1996.................... 600........... 1,400
------ ------
$5,400 $2,400
Page 5
<PAGE>
Deductible Contributions:........... $5,400
Non-Deductible Contributions:....... 2,400
Earnings on IRAs:................... 1,200
------
Total Account Balance of IRA(s) as of 12/31/98: $9,000
(before distributions in 1998).
In 1998, the individual takes a distribution of $3,000. The total account
balance in the IRAs on 12/31/98 before 1998 distributions is $9,000. The non-
taxable portion of the distributions for 1998 is figured as follows:
Total non-deductible contributions $2,400
------
Total account balance in the IRAs, before distributions $9,000 x $3,000 = $800
Thus, $800 of the $3,000 distribution in 1998 will not be included in the
individual's taxable income. The remaining $2,200 will be taxable for 1998.
ROLLOVER IRA RULES
1. IRA TO IRA
You may withdraw, tax-free, all or part of the assets from an IRA and reinvest
them in one or more IRAs. The reinvestment must be completed within 60 days of
the withdrawal. No IRA deduction is allowed for the reinvestment. Amounts
required to be distributed because the individual has reached age 70 1/2 may not
be rolled over.
2. EMPLOYER PLAN DISTRIBUTIONS TO IRA
All taxable distributions (known as "eligible rollover distributions") from
qualified pension, profit-sharing, stock bonus and tax sheltered annuity plans
may be rolled over to an IRA, with the exception of (1) annuities paid over a
life or life expectancy, (2) installments for a period of ten years or more, and
(3) required minimum distributions under section 401(a)(9).
Rollovers may be accomplished in two ways. First, you may elect to have an
eligible rollover distribution paid directly to an IRA (a "direct rollover").
Second, you may receive the distribution directly and then, within 60 days of
receipt, roll the amount over to an IRA. Under the law, however, any amount
that you elect not to have distributed as a direct rollover will be subject to
20 percent income tax withholding, and, if you are younger than age 59 1/2, may
result in a 10% excise tax on any amount of the distribution that is included in
income. Questions regarding distribution options under the Act should be
directed to your Plan Trustee or Plan Administrator, or may be answered by
consulting IRS Regulations (S)1.401(a)(31)-1, (S)1.402(c)-2T and
(S)31.3405(c)-1.
PENALTIES FOR PREMATURE DISTRIBUTIONS
If you receive a distribution from your IRA before you reach age 59 1/2, an
additional tax of 10 percent will be imposed under Code (S)72(t), unless the
distribution (a) occurs because of your death or disability, (b) is for certain
medical care expenses or to an unemployed individual for health insurance
premiums, (c) is received as a part of a series of substantially equal payments
over your life or life expectancy, (d) is received as a part of a series of
substantially equal payments over the lives or life expectancy of you and your
beneficiary, or (e) the distribution is contributed to a rollover IRA, (f) is
Page 6
<PAGE>
used for a qualified first time home purchase for you, your spouse, children,
grandchildren, or ancestor, subject to a $10,000 lifetime maximum or (g) is for
higher education purposes for you, your spouse, children or grandchildren.
MINIMUM DISTRIBUTIONS
Under the rules set forth in Code (S)408(b)(3) and (S)401(a)(9), you may not
leave the funds in your annuity certificate indefinitely. Certain minimum
distributions are required. These required distributions may be taken in one of
two ways: (a) by withdrawing the balance of your annuity certificate by a
"required beginning date," usually April 1 of the year following the date at
which you reach age 70 1/2; or (b) by withdrawing periodic distributions of the
balance in your annuity certificate by the required beginning date. These
periodic distributions may be taken over (a) your life; (b) the lives of you and
your named beneficiary; (c) a period not extending beyond your life expectancy;
or (d) a period not extending beyond the joint life expectancy of you and your
named beneficiary.
If you do not satisfy the minimum distribution requirements, then, pursuant to
Code (S)4974, you may have to pay a 50% excise tax on the amount not distributed
as required that year.
The foregoing minimum distribution rules are discussed in detail in IRS
Publication 590, "Individual Retirement Arrangements."
REPORTING
You are required to report penalty taxes due on excess contributions, excess
accumulations, premature distributions, and prohibited transactions. Currently,
IRS Form 5329 is used to report such information to the Internal Revenue
Service.
PROHIBITED TRANSACTIONS
Neither you nor your beneficiary may engage in a prohibited transaction, as that
term is defined in Code (S)4975.
Borrowing any money from this IRA would, under Code (S)408(e)(3), cause the
annuity certificate to cease to be an Individual Retirement Annuity and would
result in the value of the annuity being included in the owner's gross income in
the taxable year in which such loan is made.
Use of this annuity certificate as security for a loan from the Company, if such
loan were otherwise permitted, would, under Code (S)408(e)(4), cause the portion
so used to be treated as a taxable distribution.
EXCESS CONTRIBUTIONS
Tax Code (S)4973 imposes a 6 percent excise tax as a penalty for an excess
contribution to an IRA. An excess contribution is the excess of the deductible
and nondeductible amounts contributed by the Owner to an IRA for that year over
the lesser of his or her taxable compensation or $2,000. (Different limits
apply in the case of a spousal IRA arrangement.) If the excess contribution is
not withdrawn by the due date of your tax return (including extensions) you will
be subject to the penalty.
Page 7
<PAGE>
IRS APPROVAL
Your annuity certificate and IRA endorsement have been filed for approval by the
Internal Revenue Service as a tax qualified Individual Retirement Annuity.
When received, such approval by the Internal Revenue Service is a determination
only as to the form of the annuity and does not represent a determination of the
merits of such annuity.
This disclosure statement is intended to provide an overview of the applicable
tax laws relating to Individual Retirement Arrangements. It is not intended to
constitute a comprehensive explanation as to the tax consequences of your IRA.
AS WITH ALL SIGNIFICANT TRANSACTIONS SUCH AS THE ESTABLISHMENT OR MAINTENANCE
OF, OR WITHDRAWAL FROM AN IRA, APPROPRIATE TAX AND LEGAL COUNSEL SHOULD BE
CONSULTED. Further information may also be acquired by contacting your IRS
District Office or consulting IRS Publication 590.
FINANCIAL DISCLOSURE
(SELECT RESERVE VARIABLE ANNUITY, FORM NO. 98505N)
This Financial Disclosure is applicable to IRAs using a Select Reserve Variable
Annuity (certificate form number 98505N) purchased from The United States Life
Insurance Company in the City of New York on or after June 1, 1999. Earnings
under variable annuities are not guaranteed, and depend on the performance of
the investment option(s) selected. As such, earnings cannot be projected. Set
forth below are the charges associated with such annuities.
CHARGES:
(a) During the Accumulation Phase, a maximum charge of $25 for each transfer,
in excess of 12 free transfers annually, of certificate value between
divisions of the Separate Account. During the Payout Phase (the time
during which regular payments are received), this charge is applicable
for each transfer in excess of six free transfers annually.
(b) To compensate for mortality and expense risks assumed under the
certificate, variable divisions only will incur a daily charge at an
annualized rate of 0.36% of the average Separate Account Value of the
certificate during both the Accumulation and the Payout Phase.
(c) Premium taxes, if applicable, may be charged against Accumulation Value
at time of annuitization or upon the death of the Annuitant. If a
jurisdiction imposes premium taxes at the time purchase payments are
made, the Company may deduct a charge at that time, or defer the charge
until the purchase payments are withdrawn, whether on account of a full
or partial surrender, annuitization, or death of the Annuitant.
(d) To compensate for administrative expenses, a daily charge will be
incurred at an annualized rate of 0.04% of the average Separate Account
Value of the certificate during the Accumulation and the Payout Phase.
(e) Each variable division will be charged a fee for asset management and
other expenses deducted directly from the underlying fund during the
Accumulation and Payout Phase. Total fees will range between 0.54% and
2.00%.
Page 8
<PAGE>
1035 EXCHANGE INSTRUCTIONS
- - --------------------------------------------------------------------------------
1. PROCESSING RULES
A 1035 exchange is one that qualifies under IRC Section 1035 guidelines.
A 1035 exchange is for non-qualified funds only.
The Home Office does not offer tax advice. Applicants and certificate
owners should contact their own tax advisors.
To qualify as a 1035 exchange, the following certificate types are
required:
* An annuity or life insurance contract in exchange for an annuity
certificate.
In addition, the following certificate type exchanges are required:
* Individual certificate to individual certificate;
* Joint certificate to joint certificate; and
* Two individual certificates on same annuitant(s) with the same owner(s)
to individual or joint certificate.
The annuitant and owner on the exchanged contract must be the same
on the new certificate.
To qualify as a full 1035 exchange, all existing cash value must be
transferred to the new certificate and none of the cash value can be
refunded.
Money from a 1035 exchange cannot be added to an existing annuity
certificate--it must fund a new certificate.
- - --------------------------------------------------------------------------------
2. FORMS REQUIREMENTS
Annuity Application (form number which is approved in the state of
application).
Replacement form as required by state, if applicable.
Assignment and Transfer Request Form (USL 8875) for IRC Section 1035(a)
Exchange.
External company's contract/policy or lost contract/policy statement.
- - --------------------------------------------------------------------------------
3. SIGNATURE REQUIREMENTS
The annuitant of the new application (age 15 or older) must sign the
Annuity Application.
The proposed owner of the new certificate must sign the Annuity Application
and the Assignment and Transfer Request Form (USL 8875).
If the owner is a trust, the trustee must sign the application and the
Assignment and Transfer Request Form (USL 8875) along with the trustee's
title.
Page 9
<PAGE>
QUALIFIED AND NON-QUALIFIED FUNDS
TRANSFER INSTRUCTIONS
- - --------------------------------------------------------------------------------
1. PROCESSING RULES
A transfer occurs when an existing policy/contract or account is liquidated
and proceeds are forwarded to another company or to the client.
There are three types of transfers:
* Trustee-to-Trustee (or Custodian) transfer: Proceeds are sent from one
company directly to another company to fund a like plan (Example: TSA to
TSA, IRA to IRA, Non-qualified to Non-qualified).
* Direct Rollover: Proceeds are sent from one company directly to another
company to fund a different type of plan (Example: TSA to IRA, 401(k) to
IRA, etc.).
* Rollover: Proceeds are sent from the original company to the owner. The
owner then forwards the check to the new company within 60 days.
Partial transfers are allowed.
Please consult a tax advisor for any tax consequences.
These types of transfers are not 1035 exchanges and do not qualify under
IRC Section 1035 guidelines.
A transfer may be qualified or non-qualified.
NOTE: The Home Office is responsible for qualified administration of
IRAs/SEPs only. Other than IRAs, qualified plans' administration is
the responsibility of the customer or plan administrator. The Home
Office does not provide a plan prototype.
- - --------------------------------------------------------------------------------
2. FORM REQUIREMENTS
Annuity Application (form number which is approved in the state of
application).
Replacement form as required by state, if applicable, and only when
another ANNUITY CONTRACT is being replaced.
External company/institution's contract or lost contract statement.
Assignment and Transfer Request Form (USL 8875) if the funds are
qualified and the Administrative Center is to request the funds. This
same form is used if the funds are non-qualified and coming from a
non-insurance/annuity contract and the Administrative Center is to
request the funds.
If the plan type is IRA, refer the customer to the IRA disclosure
attached to the prospectus.
If the plan type is SEP, submit IRS Form 5305 with the application.
- - --------------------------------------------------------------------------------
3. SIGNATURE REQUIREMENTS
The annuitant/proposed owner of the new certificate (age 15 or older) must
sign the Annuity Application (if different individuals, both must sign).
The owner must sign the Assignment and Transfer Request Form (USL 8875).
If the owner is a trust, then the trustee's signature and title is
required on all appropriate forms.
Page 10
<PAGE>
THE UNITED STATES LIFE Insurance Company in the City of New York ("USL")
Assignment and Transfer Request
SELECT RESERVE
<TABLE>
<CAPTION>
<S> <C>
Current Trustee/Custodian:________________________________________________________ Telephone Number:________________________________
Company's Address:_____________________________________City _________________________ State ________________________ Zip ___________
Owner(s):_________________________________________________________________________ Owner's SSN:_____________________________________
Annuitant's Name (If different from Owner)________________________________________ Contract/Account No.:____________________________
- - ------------------------------------------------------------------------------------------------------------------------------------
Type of Transfer: (Choose only one)
[ ] 1035 Non-Taxable Exchange [ ] Non-Qualified Transfer [ ] Qualified Rollover [ ] Qualified Direct Transfer
[ ] Other:___________________ (Transfer of funds from a non- (Irrevocable Direct (Direct Transfer from
qualified mutual funds, CDs, Rollover of Tax Sheltered current IRA trustee or
savings account, etc. to a Annuities and Qualified custodian company to new
non-qualified Annuity Contract/ Retirement Plans to an IRA) IRA trustee or
Certificate) (Forward proceeds to USL custodian)
within 60 days to maintain
tax status)
- - ------------------------------------------------------------------------------------------------------------------------------------
REQUEST FOR 1035 EXCHANGE
I hereby absolutely assign and transfer to USL all of my rights, title, and interest of every nature in and to the above referenced
contract/certificate including, but not limited to surrender, assign, transfer, or change beneficiary.
. Section 1035 of the Internal Revenue Code permits certain nontaxable exchanges of insurance policies and annuity
contracts/certificates. It is my intention that this transfer qualify as a Section 1035 exchange and that no portion of this
exchange be actually or constructively received by me. USL makes no representation concerning my tax treatment for this
transaction and has neither responsibility nor liability for my tax treatment.
. I understand the exact amount of the proceeds may vary depending upon the date of transfer and I agree to execute any additional
documents required to complete the transfer.
. I understand that the exchange is not complete if the company issuing the contract/certificate is unable or unwilling to pay the
value of the above referenced contract(s)/certificate(s) to USL.
. I understand that as of the date of surrender of the contract/certificate by the company, the surrendered contract/certificate no
longer provides any coverage and the new contract/certificate is not in effect until USL approves the new contract/certificate and
receives the funds.
. I represent and warrant that no person, firm, or corporation has a legal or equitable interest in the contract/certificate except
the undersigned, and that no proceedings of either legal or equitable nature have been instituted or are pending against the
undersigned.
The contract/certificate is:
[ ] ENCLOSED Contract/Certificate is attached
[ ] LOST OR DESTROYED (I certify that the contract/certificate is lost or destroyed. In addition, I certify that the
contract/certificate has not been assigned or pledged as collateral.)
___________________________________________________________ __________________________________________________________________
Owner's Signature(s) Date
USL, owner of the above referenced contract/certificate, does hereby request immediate surrender of the above referenced
contract/certificate.
- - ------------------------------------------------------------------------------------------------------------------------------------
REQUEST FOR NON-QUALIFIED TRANSFER, QUALIFIED ROLLOVER OR QUALIFIED DIRECT TRANSFER
This serves as authorization to liquidate and forward:
[ ] All [ ] Partial $________________________ or _________________________%
of my account balance as listed above to the annuity I have established through USL.
_________________________________________________________________________________________
FOR CD TRANSFERS: I am aware that if I request a liquidation of a CD prior to the maturity date, I may be subject to surrender or
withdrawal penalties. I direct and authorize the above liquidation and transfer of the net liquidation proceeds:
[ ] Upon receipt of this request [ ] On the maturity date of ________________________
_________________________________________________________ ______________________________________________________________
LETTER OF ACCEPTANCE
The above named individual has established a Qualified or Non-Qualified Annuity with USL. We will accept the transfer of cash assets
currently held in your plan for placement into the Qualified or Non-Qualified Annuity established with USL.
For a Section 1035(a) exchange, please provide us with the pre and post TEFRA cost basis.
By: _____________________________________________________ _______________________________________________________________
Authorized Representative of USL Date
Checks should be made payable to: THE UNITED STATES LIFE Insurance Company In the City of New York
FBO (For the benefit of) _______________________________________________
Print Name of Contract/Certificate Owner(s)
Mail to: Administrative Center Administrative Center 3-50
P.O. Box or
Houston, TX overnight
(800) 247-6584 . (713) 831-3701 Fax
Hearing Impaired (888) 436-5257
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 11
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK.]
Page 12
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Complete and return to: THE UNITED STATES LIFE Insurance Company
Adminstrative Center In the City of New York ("USL")
P.O. Box 1401 Administrative Center: Houston, TX
Houston, TX 77251-1401 SELECT RESERVE
(800) 246-1924 SERVICE REQUEST
Fax: (713) 831-3701
Hearing Impaired: (888) 436-5257
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
[X] CERTIFICATE 1.| CERTIFICATE #:______________________________________________ ANNUITANT:_______________________________
IDENTIFICATION |
| CERTIFICATE OWNER(S):__________________________________________________________________________________
(COMPLETE SECTIONS 1 & 13 |
FOR ALL REQUESTS.) | ADDRESS: ______________________________________________________________________________________________
|
INDICATE CHANGE OR | [ ] Check here if _____________________________________________________________________________________
REQUEST DESIRED BELOW. | change of address
| S.S. No. or Tax I.D. No.:________/________/__________ Phone Number: (___) ____ - ______
- - ------------------------------------------------------------------------------------------------------------------------------------
[ ] NAME 2.| [ ] Annuitant* [ ] Beneficiary* [ ] Owner(s)* (*DOES NOT CHANGE ANNUITANT, BENEFICIARY, OR
CHANGE | OWNERSHIP DESIGNATION.)
| ------------------------------------------------------------------------------------------------------
| FROM (FIRST, MIDDLE, LAST) TO (FIRST, MIDDLE, LAST)
|
| ------------------------------------------------------------------------------------------------------
| Reason: [ ] Marriage [ ] Divorce [ ] Correction [ ] Other (Attach copy of a certified court order.)
- - -----------------------------------------------------------------------------------------------------------------------------------
[ ] AUTOMATIC 3.| _______________ By initialing here, I authorize USL to collect $_______________ (min. $100),
ADDITIONAL | starting on: __________________________ by initiating electronic debit entries against my bank account
PURCHASE | MONTH/DAY
PAYMENT OPTION | with the following frequency:
| [ ] Monthly [ ] Quarterly [ ] Semiannually [ ] Annually (Attach voided check to Service Request.)
- - -----------------------------------------------------------------------------------------------------------------------------------
[ ] DOLLAR COST 4.| Dollar cost average [ ] $___________ OR [ ] ________% (whole % only) Begin Date:_______/_____/________
AVERAGING | Taken from the [ ] Money Market OR [ ] 1-Year Guarantee Period MM DD YY
| Frequency: [ ] Monthly [ ] Quarterly [ ] Semiannually [ ] Annually
| Duration: [ ] 12 months [ ] 24 months [ ] 36 months
| to be allocated to the following division(s) as indicated. (Use only dollars OR percentages.)
|
| American General Series Portfolio Company OFFITBANK VIF-High Yield (6) ______
| Money Market (13) __________ OFFITBANK VIF-Total Return (7) ______
| Hotchkis and Wiley Variable Trust OFFITBANK VIF-U.S. Government Securities (8)______
| Equity Income VIP (1) __________ Royce Capital Fund
| Low Duration VIP (3) __________ Royce Premier (9) ______
| LEVCO Series Trust Royce Total Return (10) ______
| LEVCO Equity Value (2) __________ Wright Managed Blue Chip Series Trust
| Navellier Variable Insurance Series Fund, Inc. Wright International Blue Chip (11) ______
| Navellier Growth (4) __________ Wright Selected Blue Chip (12) ______
| OFFITBANK Variable Insurance Fund, Inc. Other
| OFFITBANK VIF-Emerging Markets (5)__________ _________________________________________ ______
- - -----------------------------------------------------------------------------------------------------------------------------------
[ ] AUTOMATIC 5.| [ ] Add [ ] Stop automatic rebalancing.
REBALANCING | [ ] Change automatic rebalancing of variable investments to the percentage allocations indicated below:
($25,000 minimum) | [ ] Quarterly [ ] Semiannually [ ] Annually (frequency based on certificate anniversary)
|
USE WHOLE PERCENTAGES. | American General Series Portfolio Company OFFITBANK VIF-High Yield (6) _____%
TOTAL MUST EQUAL 100%. | Money Market (13) __________% OFFITBANK VIF-Total Return (7) _____%
| Hotchkis and Wiley Variable Trust OFFITBANK VIF-U.S. Government Securities (8)_____%
| Equity Income VIP (1) __________% Royce Capital Fund
| Low Duration VIP (3) __________% Royce Premier (9) _____%
| LEVCO Series Trust Royce Total Return (10) _____%
| LEVCO Equity Value (2) __________% Wright Managed Blue Chip Series Trust
| Navellier Variable Insurance Series Fund, Inc. Wright International Blue Chip (11) _____%
| Navellier Growth (4) __________% Wright Selected Blue Chip (12) _____%
| OFFITBANK Variable Insurance Funds, Inc. Other
| OFFITBANK VIF-Emerging Markets (5)__________% _________________________________________ _____%
| NOTE: Automatic rebalancing is only available for variable divisions. Automatic Rebalancing will not
| change allocation of future purchase payments.
- - -----------------------------------------------------------------------------------------------------------------------------------
[ ] CHANGE 6.| American General Series Portfolio Company OFFITBANK VIF-Total Return (7) _____%
ALLOCATION | Money Market (13) __________% OFFITBANK VIF-U.S. Government Securities (8)_____%
OF FUTURE | Hotchkis and Wiley Variable Trust Royce Capital Fund
PURCHASE | Equity Income VIP (1) __________% Royce Premier (9) _____%
PAYMENTS | Low Duration VIP (3) __________% Royce Total Return (10) _____%
| LEVCO Series Trust Wright Managed Blue Chip Series Trust
USE WHOLE PERCENTAGES. | LEVCO Equity Value (2) __________% Wright International Blue Chip (11) _____%
TOTAL MUST EQUAL 100%. | Navellier Variable Insurance Series Fund, Inc. Wright Selected Blue Chip (12) _____%
| Navellier Growth (4) __________% Other
| OFFITBANK Variable Insurance Funds, Inc. _________________________________________ _____%
| OFFITBANK VIF-Emerging Markets (5)__________% Fixed Account
| OFFITBANK VIF-High Yield (6) __________% 1-Year Guarantee Period (20) _____%
| NOTE: A change to the allocation of future purchase payments will not alter Automatic Rebalancing
| allocations.
- - -----------------------------------------------------------------------------------------------------------------------------------
PAGE 13 PAGE 1 OF 2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
[ ] TRANSFER OF 7.| Indicate division number along with gross dollar or percentage amount. (Maintain $ or % consistency.)
ACCUMULATED |
VALUES | % or $_______ from Div. _______ to Div. ______ % or $_______ from Div. _______ to Div. ______
| % or $_______ from Div. _______ to Div. ______ % or $_______ from Div. _______ to Div. ______
| % or $_______ from Div. _______ to Div. ______ % or $_______ from Div. _______ to Div. ______
| NOTE: If a transfer is elected and Automatic Rebalancing is active for your certificate, you may want
| to consider changing the Automatic Rebalancing allocations (Section 5). Otherwise, the Automatic
| Rebalancing will transfer funds in accordance with instructions on file.
- - -----------------------------------------------------------------------------------------------------------------------------------
[ ] SYSTEMATIC 8.| Specified Dollar Amount $_________ Frequency: [ ] Monthly [ ] Quarterly [ ] Semiannually [ ] Annually
WITHDRAWAL |
(ALSO COMPLETE | To begin on _____/_____/______ (Date must be between the 5th and 24th of the month and at least
SECTIONS 11, 12 & 13.) | MM DD YY 30 days after issue date.)
|
($100 MINIMUM WITHDRAWAL) | Unless specified below, withdrawals will be taken from the divisions as they are currently allocated in
| your certificate.
PERCENTAGES (WHOLE % |
ONLY) MUST EQUAL 100%; OR | $ or %________ Div No. ________ $ or %________ Div No. ________ $ or %________ Div No. _________
DOLLARS MUST EQUAL TOTAL | $ or %________ Div No. ________ $ or %________ Div No. ________ $ or %________ Div No. _________
AMOUNT. | $ or %________ Div No. ________ $ or %________ Div No. ________ $ or %________ Div No. _________
- - -----------------------------------------------------------------------------------------------------------------------------------
[ ] REQUEST FOR 9.| Amount requested is to be ( ) net OR ( ) gross of applicable charges. Total Amount = $___________
PARTIAL |
WITHDRAWAL | $ or %________ Div No. ________ $ or %________ Div No. ________ $ or %________ Div No. _________
| $ or %________ Div No. ________ $ or %________ Div No. ________ $ or %________ Div No. _________
(ALSO COMPLETE | $ or %________ Div No. ________ $ or %________ Div No. ________ $ or %________ Div No. _________
SECTIONS 11, 12 & 13.) |
- - -----------------------------------------------------------------------------------------------------------------------------------
[ ] REQUEST FOR 10.| [ ] Certificate attached
FULL SURRENDER |
| [ ] I hereby declare that the certificate specified above has been lost, destroyed, or misplaced and
| request that the value of the certificate be paid. I agree to indemnify and hold harmless USL
(ALSO COMPLETE | against any claims which may be asserted on my behalf and on the behalf of my heirs, assignees,
SECTIONS 11, 12 & 13.) | legal representatives, or any other person claiming rights derived through me against USL on the
| basis of the certificate.
- - -----------------------------------------------------------------------------------------------------------------------------------
[ ] METHOD OF 11.| NOTE: If no method is indicated, check(s) will be mailed to the owner at the address of record.
DISTRIBUTION | Check one: [ ] Mail check to owner. [ ] Mail check to alternate address.
| [ ] Deposit funds directly to bank/firm.*
| (available only for systematic withdrawals)
|
| _______________________________________________________________________________________________________
| INDIVIDUAL OR BANK/FIRM
|
| ____________________________________________________ ___________________________________________
| ADDRESS CITY/STATE/ZIP
|
| ____________________________________________________ Type of account: [ ] Checking [ ] Savings
| IF BANK/FIRM, PROVIDE ACCOUNT NUMBER TO BE REFERENCED FOR DEPOSIT.
| * Enclose a voided check from account where funds are to be deposited. PLEASE DO NOT ENCLOSE A DEPOSIT
| SLIP.
- - -----------------------------------------------------------------------------------------------------------------------------------
[ ] NOTICE OF 12.| The taxable portion of the distribution you receive from your annuity certificate is subject to federal
WITHHOLDING | income tax withholding unless you elect not to have withholding apply. Withholding of state income tax
| may also be required by your state of residence. You may elect not to have withholding apply by
| checking the appropriate box below. If you elect not to have withholding apply to your distribution or
| if you do not have enough income tax withheld, you may be responsible for payment of estimated tax.
| You may incur penalties under the estimated tax rules if your withholding and estimated tax are not
| sufficient. If no election is made we are REQUIRED to withhold Federal Income Tax.
| Check one: [ ] I do NOT want income tax withheld from this distribution.
| [ ] I do want 10% or _________% income tax withheld from this distribution.
- - -----------------------------------------------------------------------------------------------------------------------------------
[X] AFFIRMATION/ 13.| CERTIFICATION: Under penalties of perjury, I certify (1) that the number shown on this form is my
SIGNATURE | correct taxpayer identification number and (2) that I am not subject to backup withholding under
COMPLETE THIS SECTION | Section 3406(a)(1)(C) of the Internal Revenue Code.
FOR ALL REQUESTS. |
| The Internal Revenue Service does not require your consent to any provision of this document other than
| the certification required to avoid backup withholding.
|
| _______________________________________ _________________________________________________________
| DATE SIGNATURE(S) OF OWNER(S)
- - -----------------------------------------------------------------------------------------------------------------------------------
PAGE 14 PAGE 2 OF 2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
COMPLETE AND RETURN THIS REQUEST TO: THE UNITED STATES LIFE INSURANCE COMPANY
Administrative Center IN THE CITY OF NEW YORK ("USL")
P. O. Box 1401 Administrative Center: Houston, TX
Houston, TX 77251-1401 SELECT RESERVE
(800) 246-1924 * (713) 831-3701 CHANGE OF BENEFICIARY
Hearing Impaired (888) 436-5257
(Before completing this form please read instructions below and on reverse side.)
- - ------------------------------------------------------------------------------------------------------------------------------------
Contract/Certificate No. Contract/Certificate Owner Annuitant
- - ------------------------------------------------------------------------------------------------------------------------------------
METHOD OF PAYMENT: The death proceeds shall be payable in equal shares to the designated beneficiaries as may be living, unless
otherwise provided below. In the event no beneficiary survives the Annuitant or Owner, and if this form or the Contract/Certificate
does not provide otherwise, the proceeds will be paid to the executors or administrators of the deceased's Estate.
====================================================================================================================================
PRIMARY BENEFICIARY:
Full Name Relationship to Annuitant Percentages (if Applicable)
- - --------- ------------------------- ---------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
If a living or non-testamentary trust is designated as a primary beneficiary, complete the following:
____________________________________________________________________________________________ Dated: _________________________
Name of Trust
CONTINGENT BENEFICIARY (proceeds payable under this designation only if none of the designated primary beneficiaries survives the
deceased Annuitant or Owner):
Full Name Relationship to Annuitant Percentages (if Applicable)
- - --------- ------------------------- ---------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
If a living or non-testamentary trust is designated as a contingent beneficiary, complete the following:
____________________________________________________________________________________________ Dated: _________________________
Name of Trust
====================================================================================================================================
The undersigned Contract/Certificate Owner hereby revokes any previous beneficiary designation and any optional mode of settlement
with respect to any death benefit proceeds payable at the death of the Annuitant or Owner.
I represent and certify that no insolvency or bankruptcy proceedings are now pending against me.
Dated at _______________________________________________________ this ______________ day of __________________________, 19_______.
____________________________________________________________ _________________________________________________________
WITNESS CONTRACT/CERTIFICATE OWNER
____________________________________________________________ _________________________________________________________
WITNESS Additional Signature (If Required)
====================================================================================================================================
This change of beneficiary and/or method of settlement has been approved by the Company at its Administrative Center, and
presentation of the Contract/Certificate for endorsement has been waived.
THE UNITED STATES LIFE Insurance Company In the City of New York
DATE OF APPROVAL:___________________________________________ BY:______________________________________________________
</TABLE>
USL 8876-1
Page 15
<PAGE>
<TABLE>
<CAPTION>
INSTRUCTIONS FOR DESIGNATING BENEFICIARY
<S> <C>
1. All signatures must be in INK and should appear exactly as the name is given in the Contract/Certificate. A separate election
for change of beneficiary must be completed for each Contract/Certificate.
2. The full name of the new Beneficiary, RELATIONSHIP TO THE ANNUITANT, CURRENT MAILING ADDRESS AND TAXPAYER IDENTIFICATION NUMBER
(S.S. NO.) should be given for all Beneficiaries. If Beneficiary is to receive payment under life income option, give date of
birth.
3. If a Beneficiary is a married woman, her full given name should be used. For example, Mary E. Jones, not Mrs. J.F. Jones.If a
Trustee is designated, notification as to the type of trust created should be furnished to the Company.
4. If two Beneficiaries are to share jointly, the last name entered should be followed by the words "equally, or to the survivor."
If three or more Beneficiaries are to share jointly, the last name entered should be followed by the words "equally, or to the
survivors or survivor." If the interest of one Beneficiary is to be contingent to the interest of another, after the name of the
first Beneficiary the following words should be placed: "if living; otherwise to."
For your assistance, examples of the wording to be used in some of the more common designations are set out below. In difficult
cases where there is doubt as to the proper wording, the Company will prepare a special form for your signature on request.
1. One Beneficiary Jane Doe, wife of the Annuitant
2. Two Primary Beneficiaries Jane Doe, wife of the Annuitant, and John Doe, son, equally, or to the
survivor
3. One Primary and Two Contingent Beneficiaries Jane Doe, wife of the Annuitant, if living; otherwise to John
Doe and Mary Doe, children of the Annuitant, equally, or to the survivor
4. One Primary and One Contingent Beneficiary Jane Doe, wife of the Annuitant, if living; otherwise to John Doe, son
5. Two Primary and One Contingent Beneficiary John Doe and Mary Doe, parents of the Annuitant, equally,
or to the survivor; otherwise, to Jane Doe, sister of the Annuitant
6. Wife, Primary; Named and Unnamed Children, Jane Doe, wife of the Annuitant, if living; otherwise to Henry Doe,
Contingent Beneficiaries Barbara Doe, and Paul Doe, children of the Annuitant, and any other
then living children born of the marriage of the Annuitant and said
wife, equally, or to the survivors
7. Wife, Primary; Children and Step-Children Mary Doe, wife of the Annuitant, if living; otherwise, Henry Doe, son
Contingents of the Annuitant, Mary Doe, step-daughter of the Annuitant, and any
then living children born of the marriage of the Annuitant and said
wife, equally, or to the survivor
8. Wife, Primary; Unnamed Children with Jane Doe, wife of the Annuitant, if living; otherwise any then living
Second Contingents children born of the marriage of the Annuitant and said wife, equally,
or to the survivor; otherwise to Harry Doe and Mabel Doe, parents of
the Annuitant, equally, or to the survivor
9. Business Designations A. The Beacon Oil Company, Incorporated, a Texas Corporation Houston,
Texas, employer (or creditor), or its successors or assigns
B. John Doe, Business Partner
C. Harry Doe, Employer (or employee)
10. Trustee - Written Trust The American General Bank, Houston, Texas, as Trustee, or its
successors in Trust, under Trust Instrument dated May 31, 1995
Trustee - Testamentary Trust Trustee as provided in the Last Will and Testament of the Annuitant,
or successors thereunder
11. Estate The Executors, Administrators, or Assigns of the Annuitant
</TABLE>
USL 8876-1
Page 16
<PAGE>
THE UNITED STATES LIFE INSURANCE COMPANY
IN THE CITY OF NEW YORK ("USL") SELECT RESERVE
Administrative Center: Houston, TX
To Obtain a Statement of Additional Information, please complete the form below
and mail to:
THE UNITED STATES Life Insurance Company In the City of New York
Attn: Administrative Center
P.O. Box 1401
Houston, TX 77251-1401
Please send a Statement of Additional Information for the SELECT RESERVE
Variable Annuity to me at the following address:
____________________________________________
Name
____________________________________________
Address
____________________________________________
City/State Zip Code
USL8869 0599
Page 17
<PAGE>
THE UNITED STATES LIFE INSURANCE COMPANY
IN THE CITY OF NEW YORK
SEPARATE ACCOUNT USL VA-R
SELECT RESERVE(SM)
FLEXIBLE PAYMENT VARIABLE AND
FIXED GROUP DEFERRED ANNUITY CERTIFICATES
OFFERED BY
THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK
ADMINISTRATIVE CENTER
P.O. BOX 1401, HOUSTON, TEXAS 77251-1401
1-800-246-1924; (713) 831-3505
STATEMENT OF ADDITIONAL INFORMATION
Dated , 1999
This Statement of Additional Information ("Statement") is not a prospectus. You
should read it with the Prospectus for The United States Life Insurance Company
in the City of New York Separate Account USL VA-R (the "Separate Account"),
dated , 1999, concerning flexible payment variable and fixed group
deferred annuity Select Reserve(SM) certificates (the "Certificates"). The
Separate Account invests in certain Series of the:
. American General Series Portfolio Company,
. Hotchkis and Wiley Variable Trust,
. LEVCO Series Trust,
. Navellier Variable Insurance Series Fund, Inc.,
. OFFITBANK Variable Insurance Fund, Inc.,
. Royce Capital Fund, and
. Wright Managed Blue Chip Series Trust.
1
<PAGE>
You can obtain a copy of the Prospectus for the Certificates and any Prospectus
supplements by contacting The United States Life Insurance Company in the City
of New York ("USL") at the address or telephone numbers given above. You have
the option of receiving benefits on a fixed basis through USL's Fixed Account or
on a variable basis through USL's Separate Account. Terms have the same meaning
in this Statement that they do in the Prospectus under the heading
"Definitions."
TABLE OF CONTENTS
General Information................................................... 2
Regulation and Reserves............................................... 2
Independent Auditors.................................................. 4
Services.............................................................. 4
Principal Underwriter................................................. 4
Annuity Payments...................................................... 5
Gender of Annuitant................................................. 5
Misstatement of Age or Gender and Other Errors..................... 5
Change of Investment Adviser or Investment Policy..................... 5
Performance Data for the Divisions.................................... 5
Average Annual Total Return Calculations............................ 5
Cumulative Total Return Calculations................................ 6
Hypothetical Performance............................................ 6
Money Market Division Yield and Effective........................... 7
Yield Calculations............................................... 7
Performance Comparisons............................................. 8
Effect of Tax-Deferred Accumulation................................... 9
Financial Statements..................................................10
Index to Financial Statements.........................................11
GENERAL INFORMATION
USL is a stock life insurance company established under the laws of the state of
New York. The Company is a wholly-owned subsidiary of USLIFE Corporation, which
in turn is a wholly-owned subsidiary of AGC Life Insurance Company, a Missouri
corporation ("AG Missouri"). It is engaged primarily in the life insurance
business and annuity business. AG Missouri, in turn, is a wholly-owned
subsidiary of American General Corporation, a Texas holding corporation engaged
primarily in the insurance business.
REGULATION AND RESERVES
USL is subject to regulation and supervision by the State of New York, where it
is licensed to do business. This regulation covers a variety of areas,
including:
. benefit reserve requirements,
. adequacy of insurance company capital and surplus,
2
<PAGE>
. various operational standards, and
. accounting and financial reporting procedures.
USL's operations and accounts are subject to periodic examination by insurance
regulatory authorities.
Under most insurance guaranty fund laws, a state can assess insurers doing
business in the state for covered insurance contract losses incurred by
insolvent companies. State laws set limits for these assessments. However, USL
cannot reasonably estimate the amount of any future assessments of USL under
these laws. Most states have the authority to excuse or defer an assessment, if
it would threaten an insurer's own financial strength. The Account Value held
in the Separate Account may not be covered by insurance guaranty fund laws. The
Account Value held in the Fixed Account is covered by the insurance guaranty
fund laws.
The federal government generally has not directly regulated the business of
insurance. However, federal initiatives often have an impact on the business in
a variety of ways. Federal measures that may adversely affect the insurance
business include:
. employee benefit regulation,
. tax law changes affecting the taxation of insurance companies or of
insurance products,
. changes in the relative desirability of various personal investment
vehicles, and
. removal of impediments on the entry of banking institutions into the
business of insurance.
Also, both the executive and legislative branches of the federal government are
considering various insurance regulatory matters. This could ultimately result
in direct federal regulation of some aspects of the insurance business. USL
cannot predict whether this will occur or, if it does, what the effect on USL
would be.
State insurance law requires USL to carry reserves on its books, as liabilities,
to meet its obligations under outstanding insurance contracts. USL bases these
reserves on assumptions about future claims experience and investment returns,
among other things.
Neither the reserve requirements nor the other aspects of state insurance
regulation provide absolute protection to holders of insurance contracts,
including the Certificates, if USL were to incur claims or expenses at rates
significantly higher than expected. This might happen, for example, due to a
spread of acquired immune deficiency syndrome or other infectious diseases or
catastrophes, or significant unexpected losses on its investments.
INDEPENDENT AUDITORS
The 1998 financial statements of USL included in this Statement were audited by
Ernst & Young LLP, independent auditors, as set forth in their reports,
appearing elsewhere herein, and are included in reliance upon such reports given
on the authority of such firm as experts in accounting and auditing.
3
<PAGE>
Ernst & Young LLP is located at 787 Seventh Avenue, New York, New York 10019.
The financial statements of USL for the three months ended March 31, 1999,
included in this Statement, have not been audited.
SERVICES
USL and American General Life Companies ("AGLC") are parties to a services
agreement. Most of the affiliated companies within the American General
Corporation holding company system, including certain life insurance companies,
are also parties to a similar agreement. AGLC is a corporation incorporated in
Delaware on November 24, 1997, with its home office located at 2727-A Allen
Parkway, Houston, Texas 77019. AGLC provides shared services to USL and certain
other life insurance companies at cost. These services include data processing,
systems, customer services, product development, actuarial, auditing,
accounting, and legal. USL did not pay any fees to AGLC in 1998, because AGLC
performed no services under the agreement.
PRINCIPAL UNDERWRITER
American General Securities Incorporated ("AGSI") is the principal underwriter
for the Certificates. AGSI also serves as principal underwriter to American
General Life Insurance Company of New York's Separate Account E, as well as to
AGL's Separate Account A, Separate Account D, and Separate Account VL-R, all of
which are unit investment trusts registered under the Investment Company Act of
1940. AGSI, a Texas corporation, is a wholly-owned subsidiary of AGL and a
member of the National Association of Securities Dealers, Inc.
As principal underwriter for the Separate Account, AGSI received no compensation
from USL for any of the past three fiscal years.
USL offers the securities under the Certificates on a continuous basis.
ANNUITY PAYMENTS
GENDER OF ANNUITANT
When annuity payments are based on life expectancy, the amount of each annuity
payment ordinarily will be higher if the Annuitant or other measuring life is a
male, as compared with a female, under an otherwise identical Certificate. This
is because, statistically, females tend to have longer life expectancies than
males.
However, Montana, and certain other jurisdictions, do not permit differences in
annuity payment rates between males and females.
4
<PAGE>
In addition, employers should be aware that, under most employer-sponsored
plans, the law prohibits Certificates that make distinctions based on gender.
Under these plans, USL will make available Certificates with no such
differences.
MISSTATEMENT OF AGE OR GENDER AND OTHER ERRORS
If the age or gender of an Annuitant has been misstated to us, any amount
payable will be the amount that the purchase payments paid would have purchased
at the correct age and gender. If we made any overpayments because of incorrect
information about age or gender or any error or miscalculation, we will deduct
the overpayment from the next payment or payments due. We will add any
underpayments to the next payment. We will credit or charge the amount of any
adjustment with interest at the assumed interest rate used in the Certificate's
annuity tables.
CHANGE OF INVESTMENT ADVISER OR INVESTMENT POLICY
Unless otherwise permitted by law or regulation, no Series may change the
investment adviser to any Series or any investment policy without the consent of
the shareholders. If required, we will file approval of or change of any
investment objective with the insurance department of each state where a
Certificate has been delivered. We will notify you (or, after annuity payments
start, the payee) of any material investment policy change that we have
approved. We will also notify you of any investment policy change before its
implementation by the Separate Account, if the change requires your comment or
vote.
PERFORMANCE DATA FOR THE DIVISIONS
We may quote investment results for the available Divisions of Separate Account
USL VA-R from time to time. These results will not be an estimate or guarantee
of future investment performance. Nor will they represent the actual experience
of amounts invested by a particular Owner. We will carry performance figures to
the nearest one-hundredth of one percent. We may include in the figures the
effect of voluntary fee waivers and expense reimbursements to the Funds from
their investment adviser and administrator.
AVERAGE ANNUAL TOTAL RETURN CALCULATIONS
Each Division may advertise its average annual total return. We calculate each
Division's average annual total return quotation under the following standard
method that the Securities and Exchange Commission ("SEC") prescribes:
. We take a hypothetical $1,000 investment in the Division's
Accumulation Units on the first day of the period at the maximum
offering price. This figure is the Accumulation Unit Value per unit
("initial investment").
. We calculate the ending redeemable value ("redeemable value") of
that investment at the end of the period. The redeemable value
reflects the effect of all recurring charges and fees applicable
under the Certificate to all Owner accounts. Recurring charges and
fees include the
5
<PAGE>
Mortality and Expense Risk Charge and the Administrative Expense
Charge. We do not reflect any premium taxes in the calculation.
. We divide the redeemable value by the initial investment.
. We take this quotient to the Nth root (N representing the number of
years in the period), subtract 1 from the result, and express the
result as a percentage.
CUMULATIVE TOTAL RETURN CALCULATIONS
Each Division may also advertise cumulative total return performance.
Cumulative total return performance is the compound rate of return on a
hypothetical initial investment of $1,000 in each Division's Accumulation Units
on the first day of the period at the maximum offering price. This figure is
the Accumulation Unit value per unit ("initial investment"). Cumulative total
return figures (and the related "Growth of a $1,000 Investment" figures set
forth below) do not include the effect of any premium taxes. Cumulative total
return figures reflect changes in Accumulation Unit value. We calculate these
quotations by finding the cumulative rates of return of the hypothetical initial
investment over various periods, according to the following formula, and then
expressing those rates as a percentage:
C = (ERV/P) - 1
Where:
C = cumulative total return
P = a hypothetical initial investment of $1,000
ERV = ending redeemable value at the end of the applicable period of a
hypothetical $1,000 investment made at the beginning of the applicable
period.
HYPOTHETICAL PERFORMANCE
Each Division may advertise hypothetical performance, based on the calculations
described above, where all or a portion of the actual historical performance of
the corresponding Series in which the Division invests pre-dates the effective
date of the Division. The tables below provide hypothetical performance
information for the available Divisions of the Separate Account based on the
actual historical performance of the corresponding Series in which each of these
Divisions invests. This information reflects all actual charges and deductions
of these Series and the Separate Account that hypothetically would have been
made if the Separate Account invested assets under the Certificates in these
Series for the periods indicated.
All of the actual historical performance of the corresponding Series, as of the
date of this Statement, predates the effective date of the Division investing in
that Series. The tables below will be revised, in future Statements, to show
actual annual historical performance that occurs after the effective date of a
Division.
6
<PAGE>
Hypothetical Historical Average Annual Total Returns
(Through December 31, 1998)
<TABLE>
<CAPTION>
Since
Series
Investment Division One Year Five Years/1/ Ten Years/1/ Inception/2/
- - ------------------- -------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Hotchkis and Wiley Equity Income VIP N/A N/A N/A (8.31)%
Hotchkis and Wiley Low Duration VIP N/A N/A N/A 5.18 %
LEVCO Equity Value 15.52% N/A N/A 11.29 %
Navellier Growth N/A N/A N/A 14.21 %
OFFITBANK VIF-Emerging Markets (16.70)% N/A N/A (3.02)%
OFFITBANK VIF-High Yield 3.89 % N/A N/A 9.46 %
OFFITBANK VIF-Total Return N/A N/A N/A 2.97 %
OFFITBANK VIF-U.S. Gov. Securities/3/ N/A N/A N/A 6.38 %
Royce Premier 8.48 % N/A N/A 12.96 %
Royce Total Return N/A N/A N/A 3.44 %
Wright International Blue Chip 7.96 % N/A N/A 5.87 %
Wright Selected Blue Chip (3.03)% N/A N/A 13.03 %
Money Market 4.74 % 4.52% 6.10% N/A/1/
</TABLE>
Hypothetical Historical Cumulative Total Returns
(Through December 31, 1998)
<TABLE>
<CAPTION>
Since
Series
Investment Division One Year Five Years/1/ Ten Years/1/ Inception/2/
- - ------------------- -------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Hotchkis and Wiley Equity Income VIP N/A N/A N/A (6.62) %
Hotchkis and Wiley Low Duration VIP N/A N/A N/A 4.06 %
LEVCO Equity Value 15.52 % N/A N/A 16.25 %
Navellier Growth N/A N/A N/A 11.82 %
OFFITBANK VIF-Emerging Markets (16.70)% N/A N/A (6.94)%
OFFITBANK VIF-High Yield 3.89 % N/A N/A 28.12 %
OFFITBANK VIF-Total Return N/A N/A N/A 1.49 %
OFFITBANK VIF-U.S. Gov. Securities/3/ N/A N/A N/A 2.26 %
Royce Premier 8.48 % N/A N/A 27.77 %
Royce Total Return N/A N/A N/A 2.16 %
Wright International Blue Chip 7.96 % N/A N/A 32.89 %
Wright Selected Blue Chip (3.03)% N/A N/A 84.25 %
Money Market 4.74% 24.72% 80.81% N/A/1/
</TABLE>
7
<PAGE>
Hypothetical Historical Growth of a $1,000 Investment in the Divisions
(Through December 31, 1998)
<TABLE>
<CAPTION>
Since
Series
Investment Division One Year Five Years/1/ Ten Years/1/ Inception/2/
- - ------------------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Hotchkis and Wiley Equity Income VIP N/A N/A N/A $ 934
Hotchkis and Wiley Low Duration VIP N/A N/A N/A $1,041
LEVCO Equity Value $1,155 N/A N/A $1,163
Navellier Growth N/A N/A N/A $1,118
OFFITBANK VIF-Emerging Markets $ 833 N/A N/A $ 931
OFFITBANK VIF-High Yield $1,039 N/A N/A $1,281
OFFITBANK VIF-Total Return N/A N/A N/A $1,015
OFFITBANK VIF-U.S. Gov. Securities/3/ N/A N/A N/A $1,023
Royce Premier $1,085 N/A N/A $1,278
Royce Total Return N/A N/A N/A $1,022
Wright International Blue Chip $1,080 N/A N/A $1,329
Wright Selected Blue Chip $ 970 N/A N/A $1,842
Money Market $1,047 $1,247 $1,808 NA/1/
- - --------------------------
</TABLE>
1 "N/A" reflects SEC rules that require us to show return information for no
more than 10 years.
2 The inception dates for each Series funding the Divisions listed above are:
Money Market, January 16, 1986; Wright International Blue Chip and Wright
Selected Blue Chip, January 5, 1994; OFFITBANK VIF-High Yield, April 4, 1996;
OFFITBANK VIF-Emerging Markets, August 28, 1996; Royce Premier, December 27,
1996; LEVCO Equity Value, August 4, 1997; Navellier Growth, February 27, 1998;
Hotchkis and Wiley Equity Income VIP and Hotchkis and Wiley Low Duration VIP,
March 18, 1998; Royce Total Return, May 14, 1998; OFFITBANK VIF-Total Return,
June 29, 1998; OFFITBANK VIF-U.S. Government Securities, August 21, 1998.
3 Between September 24, 1998 and March 31, 1999 the net asset value for the
OFFITBANK VIF-U.S. Government Securities Fund did not change because the Fund
had no assets.
MONEY MARKET DIVISION YIELD AND EFFECTIVE YIELD CALCULATIONS
We calculate the Money Market Division's yield for which we use a standard
method that the SEC prescribes. Under that method, we base the current yield
quotation on a seven-day period and calculate that yield as follows:
. We take the net change in the Accumulation Unit value during the
period.
. We divide that net change by the Accumulation Unit value at the
beginning of the period to obtain the base period return.
. We multiply the base period return by the fraction 365/7 to obtain
the current yield figure.
. We carry the current yield figure to the nearest one-hundredth of
one percent.
We do not include realized capital gains or losses and unrealized appreciation
or depreciation of the Division's Portfolio in the calculation. The Money
Market Division's hypothetical historical yield for the seven-day period ended
December 31, 1998 was 4.41%.
8
<PAGE>
We determine the Money Market Division's effective yield by taking the base
period return (computed as described above) and calculating the effect of
assumed compounding. The formula for the effective yield is: (base period
return +1)365/7 -1. The Money Market Division's hypothetical historical
effective yield for the seven day period ended December 31, 1998 was 4.51%.
Yield and effective yield do not reflect the deduction of premium taxes that
may be imposed upon the redemption of Accumulation Units.
PERFORMANCE COMPARISONS
In our advertising and sales literature, we may compare the performance of each
or all of the available Divisions of the Separate Account to the performance of
(1) other variable annuities in general or (2) particular types of variable
annuities that invest in mutual funds, or series of mutual funds, with
investment objectives similar to each of the Divisions of the Separate Account.
Lipper Analytical Services, Inc. ("Lipper") and the Variable Annuity Research
and Data Service ("VARDS(R)") are independent services that monitor and rank the
performance of variable annuity issuers in each of the major categories of
investment objectives on an industry-wide basis. Lipper's rankings include
variable life insurance issuers as well as variable annuity issuers. VARDS(R)
rankings compare only variable annuity issuers. The performance analyses
prepared by Lipper and VARDS(R) rank such issuers on the basis of total return.
Total return assumes the reinvestment of dividends and distributions, but does
not take into consideration sales charges, redemption fees or certain expense
deductions at the separate account level. In addition, VARDS(R) prepares risk-
adjusted rankings, which consider the effects of market risk on total return
performance.
In addition, we may compare each Division's performance in advertisements and
sales literature to the following benchmarks:
. the Standard & Poor's 500 Composite Stock Price Index, an unmanaged
weighted index of 500 leading domestic companies that represents
approximately 80% of the market capitalization of the United States
equity market;
. the Dow Jones Industrial Average, an unmanaged unweighted average of
30 blue chip industrial corporations listed on the New York Stock
Exchange and generally considered representative of the United
States stock market;
. the Consumer Price Index, published by the U.S. Bureau of Labor
Statistics, a statistical measure of change, over time, in the
prices of goods and services in major spending groups and generally
is considered to be a measure of inflation;
. the Lehman Brothers Government and Domestic Strategic Income Index,
the Salomon Brothers High Grade Domestic Strategic Income Index, and
the Merrill Lynch Government/Corporate Master Index, unmanaged
indices that are generally considered to represent the performance
of intermediate and long term bonds during various market cycles;
and
9
<PAGE>
. the Morgan Stanley Capital International Europe Australasia Far East
Index, an unmanaged index that is considered to be generally
representative of major non-United States stock markets.
EFFECT OF TAX-DEFERRED ACCUMULATION
The Certificates qualify for tax-deferred treatment on earnings. This tax-
deferred treatment increases the amount available for accumulation by deferring
taxes on any earnings until the earnings are withdrawn. The longer the taxes are
deferred, the more the potential you have for the assets under your Certificate
to grow over the term of the Certificates.
The hypothetical tables set out below illustrate this potential. The tables
compare accumulations based on a single initial purchase payment of $100,000
compounded annually under:
. a Certificate, under which earnings are not taxed until withdrawn in
connection with a full surrender, partial withdrawal, or
annuitization, or termination due to insufficient Account Value
("withdrawal of earnings") and
. an investment under which earnings are taxed on a current basis
("Taxable Investment"), based on an assumed tax rate of 28%, and the
assumed earning rates specified.
5 Years 10 Years 20 Years
-------- -------- --------
(7.50% earnings rate)
Certificate $143,563 $206,103 $424,785
Certificate (after Taxes) $131,365 $176,394 $333,845
Taxable Investment $130,078 $169,202 $286,294
(10.00% earnings rate)
Certificate $161,051 $259,374 $672,750
Certificate (after Taxes) $143,957 $214,749 $512,380
Taxable Investment $141,571 $200,423 $401,694
The hypothetical tables do not reflect any fees or charges under a Certificate
or Taxable Investment. However, the Certificates impose:
. a Mortality and Expense Risk Charge of 0.36%, and
. an Administrative Expense Charge of 0.04%.
A Taxable Investment could incur comparable fees or charges. Fees and charges
would reduce the return from a Certificate or Taxable Investment.
Under the Certificates, a withdrawal of earnings is subject to tax, and may be
subject to an additional 10% tax penalty before age 59 1/2.
10
<PAGE>
These tables are only illustrations of the effect of tax-deferred accumulations
and are not a guarantee of future performance.
INDEX TO
FINANCIAL STATEMENTS
USL Financial Statements Page No.
-------
I. Three Months Ended March 31, 1999 and 1998............ Q-1
Report of Independent Auditors........................ Q-3
Balance Sheets........................................ Q-4
Statements of Income.................................. Q-6
Statements of Comprehensive Income.................... Q-7
Statements of Shareholder's Equity.................... Q-8
Statements of Cash Flows.............................. Q-9
Note to Financial Statements.......................... Q-10
II. Years Ended December 31, 1998, 1997, and 1996......... F-1
Report of Independent Auditors........................ F-3
Balance Sheets........................................ F-4
Statements of Income.................................. F-6
Statements of Comprehensive Income.................... F-7
Statements of Shareholder's Equity.................... F-8
Statements of Cash Flows.............................. F-9
Notes to Financial Statements......................... F-10
11
<PAGE>
FINANCIAL STATEMENTS
THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Q-1
<PAGE>
The United States Life Insurance Company in the City of New York
Financial Statements
Three months ended March 31, 1999 and 1998
CONTENTS
Report of Independent Auditors......................................... Q-3
Reviewed Financial Statements
Balance Sheets......................................................... Q-4
Statements of Income................................................... Q-6
Statements of Comprehensive Income..................................... Q-7
Statements of Shareholder's Equity..................................... Q-8
Statements of Cash Flows............................................... Q-9
Note to Financial Statements........................................... Q-10
Q-2
<PAGE>
[ERNST & YOUNG LLP LOGO] . 787 Seventh Avenue . Phone: 212 773 3000
New York, New York 10019
Report of Independent Auditors
Board of Directors and Stockholder
The United States Life Insurance Company
in the City of New York
We have reviewed the accompanying balance sheet of The United States Life
Insurance Company in the City of New York as of March 31, 1999, and the related
statements of income and cash flows for the three-month periods ended March 31,
1999 and 1998. These financial statements are the responsibility of the
Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, which will be
performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the balance sheets of The United States Life Insurance Company in the
City of New York as of December 31, 1998 and 1997, and the related statements of
income, shareholders' equity and cash flows for each of the three years in the
period ended December 31, 1998, and in our report dated April 23, 1999, we
expressed an unqualified opinion on those financial statements. In our opinion,
the information set forth in the accompanying balance sheet as of December 31,
1998, is fairly stated, in all material respects, in relation to the balance
sheet from which it has been derived.
New York, New York
May 7, 1999
ERNST & YOUNG LLP
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
Q-3
<PAGE>
The United States Life Insurance Company in the City of New York
Balance Sheets
MARCH 31 DECEMBER 31
1999 1998
--------------------------
(In Thousands)
ASSETS
Investments:
Fixed maturity securities, at fair value
(amortized cost - $1,919,000 in 1999 and $2,021,878 $2,047,519
$1,897,758 in 1998)
Equity securities, at fair value (cost - $568
in 1999 and $568 in 1998) 584 584
Mortgage loans on real estate 82,597 84,387
Policy loans 84,537 84,412
Investment real estate 3,929 6,101
Other long-term investments 10,408 1,385
Short-term investments 7 3,005
--------------------------
Total investments 2,203,940 2,227,393
Cash 4,282 5,045
Indebtedness from affiliates 2,020 6,832
Accrued investment income 41,779 37,227
Accounts and premiums receivable 142,668 231,863
Reinsurance recoverable 688,571 620,661
Deferred policy acquisition costs 108,280 98,552
Property and equipment 4,387 4,318
Other assets 30,020 12,886
--------------------------
Total assets $3,225,947 $3,244,777
==========================
Q-4
<PAGE>
MARCH 31 DECEMBER 31
1999 1998
--------------------------
(In Thousands)
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Future policy benefits
Life and Annuity $1,725,637 $1,729,001
Accident & Health 489,494 407,942
Other policy claims and benefits payable 105,685 116,912
Other policyholders' funds 105,707 109,130
Federal income taxes (17,306) (7,585)
Indebtedness to affiliates 19,993 1,848
Ceded reinsurance payable 139,880 245,576
Other liabilities 139,441 118,339
--------------------------
Total liabilities 2,708,531 2,721,163
--------------------------
Shareholder's equity:
Common stock, $2 par value, 1,980,658 shares
authorized, issued, and outstanding 3,961 3,961
Additional paid-in capital 8,361 8,361
Accumulated other comprehensive income 32,416 53,394
Retained earnings 472,678 457,898
--------------------------
Total shareholder's equity 517,416 523,614
--------------------------
Total liabilities and shareholder's equity $3,225,947 $3,244,777
==========================
Q-5
<PAGE>
The United States Life Insurance Company in the City of New York
Statements of Income
THREE MONTHS ENDED MARCH 31
1999 1998
---------------------------
(In Thousands)
Revenues:
Premiums and other considerations $51,499 $173,493
Net investment income 45,037 47,720
Net realized investment gains (losses) 37 138
Other 1,109 1,427
---------------------------
Total revenues 97,682 222,778
---------------------------
Benefits and expenses:
Benefits 52,426 149,375
Operating costs and expenses 23,049 56,764
---------------------------
Total benefits and expenses 75,475 206,139
---------------------------
Income before income tax expense 22,207 16,639
Income tax expense 7,427 4,428
---------------------------
Net income $14,780 $ 12,211
===========================
Q-6
<PAGE>
The United States Life Insurance Company in the City of New York
Statements of Comprehensive Income
THREE MONTHS ENDED MARCH 31
1999 1998
---------------------------
(In Thousands)
Net income $ 14,780 $12,211
---------------------------
Other comprehensive income:
Gross change in unrealized (losses)
gains on securities (pretax: 1999:
$(32,148); 1998: $(12,649)) (20,896) (8,222)
Less: gains (losses) realized in net income 82 -
---------------------------
Change in net unrealized (losses) gains
on securities (pretax: 1999:
$(32,274); 1998: $(12,649)) (20,978) (8,222)
---------------------------
Comprehensive (loss) income $ (6,198) $ 3,989
===========================
Q-7
<PAGE>
The United States Life Insurance Company in the City of New York
Statements of Shareholder's Equity
MARCH 31 DECEMBER 31
1999 1998
--------------------------
(In Thousands)
Common stock:
Balance at beginning of year $ 3,961 $ 3,961
Change during period - -
--------------------------
Balance at end of period 3,961 3,961
--------------------------
Additional paid-in capital:
Balance at beginning of year 8,361 8,361
Change during period - -
--------------------------
Balance at end of period 8,361 8,361
--------------------------
Accumulated other comprehensive income:
Balance at beginning of year 53,394 53,830
Change in unrealized gains (losses) on
securities (20,978) (436)
--------------------------
Balance at end of period 32,416 53,394
--------------------------
Retained earnings:
Balance at beginning of year 457,898 483,349
Net income (loss) 14,780 (25,451)
--------------------------
Balance at end of period 472,678 457,898
--------------------------
Total shareholder's equity $517,416 $523,614
==========================
Q-8
<PAGE>
The United States Life Insurance Company in the City of New York
Statements of Cash Flows
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
1999 1998
-------------------------------
(In Thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 14,780 $ 12,211
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Change in accounts and premiums receivable 106,813 (3,666)
Change in future policy benefits 73,759 (25,877)
Amortization of policy acquisition costs 9,928 16,135
Policy acquisition costs deferred (7,283) (15,912)
Change in other policyholders' funds (1,531) 3,515
Provision for deferred income tax expense 5,335 (74)
Depreciation 349 205
Amortization (471) (468)
Change in indebtedness to/from affiliates 4,157 8,108
Change in reinsurance balances (173,606) (867)
Net (gain) loss on sale of investments (37) (138)
Other, net (38,484) 13,419
-------------------------------
Net cash (used in) provided by operating activities (6,291) 6,591
-------------------------------
INVESTING ACTIVITIES
Purchases of investments and loans made (703,914) (563,047)
Sales or maturities of investments and receipts from
repayment of loans 657,247 581,048
Sales and purchases of property, equipment, and
software, net (418) (494)
-------------------------------
Net cash (used in) provided by investing activities (47,085) 17,507
-------------------------------
FINANCING ACTIVITIES
Policyholder account deposits 32,369 33,098
Policyholder account withdrawals (27,940) (86,036)
Short-term collateralized financings 29,384 37,090
Affiliate borrowings 18,800 -
-------------------------------
Net cash provided by (used in) financing activities 52,613 (15,848)
-------------------------------
(Decrease) increase in cash (763) 8,250
Cash at beginning of period 5,045 4,834
-------------------------------
Cash at end of period $ 4,282 $ 13,084
===============================
Interest paid amounted to approximately $8 thousand in 1999. There was no interest paid in 1998.
</TABLE>
Q-9
<PAGE>
The United States Life Insurance Company in the City of New York
Note to Financial Statements
March 31, 1999
BASIS OF PRESENTATION
The financial statements for the interim periods herein are unaudited. However,
they have been prepared in accordance with generally accepted accounting
principles for interim financial information and in the opinion of management,
such information reflects all adjustments considered necessary for a fair
presentation. Operating results for the interim period are not necessarily
indicative of the results to be expected for the full year.
These financial statements should be read in conjunction with the audited
financial statements and notes of the Company for the year ended December 31,
1998.
Q-10
<PAGE>
FINANCIAL STATEMENTS
THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
F-1
<PAGE>
The United States Life Insurance Company in the City of New York
Financial Statements
Years ended December 31, 1998, 1997, and 1996
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors....... F-3
Audited Financial Statements
Balance Sheets....................... F-4
Statements of Income................. F-6
Statements of Comprehensive Income... F-7
Statements of Shareholder's Equity... F-8
Statements of Cash Flows............. F-9
Notes to Financial Statements........ F-10
</TABLE>
F-2
<PAGE>
[ERNST & YOUNG LLP LOGO] . 787 Seventh Avenue . Phone: 212 773 3000
New York, New York 10019
Report of Independent Auditors
Board of Directors and Stockholder
The United States Life Insurance Company
in the City of New York
We have audited the accompanying balance sheets of The United States Life
Insurance Company in the City of New York (an indirectly wholly owned subsidiary
of American General Corporation) as of December 31, 1998 and 1997, and the
related statements of income, comprehensive income, shareholder's equity, and
cash flows for each of the three years in the period ended December 31, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The United States Life
Insurance Company in the City of New York at December 31, 1998 and 1997, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
New York, New York ---------------------
April 23, 1999 ERNST & YOUNG LLP
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
F-3
<PAGE>
The United States Life Insurance Company in the City of New York
Balance Sheets
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
------------------------------
<S> <C> <C>
(In Thousands)
ASSETS
Investments:
Fixed maturity securities, at fair value
(amortized cost - $1,897,758 in 1998 and
$2,215,928 in 1997) $2,047,519 $2,352,376
Equity securities, at fair value (cost - $568 in
1998 and $568 in 1997) 584 578
Mortgage loans on real estate 84,387 60,565
Policy loans 84,412 87,726
Investment real estate 6,101 7,731
Other long-term investments 1,385 971
Short-term investments 3,005 55,908
------------------------------
Total investments 2,227,393 2,565,855
Cash 5,045 4,834
Indebtedness from affiliates 6,832 1,711
Accrued investment income 37,227 44,050
Accounts and premiums receivable 231,863 64,717
Reinsurance recoverable 620,661 58,479
Deferred policy acquisition costs 98,552 185,243
Property and equipment 4,318 1,971
Other assets 12,886 9,702
------------------------------
Total assets $3,244,777 $2,936,562
==============================
</TABLE>
See accompanying notes.
F-4
<PAGE>
<TABLE>
<CAPTION>
December 31
1998 1997
-------------------------------
<S> <C> <C>
(In Thousands)
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Future policy benefits
Life and Annuity $1,729,001 $1,876,294
Accident & Health 407,942 186,879
Other policy claims and benefits payable 116,912 115,712
Other policyholders' funds 109,130 86,400
Federal income taxes (7,585) 32,457
Indebtedness to affiliates 1,848 4,746
Ceded reinsurance payable 245,576 5,127
Other liabilities 118,339 79,446
-------------------------------
Total liabilities 2,721,163 2,387,061
-------------------------------
Shareholder's equity:
Common stock, $2 par value, 1,980,658 shares
authorized, issued, and outstanding 3,961 3,961
Additional paid-in capital 8,361 8,361
Accumulated other comprehensive income 53,394 53,830
Retained earnings 457,898 483,349
-------------------------------
Total shareholder's equity 523,614 549,501
-------------------------------
Total liabilities and shareholder's equity $3,244,777 $2,936,562
===============================
</TABLE>
See accompanying notes.
F-5
<PAGE>
The United States Life Insurance Company in the City of New York
Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C>
(In Thousands)
Revenues:
Premiums and other considerations $594,155 $666,173 $609,582
Net investment income 185,838 189,262 195,687
Net realized investment (losses)
gains (3,951) (3,116) 3,836
Other 4,901 26,576 8,355
-----------------------------------------------
Total revenues 780,943 878,895 817,460
-----------------------------------------------
Benefits and expenses:
Benefits 514,020 594,021 559,396
Operating costs and expenses 221,115 212,977 225,291
Loss on reinsurance settlements 59,878 - -
Litigation settlement 30,689 - -
Change in control costs - 6,955 -
-----------------------------------------------
Total benefits and expenses 825,702 813,953 784,687
-----------------------------------------------
(Loss) income before income tax
(benefit) expense (44,759) 64,942 32,773
Income tax (benefit) expense (19,308) 22,700 10,943
-----------------------------------------------
Net (loss) income $(25,451) $ 42,242 $ 21,830
===============================================
</TABLE>
See accompanying notes.
F-6
<PAGE>
The United States Life Insurance Company in the City of New York
Statements of Comprehensive Income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
----------------------------------------------
<S> <C> <C> <C>
(In Thousands)
Net (loss) income $(25,451) $42,242 $ 21,830
----------------------------------------------
Other comprehensive (loss) income:
Gross change in unrealized (losses)
gains on securities (pretax: 1998:
$(4,920); 1997: $46,905; 1996:
($73,462)) (3,198) 30,488 (47,750)
Less: (losses) gains realized in
net income (2,762) 2,060 1,812
----------------------------------------------
Change in net unrealized (losses)
gains on securities (pretax: 1998:
$(671); 1997: $43,735; 1996:
($76,249) (436) 28,428 (49,562)
----------------------------------------------
Comprehensive (loss) income $(25,887) $70,670 $(27,732)
==============================================
</TABLE>
See accompanying notes.
F-7
<PAGE>
The United States Life Insurance Company in the City of New York
Statements of Shareholder's Equity
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C>
(In Thousands)
Common stock:
Balance at beginning of year $ 3,961 $ 3,961 $ 3,961
Change during year - - -
-----------------------------------------------
Balance at end of year 3,961 3,961 3,961
-----------------------------------------------
Additional paid-in capital:
Balance at beginning of year 8,361 8,361 8,361
Change during year - - -
-----------------------------------------------
Balance at end of year 8,361 8,361 8,361
-----------------------------------------------
Accumulated other comprehensive
income:
Balance at beginning of year 53,830 25,402 74,964
Change in unrealized (losses) gains
on securities (436) 28,428 (49,562)
-----------------------------------------------
Balance at end of year 53,394 53,830 25,402
-----------------------------------------------
Retained earnings:
Balance at beginning of year 483,349 441,107 419,277
Net (loss) income (25,451) 42,242 21,830
-----------------------------------------------
Balance at end of year 457,898 483,349 441,107
-----------------------------------------------
Total shareholder's equity $ 523,614 $549,501 $478,831
===============================================
</TABLE>
See accompanying notes.
F-8
<PAGE>
The United States Life Insurance Company in the City of New York
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
--------------------------------------------------------------------
<S> <C> <C> <C>
(In Thousands)
OPERATING ACTIVITIES
Net (loss) income $ (25,451) $ 42,242 $ 21,830
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Change in accounts and premiums receivable (167,146) (6,977) (7,385)
Change in future policy benefits 174,629 82,006 64,811
Amortization of policy acquisition costs 66,331 58,583 85,536
Policy acquisition costs deferred (62,766) (62,651) (63,041)
Change in other policyholders' funds 22,573 21,783 11,452
Provision for deferred income tax expense (45,403) (995) 1,992
Depreciation 1,327 1,100 1,024
Amortization (1,734) (2,360) (2,306)
Change in indebtedness to/from affiliates (8,019) 3,415 732
Change in reinsurance balances (321,733) (9,492) (8,537)
Net (gain) loss on sale of investments 3,951 3,116 (3,836)
Other, net 118,537 39,806 26,497
--------------------------------------------------------------------
Net cash (used in) provided by operating
activities (244,904) 169,576 128,769
--------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of investments and loans made (2,833,731) (2,407,890) (1,246,498)
Sales or maturities of investments and receipts
from repayment of loans 3,183,379 2,507,408 1,280,163
Sales and purchases of property, equipment, and
software, net (3,674) 274 (1,861)
--------------------------------------------------------------------
Net cash provided by investing activities 345,974 99,792 31,804
--------------------------------------------------------------------
FINANCING ACTIVITIES
Policyholder account deposits 131,386 135,668 133,763
Policyholder account withdrawals (232,245) (407,383) (307,065)
--------------------------------------------------------------------
Net cash (used in) financing activities (100,859) (271,715) (173,302)
--------------------------------------------------------------------
Increase (decrease) in cash 211 (2,347) (12,729)
Cash at beginning of year 4,834 7,181 19,910
--------------------------------------------------------------------
Cash at end of year $ 5,045 $ 4,834 $ 7,181
====================================================================
</TABLE>
Interest paid amounted to approximately $5.3 million in 1998. There was no
interest paid in 1997 or 1996.
See accompanying notes.
F-9
<PAGE>
The United States Life Insurance Company in the City of New York
Notes to Financial Statements
December 31, 1998
NATURE OF OPERATIONS
The United States Life Insurance Company in the City of New York (the "Company")
is domiciled in the State of New York. The Company is a wholly owned subsidiary
of USLIFE Corporation. Through the acquisition of USLIFE Corporation by American
General Corporation (the "Parent Company") on June 17, 1997, American General
Corporation became the ultimate parent of the Company.
The Company offers a broad portfolio of individual life and annuity products as
well as group and credit insurance.
The individual life line of business includes universal life, level term, whole
life and interest sensitive whole life as well as annuities. These individual
and annuity products are sold primarily to affluent markets, generally through
independent general agencies and producers as well as financial institutions.
The Company also provides products for preferred international markets and other
target markets through lower cost distribution channels.
Group insurance products include group life, accidental death & dismemberment
("AD&D"), dental, vision and disability coverage and are sold through
independent general agents and producers as well as third party administrators.
These products are marketed nationwide to employers, professional and affinity
associations. The Company also offers managed care medical products to small
employers in four states (New York, New Jersey, Colorado and Illinois).
1. ACCOUNTING POLICIES
1.1 PREPARATION OF FINANCIAL STATEMENTS
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP"). Transactions with the Parent Company
and other subsidiaries of the Parent Company are not eliminated from the
financial statements of the Company.
The preparation of financial statements requires management to make estimates
and assumptions that affect amounts reported in the financial statements and
disclosures of contingent assets and liabilities. Ultimate results could differ
from those estimates.
1.2 INSURANCE CONTRACTS
The insurance contracts accounted for in these financial statements include both
long-duration and short-duration contracts.
Long-duration contracts include traditional whole life, endowment, guaranteed
renewable term life, universal life, limited payment, and investment contracts.
Long-duration
F-10
<PAGE>
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.2 INSURANCE CONTRACTS (CONTINUED)
contracts generally require the performance of various functions and services
over a period of more than one year.
Short-duration contracts include group major medical, dental, term life, AD&D,
excess major medical, hospital indemnity and long-term and short-term disability
policies. Short-term contracts generally require the performance of various
functions and services over a period of one year or less.
The contract provisions generally cannot be changed or canceled by the insurer
during the contract period; however, most new contracts written by the Company
allow the insurer to revise certain elements used in determining premium rates
or policy benefits, subject to guarantees stated in the contracts.
1.3 INVESTMENTS
FIXED MATURITY AND EQUITY SECURITIES
All fixed maturity and equity securities were classified as available-for-sale
and recorded at fair value at December 31, 1998, 1997, and 1996. After adjusting
related balance sheet accounts as if the unrealized gains (losses) had been
realized, the net adjustment is recorded in accumulated other comprehensive
income within shareholders' equity. If the fair value of a security classified
as available-for-sale declines below its cost and this decline is considered to
be other than temporary, the security is reduced to its fair value, and the
reduction is recorded as a realized loss.
MORTGAGE LOANS
Mortgage loans are reported at amortized cost, net of an allowance for losses.
The allowance for losses covers all non-performing loans and loans for which
management has a concern based on its assessment of risk factors, such as
potential non-payment or non-monetary default. The allowance is based on a loan-
specific review and a formula that reflects past results and current trends.
Loans for which the Company determines that collection of all amounts due under
the contractual terms is not probable are considered to be impaired. The Company
generally looks to the underlying collateral for repayment of impaired loans.
Therefore, impaired loans are considered to be collateral dependent and are
reported at the lower of amortized cost or fair value of the underlying
collateral, less estimated cost to sell.
F-11
<PAGE>
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.3 INVESTMENTS (CONTINUED)
POLICY LOANS
Policy loans are reported at unpaid principal balance.
INVESTMENT REAL ESTATE
Investment real estate is classified as held for investment or available for
sale, based on management's intent. Real estate held for investment is carried
at cost, less accumulated depreciation and impairment write-downs. Real estate
available for sale is carried at the lower of cost (less accumulated
depreciation, if applicable) or fair value less cost to sell.
INVESTMENT INCOME
Interest on fixed maturity securities and performing and restructured mortgage
loans is recorded as income when earned and is adjusted for any amortization of
premium or discount. Interest on delinquent mortgage loans is recorded as income
when received. Dividends are recorded as income on ex-dividend dates.
REALIZED INVESTMENT GAINS
Realized investment gains (losses) are recognized using the specific-
identification method.
1.4 DEFERRED POLICY ACQUISITION COSTS ("DPAC")
Certain costs of writing an insurance policy, including commissions,
underwriting, and marketing expenses, are deferred and reported as DPAC.
DPAC associated with interest-sensitive life contracts is charged to expense in
relation to the estimated gross profits of those contracts. DPAC associated with
insurance investment contracts is effectively charged off over the period ending
one year beyond the surrender charge period. DPAC associated with all other
insurance contracts is charged to expense over the premium-paying period or as
the premiums are earned over the life of the contract.
DPAC is adjusted for the impact on estimated future gross profits as if net
unrealized gains (losses) on securities had been realized at the balance sheet
date. The impact of this adjustment is included in accumulated other
comprehensive income within shareholder's equity.
The Company reviews the carrying amount of DPAC on at least an annual basis.
Management considers estimated future gross profits or future premiums, future
lapse
F-12
<PAGE>
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.4 DEFERRED POLICY ACQUISITION COSTS ("DPAC") (CONTINUED)
rates, expected mortality/morbidity, interest earned and credited rates,
persistency, and expenses in determining whether the carrying amount is
recoverable.
1.5 PREMIUM RECOGNITION
Most receipts for annuities and interest-sensitive life insurance policies are
classified as deposits instead of revenue. Revenues for these contracts consist
of mortality, expense, and surrender charges. Policy charges that compensate the
Company for future services are deferred and recognized in income over the
period earned, using the same assumptions used to amortize DPAC (see Note 1.4).
For all other contracts, premiums are recognized when due.
1.6 POLICY AND CONTRACT CLAIMS RESERVES
The Company's insurance and annuity liabilities relate to both long-duration and
short-duration contracts. The contracts normally cannot be changed or canceled
by the Company during the contract period.
For long-duration contracts such as interest-sensitive life and insurance
investment contracts, reserves equal the sum of the policy account balance and
deferred revenue charges. Reserves for other long-duration contracts are based
on estimates of the cost of future policy benefits. Reserves are determined
using the net level premium method. Interest assumptions used to compute
reserves ranged from 2.2% to 11.25% at December 31, 1998.
Short-duration contracts are rated based on attained age and are guaranteed
issue and thus not subject to the normal wear-off mortality/morbidity patterns.
No policy reserves other than unearned premium reserves are held. The unearned
premium reserve is based on gross premium and is calculated on a pro rata basis.
Incurred but not reported claim reserves are based upon patterns demonstrated
through run-out studies. Reserves for open long-term disability claims are based
on the 1964 and 1985 Commissioner Disability Tables, modified for company
experience. The interest assumption is 6%.
1.7 REINSURANCE
The Company limits its exposure to loss on any single insured to $1.5 million by
ceding additional risks through reinsurance contracts with other insurers. The
Company diversifies its risk of reinsurance loss by using a number of reinsurers
that have strong claims-paying ability ratings. The Company remains obligated
for amounts ceded in the
F-13
<PAGE>
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
1. ACCOUNTING POLICIES (CONTINUED)
1.7 REINSURANCE (CONTINUED)
event that the reinsurers do not meet their obligations.
A recoverable is recorded for the portion of benefits paid and insurance
liabilities that have been reinsured. The cost of reinsurance is recognized over
the life of the reinsured policies using assumptions consistent with those used
to account for the underlying policies.
Benefits paid and future policy benefits related to ceded insurance contracts
are recorded as reinsurance recoverables. The cost of reinsurance is recognized
over the life of the underlying reinsured policies using assumptions consistent
with those used to account for the underlying policies.
1.8 PARTICIPATING POLICY CONTRACTS
Participating life insurance accounted for approximately 36.7%, 33.2%, and 24.3%
of individual life insurance in force at December 31, 1998, 1997 and 1996
respectively.
The portion of earnings allocated to participating policyholders that cannot be
expected to inure to shareholders is excluded from net income and shareholder's
equity. Dividends to be paid on participating life insurance contracts are
determined annually based on estimates of the contracts' earnings. Policyholder
dividends were $2.4 million, $2.6 million and $2.8 million in 1998, 1997 and
1996 respectively.
1.9 INCOME TAXES
The Company was acquired by American General Corporation on June 17, 1997.
Following the acquisition, the Company will file a separate life company federal
income tax return for five years.
Deferred tax assets and liabilities are established for temporary differences
between the financial reporting basis and the tax basis of assets and
liabilities, at the enacted tax rates expected to be in effect when the
temporary differences reverse. The effect of a tax rate change is recognized in
income in the period of enactment.
A valuation allowance for deferred tax assets is provided if it is more likely
than not that some portion of the deferred tax asset will not be realized. An
increase or decrease in a valuation allowance that results from a change in
circumstances that causes a change in judgment about the realizability of the
related deferred tax asset is included in income. Changes related to
fluctuations in fair value of available-for-sale securities are included in
accumulated other comprehensive income in shareholder's equity.
F-14
<PAGE>
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
1.10 CHANGES IN ACCOUNTING AND REPORTING STANDARDS
During 1998, the Company adopted Statement of Financial Accounting Standards
(SFAS) 130, Reporting Comprehensive Income, which establishes standards for
reporting and displaying comprehensive income and its components in the
financial statements. The Company elected to report comprehensive income and its
components in a separate statement of comprehensive income. Adoption of this
statement did not change recognition or measurement of net income and,
therefore, did not impact the Company's results of operations or financial
position.
Effective January 1, 1998, the Company adopted SFAS 132, Employers' Disclosures
about Pension and Other Postretirement Benefits, which revised disclosure
requirements for employers' pension and other retiree benefits. SFAS 132 did not
change the measurement or recognition of pension or other postretirement benefit
plans. The Company has restated disclosures for earlier years presented, as
required under SFAS 132.
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
Accounting for Derivative Instruments and Hedging Activities, which requires all
derivative instruments to be recognized at fair value as either assets or
liabilities in the balance sheet. Changes in the fair value of a derivative
instrument are to be reported as earnings or other comprehensive income,
depending upon the intended use of the derivative instrument. This statement is
effective for years beginning after June 15, 1999. Adoption of SFAS 133 is not
expected to have a material impact on the Company's results of operations or
financial position.
F-15
<PAGE>
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
2. INVESTMENTS
2.1 INVESTMENT INCOME
Investment income by type of investment was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Investment income:
Fixed maturities $176,449 $176,714 $183,290
Equity securities 49 49 49
Mortgage loans on real estate 5,766 7,277 7,644
Investment real estate 1,556 1,365 1,530
Policy loans 5,521 5,683 5,649
Other long-term investments 310 652 1,691
Short-term investments 2,742 1,280 1,164
Investment income from affiliates 57 - -
---------------------------------------------
Gross investment income 192,450 193,020 201,017
Investment expenses 6,612 3,758 5,330
---------------------------------------------
Net investment income $185,838 $189,262 $195,687
=============================================
</TABLE>
2.2 NET REALIZED INVESTMENT GAINS (LOSSES)
Realized gains (losses) by type of investment were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Fixed maturities:
Gross gains $ 2,860 $ 6,704 $ 15,241
Gross losses (7,111) (3,534) (12,230)
------------------------------------------------
Total fixed maturities (4,251) 3,170 3,011
Equity securities - - (259)
Other investments 300 (6,286) 1,084
------------------------------------------------
Net realized investment gains
(losses) before tax (3,951) (3,116) 3,836
Income tax expense (benefit) (1,383) (1,090) 1,344
------------------------------------------------
Net realized investment gains
(losses) after tax $(2,568) $(2,026) $ 2,492
================================================
</TABLE>
F-16
<PAGE>
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
2.3 FIXED MATURITY AND EQUITY SECURITIES
All fixed maturity and equity securities are classified as available-for-sale
and reported at fair value (see Note 1.3). Amortized cost and fair value at
December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
-------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
Fixed maturity securities:
Corporate securities:
Investment-grade $1,626,339 $131,810 $(1,684) $1,756,465
Below investment-grade 112,767 3,415 (1,173) 115,009
Mortgage-backed securities* 50,036 912 - 50,948
U.S. government obligations 19,968 4,238 - 24,206
Foreign governments 79,794 11,944 - 91,738
State and political
subdivisions 6,469 139 - 6,608
Redeemable preferred stocks 2,385 160 - 2,545
-------------------------------------------------------------
Total fixed maturity
securities $1,897,758 $152,618 $(2,857) $2,047,519
=============================================================
Equity securities $ 568 $ 25 $ (9) $ 584
=============================================================
</TABLE>
*Primarily include pass-through securities guaranteed by the U.S. government and
government agencies.
F-17
<PAGE>
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
2.3 FIXED MATURITY AND EQUITY SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
-----------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
Fixed maturity securities:
Corporate securities:
Investment-grade $1,969,450 $118,880 $(1,019) $2,087,311
Below investment-grade 113,181 2,745 (426) 115,500
Mortgage-backed securities* 3,725 459 - 4,184
U.S. government obligations 20,916 3,001 (24) 23,893
Foreign governments 96,162 12,254 - 108,416
State and political
subdivisions 9,992 293 (1) 10,284
Redeemable preferred stock 2,502 286 - 2,788
-----------------------------------------------------------------
Total fixed maturity
securities $2,215,928 $137,918 $(1,470) $2,352,376
=================================================================
Equity securities $ 568 $ 22 $ (12) $ 578
=================================================================
</TABLE>
*Primarily include pass-through securities guaranteed by the U.S. government and
government agencies.
F-18
<PAGE>
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
2.3 FIXED MATURITY AND EQUITY SECURITIES (CONTINUED)
Net unrealized gains (losses) on securities included in accumulated
comprehensive income in shareholders' equity at December 31 were as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------------
(In Thousands)
<S> <C> <C>
Gross unrealized gains $152,643 $137,940
Gross unrealized losses (2,866) (1,482)
DPAC and other fair value adjustments (67,632) (53,643)
Deferred federal income taxes (28,751) (28,985)
-------------------------------
Net unrealized gains on securities $ 53,394 $ 53,830
===============================
</TABLE>
The contractual maturities of fixed maturity securities at December 31, 1998 and
1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------------------------------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
------------------------------------------------------------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Fixed maturity
securities, excluding
mortgage-backed
securities:
Due in one year or
less $ 193,010 $ 196,606 $ 91,283 $ 91,461
Due after one year
through five years 551,151 579,964 762,673 795,257
Due after five years
through ten years 357,288 382,038 521,239 542,858
Due after ten years 746,273 837,963 837,008 918,616
Mortgage-backed
securities 50,036 50,948 3,725 4,184
------------------------------------------------------------
Total fixed maturity
securities $1,897,758 $2,047,519 $2,215,928 $2,352,376
============================================================
</TABLE>
Actual maturities may differ from contractual maturities, since borrowers may
have the right to call or prepay obligations. In addition, corporate
requirements and investment strategies may result in the sale of investments
before maturity. Proceeds from sales of fixed maturities were $587.3 million,
$576.2 million, and $404.5 million during 1998, 1997, and 1996, respectively.
F-19
<PAGE>
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
2.4 MORTGAGE LOANS ON REAL ESTATE
Diversification of the geographic location and type of property collateralizing
mortgage loans reduces the concentration of credit risk. For new loans, the
Company requires loan-to-value ratios of 75% or less, based on management's
credit assessment of the borrower. The mortgage loan portfolio was distributed
as follows at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
OUTSTANDING PERCENT OF PERCENT
AMOUNT TOTAL NONPERFORMING
--------------------------------------------------
(In Millions)
<S> <C> <C> <C>
DECEMBER 31, 1998
Geographic distribution:
South Atlantic $16 19.0% - %
Pacific 7 8.3 27.6
Mid-Atlantic 32 38.1 -
East North Central 14 16.7 -
Mountain 3 3.6 -
West South Central 5 6.0 -
East South Central - - -
West North Central 1 1.2 -
New England 11 13.1 -
Allowance for losses (5) (6.0) -
-------------------------------
Total $84 100.0% 2.4%
===============================
Property type:
Office $39 46.4% - %
Retail 28 33.3 6.5
Industrial 16 19.0 -
Apartments 2 2.4 -
Other 4 4.9 -
Allowance for losses (5) (6.0) -
-------------------------------
Total $84 100.0% 2.4%
===============================
</TABLE>
F-20
<PAGE>
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
2.4 MORTGAGE LOANS ON REAL ESTATE (CONTINUED)
OUTSTANDING PERCENT OF PERCENT
AMOUNT TOTAL NONPERFORMING
---------------------------------------------
(In Millions)
DECEMBER 31, 1997
Geographic distribution:
South Atlantic $ 2 3.3% -%
Pacific 2 3.3 95.5
Mid-Atlantic 39 65.0 -
East North Central 9 15.0 -
Mountain 4 6.7 -
West South Central 3 5.0 -
East South Central - - -
West North Central 1 1.7 -
New England 5 8.3 -
Allowance for losses (5) (8.3) -
-------------------
Total $60 100.0% 3.1%
===================
Property type:
Office $15 25.0% -%
Retail 28 46.7 6.5
Industrial 15 25.0 -
Apartments 2 3.3 -
Other 5 8.3 -
Allowance for losses (5) (8.3) -
-------------------
Total $60 100.0% 3.1%
===================
F-21
<PAGE>
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
2.5 INVESTMENT SUMMARY
Investments of the Company were as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
-----------------------------------------------------------------------------------------------
CARRYING CARRYING
COST FAIR VALUE AMOUNT COST FAIR VALUE AMOUNT
-----------------------------------------------------------------------------------------------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Fixed maturities:
Bonds:
United States government and
government agencies and
authorities $ 19,968 $ 24,206 $ 24,206 $ 20,916 $ 23,893 $ 23,893
States, municipalities, and
political subdivisions 6,469 6,608 6,608 9,992 10,284 10,284
Foreign governments 79,794 91,738 91,738 96,162 108,416 108,416
Public utilities 320,947 345,320 345,320 392,640 411,186 411,186
Mortgage-backed securities 50,036 50,948 50,948 3,725 4,184 4,184
All other corporate bonds 1,418,159 1,526,154 1,526,154 1,689,991 1,791,625 1,791,625
Redeemable preferred stocks 2,385 2,545 2,545 2,502 2,788 2,788
-----------------------------------------------------------------------------------------------
Total fixed maturities 1,897,758 2,047,519 2,047,519 2,215,928 2,352,376 2,352,376
Equity securities:
Nonredeemable preferred stocks 568 584 584 568 578 578
-----------------------------------------------------------------------------------------------
Total fixed maturities and
equity securities 1,898,326 $2,048,103 2,048,103 2,216,496 $2,352,954 2,352,954
========== ==========
Mortgage loans on real estate* 84,387 84,387 60,565 60,565
Investment real estate 6,101 6,101 7,731 7,731
Policy loans 84,412 84,412 87,726 87,726
Other long-term investments 1,385 1,385 971 971
Short-term investments 3,005 3,005 55,908 55,908
---------- --------------------------- ----------
Total investments $2,077,616 $2,227,393 $2,429,397 $2,565,855
========== =========================== ==========
</TABLE>
* Amount is net of allowance for losses of $5 million at both December 31,
1998 and 1997.
F-22
<PAGE>
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
3. DEFERRED POLICY ACQUISITION COSTS
The balance of DPAC at December 31 and the components of the change reported in
operating costs and expenses for the years then ended were as follows:
1998 1997 1996
---------------------------------------
(In Thousands)
Balance at January 1 $185,243 $197,572 $199,268
Capitalization 62,766 62,651 63,041
Amortization (66,331) (58,583) (85,536)
Effect of unrealized gains (losses)
on securities (13,832) (15,656) 20,799
Effect of realized gains (losses) (85) (741) -
Reinsurance transfer (69,209) - -
---------------------------------------
Balance at December 31 $ 98,552 $185,243 $197,572
=======================================
On January 29, 1996, USLIFE Corporation announced that the Company would
discontinue new sales of traditional indemnity major medical products. Further,
it would only offer major medical coverage through managed care plans in
selected markets where it has both a significant presence and an appropriate
managed care network in place, while continuing to provide full support and
service to all existing indemnity customers regardless of location.
Concurrently, USLIFE Corporation announced that it would carefully monitor
persistency experience of its group insurance lines in order to determine
whether financial statement adjustments would become necessary.
Recoverability of deferred policy acquisition costs depends on future revenues
and gross profits from the business to which it relates. Evaluation of this
asset, as well as the reserve for policy benefits, requires assumptions as to
the amount and timing of these future revenues and gross profits. USLIFE
Corporation's continuing study disclosed that persistency on this business
deteriorated to a point that a revision in assumptions was necessary.
During the second quarter of 1996, the Company recorded a pre-tax charge of
$49.6 million to recognize revised assumptions reflecting current experience on
its traditional indemnity group major medical and related products, including
group life insurance cases sold in tandem with these major medical policies. The
charge includes a $37.2 million writedown of deferred policy acquisition costs
on this block of business and a related adjustment of the reserve for policy
benefits amounting to $12.4 million which is included in Benefits in the
accompanying statements of income. The charge, on an after-tax basis, amounts to
$32.3 million. The impact of this charge on 1996 pre-tax results of the group
life and group health lines was $6.2 million and $43.4 million, respectively.
F-23
<PAGE>
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
4. OTHER ASSETS
Other assets consisted of the following:
DECEMBER 31
1998 1997
----------------------
(In Thousands)
Prepaid expenses $ 9,225 $7,384
Deferred systems costs 1,218 -
Supply inventory 826 1,298
Other 1,617 1,020
----------------------
Total other assets $12,886 $9,702
======================
5. FEDERAL INCOME TAXES
5.1 TAX LIABILITIES
Income tax liabilities were as follows:
DECEMBER 31
1998 1997
----------------------
(In Thousands)
Current tax payable $ 6,208 $ 613
Deferred tax liabilities, applicable to:
Net income (42,544) 2,859
Net unrealized investment gains 28,751 28,985
----------------------
Total deferred tax liabilities (13,793) 31,844
----------------------
Total current and deferred tax (assets) liabilities $ (7,585) $32,457
======================
F-24
<PAGE>
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
5. FEDERAL INCOME TAXES (CONTINUED)
5.1 Tax Liabilities (continued)
Components of deferred tax liabilities and assets at December 31 were as
follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------------
(In Thousands)
<S> <C> <C>
Deferred tax liabilities applicable to:
Deferred policy acquisition costs $ 32,544 $ 40,279
Basis differential of investments 54,056 49,421
Other 8,619 26,940
-----------------------
Total deferred tax liabilities 95,219 116,640
Deferred tax assets applicable to:
Policy reserves (56,269) (69,968)
Other (52,743) (14,828)
-----------------------
Total deferred tax assets before valuation
allowance (109,012) (84,796)
Valuation allowance - -
-----------------------
Total deferred tax assets, net of valuation
allowance (109,012) (84,796)
-----------------------
Net deferred tax (assets) liabilities $ (13,793) $ 31,844
=======================
</TABLE>
A portion of life insurance income earned prior to 1984 is not taxable unless it
exceeds certain statutory limitations or is distributed as dividends. Such
income, accumulated in policyholders' surplus accounts, totaled $37.8 million at
December 31, 1998 and 1997. At current corporate rates, the maximum amount of
tax on such income is approximately $13.2 million. Deferred taxes on these
accumulations are not required because no distributions are expected.
F-25
<PAGE>
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
5. FEDERAL INCOME TAXES (CONTINUED)
5.2 TAX EXPENSE
Components of income tax (benefit) expense for the years were as follows:
1998 1997 1996
------------------------------------
(In Thousands)
Current tax expense $ 26,095 $23,695 $ 8,951
Deferred tax (benefit) expense:
Deferred policy acquisition cost 2,673 749 (5,314)
Policy reserves (12,552) 3,160 (3,027)
Basis differential of investments 132 (3,168) 595
Litigation settlement (10,272) - -
Reinsurance transaction (22,133) - -
Other, net (3,251) (1,736) 9,738
------------------------------------
Total deferred tax (benefit) expense (45,403) (995) 1,992
------------------------------------
Income tax (benefit) expense $(19,308) $22,700 $10,943
====================================
A reconciliation between the income tax expense computed by applying the federal
income tax rate (35%) to income before taxes and the income tax expense reported
in the financial statement is presented below.
1998 1997 1996
------------------------------------
(In Thousands)
Income tax at statutory percentage
of GAAP pretax income $(15,666) $22,730 $11,471
Tax-exempt investment income (121) (134) (149)
Other (3,521) 104 (379)
------------------------------------
Income tax (benefit) expense $(19,308) $22,700 $10,943
====================================
F-26
<PAGE>
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
5. FEDERAL INCOME TAXES (CONTINUED)
5.3 TAXES PAID
Income taxes paid amounted to approximately $20.5 million, $17.2 million, and
$13.8 million in 1998, 1997, and 1996, respectively.
5.4 TAX RETURN EXAMINATIONS
The Internal Revenue Service ("IRS") has completed examinations of the Company's
tax returns through 1991. The IRS is currently examining tax returns for 1992
through 1994. Although the final outcome of any issues raised in examination is
uncertain, the Company believes that the ultimate liability, including interest,
will not materially exceed amounts recorded in the financial statements.
6. TRANSACTIONS WITH AFFILIATES
American General Corporation and certain affiliated companies provide services
to the Company, principally data processing, investment management, professional
and administrative services. During 1998 and 1997 the Company incurred $25.3
million and $20.5 million, respectively, for these services. In addition, the
Company provides services to certain affiliated companies. During 1998 and 1997
the Company was reimbursed $3.5 million and $6.1 million, respectively, for
these services.
The Company periodically borrows funds from the Parent Company under an
intercompany short-term borrowing agreement entered into during 1997. These
borrowings are on demand and are unsecured. Interest is charged on the average
borrowing based on the commercial paper rate. At December 31, 1998, no amounts
were outstanding under the borrowing agreement.
Affiliated accounts receivable were $6.8 million and $1.7 million in 1998 and
1997, respectively.
Following regulatory approval from the necessary authorities, the Company
reinsured 49% of its credit life and credit accident and health business to
American General Assurance Company, an affiliate, effective January 1, 1998.
This transaction resulted in the cession of approximately 218,000 life policies
representing $379.5 million of insurance in-force and approximately 41,000 A&H
policies. Assets of approximately $10 million were transferred, which resulted
in a pretax loss of approximately $4 million.
Following regulatory approval from the necessary authorities, the Company also
reinsured 49% of its New York and 100% of its non-New York group life (excluding
permanent policies), group accident and health, and individual accident and
health business to American General Assurance Company effective October 1, 1998.
This transaction resulted in the cession of approximately 21,000 life policies
representing
F-27
<PAGE>
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
6. TRANSACTIONS WITH AFFILIATES (CONTINUED)
$32.6 billion of insurance in-force and approximately 24,000 A&H policies.
Assets of approximately $254 million were transferred. The Company received a
$13 million ceding commission on this transaction, which resulted in a pretax
loss of approximately $56 million.
The losses on these transactions resulted from the pricing of the business to
yield a competitive market return.
Amounts recoverable of $400 million and amounts payable of $106 million,
relating to this affiliated reinsurance, are included under the captions
"Reinsurance recoverable" and "Ceded reinsurance payable" in the balance sheets
at December 31, 1998.
7. ACCIDENT AND HEALTH RESERVES
Activity in the liability for unpaid claims and claim adjustment expenses for
the Company's accident and health coverage is summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
---------------------------------------
(In Thousands)
<S> <C> <C> <C>
Balance as of January 1, net of reinsurance recoverable $ 85,974 $ 72,744 $ 55,450
---------------------------------------
Reinsurance settlements (1) (43,736) - -
---------------------------------------
Add: Incurred losses (2) 179,158 263,015 278,413
---------------------------------------
Deduct: Paid losses related to:
Current year 78,575 82,470 87,119
Prior years 123,039 167,315 174,000
---------------------------------------
Total paid losses 201,614 249,785 261,119
---------------------------------------
Balance as of December 31, net of reinsurance recoverable 19,782 85,974 72,744
Reinsurance recoverable 45,419 1,413 1,094
---------------------------------------
Balance as of December 31, gross of reinsurance recoverable $ 65,201 $ 87,387 $ 73,838
=======================================
</TABLE>
(1) See Note 6.
(2) Substantially all of the Company's incurred claims and claim adjustment
expenses relate to the respective current year.
F-28
<PAGE>
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
7. ACCIDENT AND HEALTH RESERVES (CONTINUED)
The liability for unpaid claims and claim adjustment expenses relating to the
Company's accident and health business is based on the estimated amount payable
on claims reported prior to the date of the balance sheets which have not yet
been settled: claims reported subsequent to the date of the balance sheets which
have been incurred during the period than ended, and an estimate (based on past
experience) of incurred but unreported claims relating to such periods.
8. BENEFIT PLANS
8.1 PENSION PLANS
The Company has non-contributory defined benefit pension plans covering most
employees. Pension benefits are based on the participant's compensation and
length of credited service.
Equity and fixed maturity securities were 56% and 30%, respectively, of the
plans' assets at the plans' most recent balance sheet dates. Additionally, 1% of
plan assets were invested in general investment accounts of the Parent Company's
subsidiaries through deposit administration insurance contracts.
The benefit plans have purchased annuity contracts from American General
Corporation's subsidiaries to provide benefits for certain retirees. These
contracts are expected to provide future annual benefits to certain retirees of
American General Corporation and its subsidiaries of approximately $52 million.
The components of pension expense and underlying assumptions were as follows:
1998 1997 1996
-----------------------------------
(In Thousands)
Service cost (benefits earned) $ 193 $ 1,065 $ 2,031
Interest cost 1,205 2,593 2,652
Expected return on plan assets (1,714) (3,331) (2,421)
Amortization (309) (418) (47)
-----------------------------------
Pension (income) expense $ (625) $ (91) $ 2,215
===================================
Discount rate on benefit obligation 7.00% 7.25% 7.60%
Rate of increase in compensation 4.25% 4.00% 6.00%
levels
Expected long-term rate of return on
plan assets 10.25% 10.00% 7.50%
F-29
<PAGE>
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
8. BENEFIT PLANS (CONTINUED)
8.1 PENSION PLANS (CONTINUED)
The Company's funding policy is to contribute annually no more than the maximum
deductible for federal income tax purposes. The funded status of the plans and
the prepaid pension expense included in other assets at December 31 were as
follows:
1998 1997
--------------------
(In Thousands)
Projected benefit obligation (PBO) $18,022 $26,337
Plan assets at fair value 18,110 23,757
--------------------
Plan assets at fair value in excess of (less 88 (2,580)
than) PBO
Other unrecognized items, net (198) 3,154
--------------------
(Accrued) prepaid pension expense $ (110) $ 574
====================
The change in PBO was as follows:
1998 1997
--------------------
(In Thousands)
PBO at January 1 $26,337 $27,245
Service and interest costs 1,398 3,658
Benefits paid (915) (870)
Actuarial loss (gain) 638 (932)
Transfers and other (9,436) (2,764)
--------------------
PBO at December 31 $18,022 $26,337
====================
The change in the fair value of plan assets was as follows:
1998 1997
--------------------
(In Thousands)
Fair value of plan assets at January 1 $23,757 $22,222
Actual return on plan assets 1,175 2,405
Benefits paid (915) (870)
Transfers (5,907) -
--------------------
Fair value of plan assets at December 31 $18,110 $23,757
====================
F-30
<PAGE>
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
8. BENEFIT PLANS (CONTINUED)
8.2 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company has life, medical, supplemental major medical, and dental plans for
certain retired employees and agents. Most plans are contributory, with retiree
contributions adjusted annually to limit employer contributions to predetermined
amounts. The Company has reserved the right to change or eliminate these
benefits at any time.
The life plans are insured through December 31, 1999. A portion of the retiree
medical and dental plans is funded through a voluntary employees' beneficiary
association (VEBA); the remainder is unfunded and self-insured. All of the
retiree medical and dental plans' assets held in the VEBA were invested in
readily marketable securities at its most recent balance sheet date.
Postretirement benefit expense (benefit) in 1998, 1997, and 1996 was $(290)
thousand, $(43) thousand, and $440 thousand, respectively. The accrued liability
for postretirement benefits was $3.7 million and $13.7 million at December 31,
1998 and 1997, respectively. These liabilities were discounted at the same rates
used for the pension plans.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts and fair values for certain of the Company's financial
instruments at December 31 are presented below. Care should be exercised in
drawing conclusions based on fair value, since (1) the fair values presented do
not include the value associated with all the Company's assets and liabilities,
and (2) the reporting of investments at fair value without a corresponding
evaluation of related policyholders liabilities can be misinterpreted.
1998 1997
----------------------------------------------
FAIR CARRYING FAIR CARRYING
VALUE AMOUNT VALUE AMOUNT
----------------------------------------------
(In Millions) (In Millions)
Assets:
Fixed maturity and
equity securities $2,048 $2,048 $2,353 $2,353
Mortgage loans on real
estate $ 91 $ 84 $ 68 $ 61
Policy loans $ 84 $ 84 $ 86 $ 88
Indebtedness from
affiliates $ 7 $ 7 $ 2 $ 2
Liabilities:
Insurance investment
contracts $ 541 $ 560 $ 737 $ 732
F-31
<PAGE>
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
9. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The following methods and assumptions were used to estimate the fair value of
financial instruments:
FIXED MATURITY AND EQUITY SECURITIES
Fair values of fixed maturity and equity securities were based on quoted
market prices, where available. For investments not actively traded, fair
values were estimated using values obtained from independent pricing
services or, in the case of some private placements, by discounting
expected future cash flows using a current market rate applicable to yield,
credit quality, and average life of investments.
MORTGAGE LOANS ON REAL ESTATE
Fair value of mortgage loans was estimated primarily using discounted cash
flows, based on contractual maturities and risk-adjusted discount rates.
POLICY LOANS
Fair value of policy loans was estimated using discounted cash flows and
actuarially determined assumptions, incorporating market rates.
INDEBTEDNESS FROM AFFILIATES
Indebtedness from affiliates is composed of accounts receivable from
affiliates. Due to the short-term nature of accounts receivable, fair value
is assumed to equal carrying value.
INSURANCE INVESTMENT CONTRACTS
Fair value of insurance investment contracts was estimated using cash flows
discounted at market interest rates.
F-32
<PAGE>
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
10. STATUTORY FINANCIAL INFORMATION; DIVIDEND PAYING CAPABILITY
The Company's statutory basis financial statements are prepared in accordance
with accounting practices prescribed or permitted by the State of New York
Insurance Department. "Prescribed" statutory accounting practices include state
laws, regulations and general administrative rules, as well as a variety of
publications by the NAIC. "Permitted" statutory accounting practices encompass
all accounting practices that are not prescribed; such practices may differ from
state to state, from company to company within a state, and may change in the
future. There were no material permitted practices utilized by the Company in
1998, 1997 or 1996.
In 1998, the NAIC adopted codified statutory accounting principles
("Codification"). Codification will likely change, to some extent, prescribed
accounting practices and may result in changes to the accounting practices that
the Company uses to prepare its statutory financial statements. Codification
will require adoption by the various states before it becomes the prescribed
statutory basis of accounting for insurance companies domesticated within those
states. Accordingly, before Codification becomes effective for the Company, the
State of New York must adopt Codification as the prescribed basis of accounting
on which domestic insurers must report their statutory basis results to the
Insurance Department. At this time, it is unclear whether the State of New York
will adopt Codification.
Policyholder's surplus and net income, as reported to the domiciliary state
insurance department in accordance with its prescribed or permitted statutory
accounting practices is summarized as follows:
1998 1997 1996
--------------------------------------
(In Thousands)
Statutory net income for the year $ 31,151 $ 24,961 $ 13,132
Statutory surplus at year-end $212,130 $218,111 $180,405
Statutory accounting practices require acquisition costs on new business
(including commissions and underwriting and issue costs) to be charged to
expense when incurred. Regulatory net income includes income (loss) attributed
to participating policyholders of $(6.0) million, $(6.8) million and $(8.4)
million in 1998, 1997 and 1996, respectively, with the 1998, 1997 and 1996
losses primarily a result of higher levels of sales of participating term
insurance products. Regulatory equity capital includes capital attributed to
participating policyholders of $(37.0) million, $(24.9) million and $(13.3)
million at December 31, 1998, 1997 and 1996 respectively. Capital attributed to
participating policyholders is not available for payment of dividends to
shareholders.
F-33
<PAGE>
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
10. STATUTORY FINANCIAL INFORMATION; DIVIDEND PAYING CAPABILITY (CONTINUED)
The Company is subject to New York Business Corporation Law, which imposes
restrictions on shareholder dividends. In addition, New York State Insurance Law
requires that no dividend may be declared without prior approval of the State of
New York Insurance Department. New York Law also states that no New York
domiciled company shall declare or distribute dividends to shareholders which
exceeds the lesser of: (1) 10% of surplus as regards policyholders or (2) 100%
of adjusted net investment income, unless the superintendent approves a greater
dividend payment. The Company did not pay any dividends in 1998, 1997 or 1996.
11. LEASES
The Company has various leases, substantially all of which are for office space
and facilities. At December 31, 1998 the future minimum rental commitments under
all of the Company's noncancellable leases were as follows:
YEAR ENDED OFFICE
DECEMBER 31 SPACE EQUIPMENT TOTAL
- - -------------------------------------------------------------------------
(In Thousands)
1999 $ 4,892 $452 $ 5,344
2000 4,693 183 4,876
2001 4,685 93 4,778
2002 4,517 - 4,517
2003 4,368 - 4,368
Thereafter 5,342 - 5,342
----------------------------------------
Total $28,497 $728 $29,225
========================================
Rent expense incurred in 1998, 1997 and 1996 was $4.6 million, $3.6 million and
$3.7 million, respectively.
12. COMMITMENTS AND CONTINGENCIES
In recent years, various life insurance companies have been named as defendants
in class action lawsuits relating to life insurance pricing and sales practices,
and a number of these lawsuits have resulted in substantial settlements. On
December 16, 1998, American General Corporation announced that certain of its
life insurance subsidiaries had entered into agreements to resolve all pending
market conduct class action lawsuits. The settlements are not final until
approved by the courts and any appeals are resolved. If court approvals are
obtained and appeals are not taken, it is expected the settlements will be final
in third quarter 1999.
F-34
<PAGE>
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In conjunction with the proposed settlements, the Company recorded a charge of
$30.7 million ($19.9 million after-tax) in the fourth quarter of 1998. The
charge covers the cost of policyholder benefits and other anticipated expenses
resulting from the proposed settlements, as well as other administrative and
legal costs.
The litigation liability was reduced by payments of $1.3 million, and the
remaining balance of $29.4 million was included in other liabilities on the
Company's balance sheet at December 31, 1998.
In addition to the charges recorded in 1998, the Company will incur additional
expenses for claim administration, outside counsel and actuarial services, and
regulatory expenses, related to the resolution of the litigation, which will be
recorded as incurred. Such expenses are not expected to have a material adverse
effect on the Company's financial position or results of operations.
The Company is party to various other lawsuits and proceedings arising in the
ordinary course of business. Many of these lawsuits and proceedings arise in
jurisdictions, such as Alabama and Mississippi, that permit damage awards
disproportionate to the actual economic damages incurred. Based upon information
presently available, the Company believes that the total amounts that will
ultimately be paid, if any, arising from these lawsuits and proceedings will not
have a material adverse effect on the Company's results of operations and
financial position. However, it should be noted that the frequency of large
damage awards, including large punitive damage awards, that bear little or no
relation to actual economic damages incurred by plaintiffs in jurisdictions like
Alabama and Mississippi continues to create the potential for an unpredictable
judgment in any given suit.
The increase in the number of insurance companies that are under regulatory
supervision has resulted, and is expected to continue to result, in increased
assessments by state guaranty funds to cover losses to policyholders of
insolvent or rehabilitated insurance companies. Those mandatory assessments may
be partially recovered through a reduction in future premium taxes in certain
states. At December 31, 1998 and 1997, the Company has accrued $876 thousand and
$1.1 million, respectively, for guaranty fund assessments, and applied $236
thousand and $293 thousand, respectively, for premium tax deductions. The
Company has recorded receivables of $352 thousand and $334 thousand at December
31, 1998 and 1997, respectively, for expected recoveries against the payment of
future premium taxes. Expenses incurred for guaranty fund assessments were $191
thousand, $358 thousand, and $557 thousand in 1998, 1997, and 1996,
respectively.
F-35
<PAGE>
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
13. REINSURANCE
Reinsurance transactions for the years ended December 31, 1998, 1997, and 1996
were as follows:
1998 1997 1996
-----------------------------------------------
(In Thousands)
LIFE INSURANCE IN FORCE
Gross $70,948,300 $61,407,508 $52,300,927
Assumed - 11,314,869 9,773,886
Ceded 44,441,277 9,321,704 5,674,223
-----------------------------------------------
Net $26,507,023 $63,400,673 $56,400,590
===============================================
Life and Annuity Premiums
Gross $ 214,384 $ 178,251 $ 154,569
Assumed 22,020 26,171 24,468
Ceded 58,924 19,332 5,467
-----------------------------------------------
Net $ 177,480 $ 185,090 $ 173,570
===============================================
A&H PREMIUMS
Written
Gross $ 459,562 $ 422,886 $ 379,171
Assumed 170,120 1,704 2,190
Ceded 285,628 16,243 12,281
-----------------------------------------------
Net $ 344,054 $ 408,347 $ 369,080
===============================================
Earned
Gross $ 452,348 $ 403,717 $ 378,390
Assumed 168,331 1,503 2,190
Ceded 276,313 15,616 12,252
-----------------------------------------------
Net $ 344,366 $ 389,604 $ 368,328
===============================================
Reinsurance recoverable on paid losses was approximately $10.6 million, $2.4
million, and $3.7 million at December 31, 1998, 1997, and 1996, respectively.
Reinsurance recoverable on unpaid losses was approximately $81.7 million, $3.2
million, and $3.1 million at December 31, 1998, 1997, and 1996, respectively.
The effect of reinsurance on benefits to policyholders and beneficiaries was
$131 million, $13 million, and $20 million during 1998, 1997, and 1996,
respectively.
The Company terminated its participation in both the Federal Employee Government
Life Insurance (FEGLI) and State Government Life Insurance (SGLI) pools in 1998.
The assumed premiums for these pools in 1998 were $19.5 million and $2.5
million, respectively.
F-36
<PAGE>
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
13. REINSURANCE (CONTINUED)
The Company participates in several reinsurance pools. These pools are managed
and administered by reinsurance intermediaries on behalf of the Company. The
pools involved various coverages including life, medical and disability.
14. YEAR 2000 CONTINGENCY (UNAUDITED)
INTERNAL SYSTEMS
The Company's ultimate parent, American General Corporation, (AGC) has numerous
technology systems that are managed on a decentralized basis. AGC's Year 2000
readiness efforts are therefore being undertaken by its key business units with
centralized oversight. Each business unit, including the Company, has developed
and is implementing a plan to minimize the risk of a significant negative impact
on its operations.
While the specifics of the plans vary, the plans include the following
activities: (1) perform an inventory of the Company's information technology and
non-information technology systems; (2) assess which items in the inventory may
expose the Company to business interruptions due to Year 2000 issues; (3)
reprogram or replace systems that are not Year 2000 ready; (4) test systems to
prove that they will function into the next century as they do currently; and
(5) return the systems to operations. As of December 31, 1998, these activities
had been completed for substantially all of the Company's critical systems,
making them Year 2000 ready. Vendor upgrades for a small number of systems were
either completed in the first quarter 1999 or are expected to be completed by
June 30, 1999; therefore, activities (3) through (5) are ongoing for some
systems.
The Company will continue to test its systems throughout 1999 to maintain Year
2000 readiness. In addition, the company is developing plans for the century
transition, which will restrict systems modifications from November 1999 through
January 2000, create rapid response teams to address problems and limit
vacations for key technical personnel.
THIRD PARTY RELATIONSHIPS
The Company has relationships with various third parties who must also be Year
2000 ready. These third parties provide (or receive) resources and services to
(or from) the Company and include organizations with which the Company exchanges
information. Third parties include vendors of hardware, software, and
information services; providers of infrastructure services such as voice and
data communications and utilities for office facilities; investors; customers;
distribution channels; and joint venture partners. Third parties differ from
internal systems in that the Company exercises less, or no, control over
F-37
<PAGE>
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
14. YEAR 2000 CONTINGENCY (UNAUDITED) (CONTINUED)
THIRD PARTY RELATIONSHIPS (CONTINUED)
Year 2000 readiness. The Company has developed a plan to assess and attempt to
mitigate the risks associated with the potential failure of third parties to
achieve Year 2000 readiness. The plan includes the following activities (1)
identify and classify third party dependencies; (2) research, analyze, and
document Year 2000 readiness for critical third parties; and (3) test critical
hardware and software products and electronic interfaces. As of April 30, 1999,
AGC has identified and assessed its critical third party dependencies, including
those related to the Company. Of these critical dependencies, approximately 300
have been assessed to have a high probability of failure and have been covered
in the Company's contingency planning efforts. Due to the various stages of Year
2000 readiness for these critical third-party dependencies, the Company's
testing activities with critical third parties will extend throughout 1999.
CONTINGENCY PLANS
The Company has commenced contingency planning to reduce the risk of Year 2000-
related business failures. The contingency plans, which address both internal
systems and third party relationships, include the following activities: (1)
evaluate the consequences of failure of critical business processes with
significant exposure to Year 2000 risk; (2) determine the probability of a Year
2000 related failure for those critical processes that have a high consequence
of failure; (3) develop an action plan to complete contingency plans for those
critical processes that rank high in consequence and probability of failure; and
(4) complete the applicable contingency plans. These plans will be tested during
the second and third quarters of 1999.
RISKS AND UNCERTAINTIES
Based on its plans to make internal systems ready for Year 2000, to deal with
third party relationships, and to develop contingency actions, the Company
believes that it will experience at most isolated and minor disruptions of
business processes following the turn of the century. Such disruptions are not
expected to have a material effect on the Company's future results of
operations, liquidity, or financial condition. However, due to the magnitude and
complexity of this project, risks and uncertainties exist and the Company is not
able to predict a most reasonably likely worst case scenario. If Year 2000
readiness is not achieved due to the Company's failure to maintain critical
systems as Year 2000 ready, failure of critical third parties to achieve Year
2000 readiness on a timely basis, failure of contingency plans to reduce Year
2000-related business failures, or other unforeseen circumstances in completing
the Company's plans, the Year 2000 issues could have a material adverse impact
on the Company's operations following the turn of the century.
F-38
<PAGE>
The United States Life Insurance Company in the City of New York
Notes to Financial Statements (continued)
14. YEAR 2000 CONTINGENCY (UNAUDITED) (CONTINUED)
COSTS
Through March 31, 1999, Company has incurred, and anticipates that it will
continue to incur, costs for internal staff, third-party vendors, and other
expenses to achieve Year 2000 readiness. The cost of activities related to Year
2000 readiness has not had a material adverse effect on the Company' results of
operations or financial condition. In addition, the Company has elected to
accelerate the planned replacement of certain systems as part of the Year 2000
plans. Costs of the replacement systems are being capitalized and amortized over
their useful lives, in accordance with the Company's normal accounting policies.
F-39
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
PART A: None
PART B: (1) Financial Statements of The United States Life
Insurance Company in the City of New York; three months
ended March 31, 1999 and 1998 :
Report of Ernst & Young LLP, Independent Auditors
Balance Sheets for the three month period ended March 31,
1999 and the year ended December 31, 1998
Statements of Income for the three months ended March 31,
1999 and 1998
Statements of Comprehensive Income for the three months
ended March 31, 1999 and 1998
Statements of Shareholder's Equity for the three month
period ended March 31, 1999 and the year ended December
31, 1998
Statements of Cash Flows for the three months ended March
31, 1999 and 1998
Note to Financial Statements
(2) Financial Statements of The United States Life
Insurance Company in the City of New York; years ended
December 31, 1998, 1997, and 1996:
Report of Ernst & Young LLP, Independent Auditors
Balance Sheets as of December 31, 1998 and 1997
Statements of Income for the years ended December 31,
1998, 1997 and 1996
Statements of Shareholder's Equity for the years ended
December 31, 1998, 1997 and 1996
Statements of Cash Flows for the years ended December 31,
1998, 1997 and 1996
Notes to Financial Statements
PART C: None
(b) Exhibits
(1) Resolution of the Board of Directors of The United States
Life Insurance Company in the City of New York
authorizing the establishment of The
C-1
<PAGE>
United States Life Insurance Company in the City of New York
Separate Account USL VA-R, incorporated herein by reference
to the initial filing of Registrant's Form N-4 Registration
Statement (File No. 333-63673), filed on September 18, 1998.
(2) None
(3)(a) Form of Distribution Agreement between The United States
Life Insurance Company in the City of New York and American
General Securities Incorporated. (Filed herewith)
(b)(i) Form of Participation Agreement, including administrative
services agreement, between The United States Life Insurance
Company in the City of New York and American General Series
Portfolio Company. (Filed herewith)
(ii) Participation Agreement between The United States Life
Insurance Company in the City of New York and Hotchkis and
Wiley Variable Trust dated December 1, 1998. (Filed
herewith)
(iii) Participation Agreement between The United States Life
Insurance Company in the City of New York and LEVCO Series
Trust dated December 1, 1998. (Filed herewith)
(iv) Participation Agreement between The United States Life
Insurance Company in the City of New York and Navellier
Variable Insurance Series Fund, Inc. dated December 1, 1998.
(Filed herewith)
(v) Participation Agreement between The United States Life
Insurance Company in the City of New York and OFFITBANK
Variable Insurance Fund, Inc. dated December 1, 1998. (Filed
herewith)
(vi) Participation Agreement between The United States Life
Insurance Company in the City of New York and Royce Capital
Fund dated December 1, 1998. (Filed herewith)
(vii) Form of Participation Agreement between The United States
Life Insurance Company in the City of New York and Wright
Managed Blue Chip Series Trust dated December 1, 1998.
(Filed herewith)
(3)(c) Form of Selling Group Agreement among The United States Life
Insurance Company in the City of New York, American General
Securities Incorporated, and Selling Group Member. (Filed
herewith)
(4)(a) Form of Group Annuity Master Contract (Form No. 98506N),
previously filed in the initial filing of this Form N-4
Registration Statement (File No. 333-63843), filed on
September 21, 1998.
C-2
<PAGE>
(b) Form of Group Annuity Certificate (Form No. 98505N),
previously filed in the initial filing of this Registration
Statement (File No. 333-63843), filed on September 21, 1998.
(c) Specimen form of Individual Retirement Annuity Disclosure
Statement and additional specialized forms available under
Certificate Form No. 98505N, included in Part A of this
Amendment.
(d) Form of Eligible Rollover Distribution endorsement,
incorporated by reference to Pre-Effective Amendment No. 1
to Registrant's Form N-4 Registration Statement (File No.
333-63673), filed on May 26, 1999.
(e) Form of Individual Retirement Annuity (IRA) Endorsement,
incorporated by reference to Pre-Effective Amendment No. 1
to Registrant's Form N-4 Registration Statement (File No.
333-63673), filed on May 26, 1999.
(5)(a)(i) Form of Application for Certificate (Form No. USL 8986-33),
previously filed in the initial filing of this
Registration Statement (File No. 333-63843), filed on
September 21, 1998.
(ii) Form of Application for Certificate, amended (Form No. USL
8986-33 REV 0499). (Filed herewith)
(b) Specimen form of Select ReserveSM Service Request. (Filed
herewith)
(c) Form of Confirmation of Initial Purchase Payment for
Certificate Form No. 98505N. (Filed herewith)
(d) Form of 1035 Exchange Instructions, incorporated herein by
reference to Pre-Effective Amendment No. 1 to Registrant's
Form N-4 Registration Statement (File No. 333-63673), filed
on May 26, 1999.
(e) Form of Change of Beneficiary Form, incorporated herein by
reference to Pre-Effective Amendment No. 1 to Registrant's
Form N-4 Registration Statement (File No. 333-63673), filed
on May 26, 1999.
(f) Form of Assignment and Transfer Request, incorporated herein
by reference to Pre-Effective Amendment No. 1 to
Registrant's Form N-4 Registration Statement (File No.
333-63673), filed on May 26, 1999.
(g) Form of Election of Annuity Payment Option/Change Form for
Variable Annuities, incorporated herein by reference to Pre-
Effective Amendment No. 1 to Registrant's Form N-4
Registration Statement (File No. 333-63673), filed on May
26, 1999.
C-3
<PAGE>
(h) Form of Request for Statement of Additional Information for
Certificate Form No. 98505N. (Filed herewith)
(6)(a) Copy of the Charter and all amendments thereto of The United
States Life Insurance Company in the City of New York,
incorporated herein by reference to the initial filing of
Registrant's Form N-4 Registration Statement (File No. 333-
63673), filed on September 18, 1998.
(b) Copy of the Bylaws, as amended, of The United States Life
Insurance Company in the City of New York, incorporated
herein by reference to the initial filing of Registrant's
Form N-4 Registration Statement (File No. 333-63673), filed
on September 18, 1998.
(7) None
(8)(a) Administrative Services Agreement between Hotchkis and Wiley
and The United States Life Insurance Company in the City of
New York. (Filed herewith)
(b) Administrative Services Agreement between John A. Levin and
Co., Inc. and The United States Life Insurance Company in
the City of New York dated December 1, 1998. (Filed
herewith)
(c) Administrative Services Agreement between Navellier Variable
Insurance Series Fund, Inc. and The United States Life
Insurance Company in the City of New York dated December 1,
1998 (Filed herewith)
(d) Administrative Services Agreement between OFFITBANK Variable
Insurance Fund, Inc. and The United States Life Insurance
Company in the City of New York dated December 1, 1998.
(Filed herewith)
(e) Administrative Services Agreement between Royce Capital Fund
and The United States Life Insurance Company in the City of
New York dated December 1, 1998. (Filed herewith)
(f) Form of Administrative Services Agreement between Wright
Managed Blue Chip Series Trust and The United States Life
Insurance Company in the City of New York dated December 1,
1998. (Filed herewith).
(g) Form of Administrative Services Agreement between The United
States Life Insurance Company in the City of New York and
American General Life Companies, limited to terms which
describe registered and non-registered product services,
incorporated herein by reference to Pre-Effective Amendment
No. 1 to Registrant's Form N-4 Registration Statement (File
No. 333-63673), filed on May 26, 1999.
C-4
<PAGE>
(9) Opinion and Consent of Counsel. (Filed herwith)
(10) Consent of Independent Auditors. (Filed herewith)
(11) None
(12) None
(13)(a) Computations of hypothetical historical average annual total
returns for each Division available under Certificate Form
No. 98505N for the one, five and ten year periods ended
December 31, 1998, and since inception. (Filed herewith.)
(b) Computations of hypothetical historical cumulative total
returns for each Division available under Certificate Form
No. 98505N for the one, five and ten year periods ended
December 31, 1998, and since inception. (Filed herewith)
(c) Computations of hypothetical historical seven day yield and
effective yield for the Money Market Division available
under Certificate Form No. 98505N for the seven day period
ended December 31, 1998. (Filed herewith)
(14) Financial Data Schedule. (See Exhibit 27 below.)
(27) (Inapplicable, because, notwithstanding Item 24.(b) as to
Exhibits, the Commission staff has advised that no such
Schedule is required.)
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The directors, executive officers, and, to the extent responsible for
variable annuity operations, other officers of the depositor are listed below.
Name and Principal Positions and Offices
Business Address with the Depositor
-------------------- ----------------------------
Jon P. Newton Director and Senior Chairman
2929 Allen Parkway
Houston, TX 77019
Rodney O. Martin, Jr. Director and Chairman
2929 Allen Parkway
Houston, TX 77019
David J. Dietz Director, President
125 Maiden Lane and Chief Executive Officer -
New York, NY 10018 Individual Insurance Options
C-5
<PAGE>
William M. Keeler Director, President and
3600 Route 66 Chief Executive Officer -
Neptune, NJ 07784 Group Insurance Operations
David A. Fravel Director and Executive
2727-A Allen Parkway Vice President
Houston, TX 77019
Gary D. Reddick Director and Executive
2929 Allen Parkway Vice President
Houston, TX 77019
Felix C. Curcura Director and Senior
3600 Route 66 Vice President - Group
Neptune, NJ 07784 Actuarial and Underwriting
Robert F. Herbert, Jr. Director, Senior
2727-A Allen Parkway Vice President,
Houston, TX 77019 Controller and Treasurer
R. Stephen Watson Director, Senior Vice President
125 Maiden Lane and Chief Administrative Officer
New York, NY 10038
William A. Bacas Director
182 Ridge Street
Glens Falls, NY 12801
John R. Corcoran Director
12 Hawthorne Drive
Sudbury, MA 01776
Dr. Patricia O. Ewers Director
Pace University
Pace Plaza
New York, NY 10038
Thomas H. Fox Director
1016 East Bay Drive
Northport, MI 49670
William J. O'Hara, Jr. Director
AJ Tech
2590 Pioneer Avenue
Vista, CA 92083
C-6
<PAGE>
George B. Trotta Director
541 East 20th Street
Apartment 14F
New York, NY 10010
John V. LaGrasse Executive Vice President and
2727-A Allen Parkway Chief Technology Officer
Houston, TX 77019
Wayne A. Barnard Senior Vice President
2727-A Allen Parkway and Chief Actuary
Houston, TX 77019
Ross D. Friend Senior Vice President
2727-A Allen Parkway and Chief Compliance Officer
Houston, TX 77019
William F. Guterding Senior Vice President and
125 Maiden Lane Chief Underwriting Officer
New York, NY 10018
Kevin Hartz Senior Vice President and
125 Maiden Lane Chief Agency Officer
New York, NY 10018
Simon J. Leech Senior Vice President -
2727-A Allen Parkway Houston Service Center
Houston, TX 77019
Randy J. Marash Senior Vice President and Actuary
3600 Rt. 66
Neptune, NJ 07754
Robert D. Stuchiner Senior Vice President -
125 Maiden Lane Marketing
New York, NY 10038
Thomas M. Zurek Senior Vice President
2929 Allen Parkway and General Counsel
Houston, TX 77019
Terry Freeman Vice President-
125 Maiden Lane Marketing Support
New York, NY 10038
C-7
<PAGE>
Althea R. Johnson Vice President, Assistant Controller
2727-A Allen Parkway and Assistant Secretary
Houston, TX 77019
Richard W. Scott Vice President and
2929 Allen Parkway Chief Investment Officer
Houston, TX 77019
Larry M. Robinson Vice President
2727-A Allen Parkway
Houston, TX 77019
Don M. Ward Vice President
2727 Allen Parkway
Houston, TX 77019
Pauletta P. Cohn Secretary
2727-A Allen Parkway
Houston, TX 77019
Jane K. Rushton Associate General Counsel and
125 Maiden Lane Assistant Secretary
New York, NY 10038
Sandra M. Smith Associate General Counsel and
300 South State Street Assistant Secretary
Syracuse, NY 13202
Joyce Bilski Administrative Officer
2727-A Allen Parkway
Houston, TX 77019
Laura Milazzo Administrative Officer
2727-A Allen Parkway
Houston, TX 77019
Linda Price Administrative Officer
2727-A Allen Parkway
Houston, TX 77019
Kenneth D. Nunley Assistant Tax Officer
2727-A Allen Parkway
Houston, TX 77019
C-8
<PAGE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
The following is a list of subsidiaries of American General Corporation
/1,2,3,4,5/ as of April 30, 1999. All subsidiaries listed are corporations,
unless otherwise indicated. Subsidiaries of subsidiaries are indicated by
indentations and unless otherwise indicated, all subsidiaries are wholly owned.
Inactive subsidiaries are denoted by an asterisk (*).
Jurisdiction of
Name Incorporation
- - ------------------------------------------------------------ ----------------
AGC Life Insurance Company.................................. Missouri
American General Property Insurance Company/16/............ Tennessee
American General Property Insurance Company of Florida... Florida
American General Life and Accident Insurance Company/6/.... Tennessee
Stylistic Distribution Corporation....................... Delaware
Millennium Distribution Corporation...................... Delaware
New Age Distribution Corporation......................... Delaware
Good-To-Great Distribution Corporation................... Delaware
Next Generation Distribution Corporation................. Delaware
New Technology Distribution Corporation.................. Delaware
Life Application Distribution Corporation................ Delaware
American General Exchange, Inc........................... Tennessee
American General Life Insurance Company/7/................. Texas
American General Annuity Service Corporation............. Texas
American General Life Companies.......................... Delaware
American General Life Insurance Company of New York..... New York
The Winchester Agency Ltd.............................. New York
The Variable Annuity Life Insurance Company.............. Texas
PESCO Plus, Inc/14/.................................... Delaware
American General Gateway Services, L.L.C/15/........... Delaware
The Variable Annuity Marketing Company................. Texas
VALIC Investment Services Company...................... Texas
VALIC Retirement Services Company...................... Texas
VALIC Trust Company.................................... Texas
The Franklin Life Insurance Company........................ Illinois
The American Franklin Life Insurance Company............. Illinois
Franklin Financial Services Corporation.................. Delaware
HBC Development Corporation................................ Virginia
Templeton American General Life of Bermuda, Ltd/13/........ Bermuda
Western National Corporation............................... Delaware
WNL Holding Corp......................................... Delaware
American General Annuity Insurance Company............. Texas
American General Assignment Corporation................ Texas
AGA Brokerage Services, Inc................................. Delaware
A.G. Investment Advisory Services, Inc................. Delaware
C-9
<PAGE>
Jurisdiction of
Name Incorporation
- - --------------------------------------------------------------- --------------
American General Financial Institution Group, Inc......... Delaware
WNL Insurance Services, Inc............................... Delaware
American General Corporation*.................................. Delaware
American General Delaware Management Corporation/1/............ Delaware
American General Finance, Inc.................................. Indiana
HSA Residential Mortgage Services of Texas, Inc............... Delaware
AGF Investment Corp........................................... Indiana
American General Auto Finance, Inc. .......................... Delaware
American General Finance Corporation/8/....................... Indiana
American General Finance Group, Inc......................... Delaware
American General Financial Services, Inc./9/.............. Delaware
The National Life and Accident Insurance Company........ Texas
Merit Life Insurance Co..................................... Indiana
Yosemite Insurance Company.................................. Indiana
American General Finance, Inc................................. Alabama
American General Financial Center............................. Utah
American General Financial Center, Inc.*...................... Indiana
American General Financial Center, Incorporated*.............. Indiana
American General Financial Center Thrift Company*............. California
Thrift, Incorporated*......................................... Indiana
American General Investment Advisory Services, Inc.*........... Texas
American General Investment Holding Corporation/10/............ Delaware
American General Investment Management Corporation/10/......... Delaware
American General Realty Advisors, Inc.......................... Delaware
American General Realty Investment Corporation................. Texas
AGLL Corporation/11/.......................................... Delaware
American General Land Holding Company......................... Delaware
AG Land Associates, LLC/11/................................. California
GDI Holding, Inc.*/12/........................................ California
Pebble Creek Service Corporation.............................. Florida
SR/HP/CM Corporation.......................................... Texas
Green Hills Corporation........................................ Delaware
Knickerbocker Corporation...................................... Texas
American Athletic Club, Inc................................... Texas
Pavilions Corporation.......................................... Delaware
USLIFE Corporation............................................. Delaware
All American Life Insurance Company........................... Illinois
American General Assurance Company............................ Illinois
American General Indemnity Company.......................... Nebraska
USLIFE Credit Life Insurance Company of Arizona............. Arizona
American General Life Insurance Company of Pennsylvania....... Pennsylvania
I.C. Cal*..................................................... California
The Old Line Life Insurance Company of America................ Wisconsin
The United States Life Insurance Company in the City of
New York..................................................... New York
C-10
<PAGE>
Jurisdiction of
Name Incorporation
- - ---------------------------------------------------------- ----------------
USLIFE Agency Services, Inc.............................. Illinois
USMRP, Ltd............................................. Turks & Caicos
USLIFE Financial Institution Marketing Group, Inc........ California
USLIFE Insurance Services Corporation.................... Texas
USLIFE Realty Corporation................................ Texas
USLIFE Real Estate Services Corporation.............. Texas
USLIFE Systems Corporation............................... Delaware
American General Finance Foundation, Inc. is not included on this list. It is a
non-profit corporation.
NOTES
1 The following limited liability companies were formed in the State of
Delaware on March 28, 1995. The limited liability interests of each are
jointly owned by AGC and AGDMC and the business and affairs of each are
managed by AGDMC:
American General Capital, L.L.C.
American General Delaware, L.L.C.
2 On November 26, 1996, American General Institutional Capital A ("AG Cap Trust
A"), a Delaware business trust, was created. On March 10, 1997, American
General Institutional Capital B ("AG Cap Trust B"), also a Delaware business
trust, was created. Both AG Cap Trust A's and AG Cap Trust B's business and
affairs are conducted through their trustees: Bankers Trust Company and
Bankers Trust (Delaware). Capital securities of each are held by non-
affiliated third party investors and common securities of AG Cap Trust A and
AG Cap Trust B are held by AGC.
3 On November 14, 1997, American General Capital I, American General Capital
II, American General Capital III, and American General Capital IV
(collectively, the "Trusts"), all Delaware business trusts, were created.
Each of the Trusts' business and affairs are conducted through its trustees:
Bankers Trust (Delaware) and James L. Gleaves (not in his individual capacity
but solely as Trustee).
4 On July 10, 1997, the following insurance subsidiaries of AGC became the
direct owners of the indicated percentages of membership units of SBIL B,
L.L.C. ("SBIL B"), a U.S. limited liability company: VALIC (22.6%), FL
(8.1%), AGLA (4.8%) and AGL (4.8%).
Through their aggregate 40.3% interest in SBIL B, VALIC, FL, AGLA and AGL
indirectly own approximately 28% of the securities of SBI, an English
company, and 14% of the securities of ESBL, an English company, SBP, an
English company, and SBFL, a Cayman Islands company. These interests are held
for investment purposes only.
5 Effective December 5, 1997, AGC and Grupo Nacional Provincial, S.A. ("GNP")
completed the purchase by AGC of a 40% interest in Grupo Nacional Provincial
Pensions S.A. de C.V., a new holding company formed by GNP, one of Mexico's
largest financial services companies.
C-11
<PAGE>
6 AGLA owns approximately 12% of Whirlpool Financial Corp. ("Whirlpool")
preferred stock. AGLA's holdings in Whirlpool represents approximately 3% of
the voting power of the capital stock of Whirlpool. The interests in
Whirlpool (which is a corporation that is not associated with AGC) are held
for investment purposes only.
7 AGL owns 100% of the common stock of American General Securities Incorporated
("AGSI"), a full-service NASD broker-dealer. AGSI, in turn, owns 100% of the
stock of the following insurance agencies:
American General Insurance Agency, Inc. (Missouri)
American General Insurance Agency of Hawaii, Inc. (Hawaii)
American General Insurance Agency of Massachusetts, Inc. (Massachusetts)
In addition, the following agencies are indirectly related to AGSI, but not
owned or controlled by AGSI:
American General Insurance Agency of Ohio, Inc. (Ohio)
American General Insurance Agency of Texas, Inc. (Texas)
American General Insurance Agency of Oklahoma, Inc. (Oklahoma)
Insurance Masters Agency, Inc. (Texas)
AGSI and the foregoing agencies are not affiliates or subsidiaries of AGL
under applicable holding company laws, but they are part of the AGC group of
companies under other laws.
8 American General Finance Corporation is the parent of an additional 48
wholly-owned subsidiaries incorporated in 30 states and Puerto Rico for the
purpose of conducting its consumer finance operations, including those noted
in footnote 10 below.
9 American General Financial Services, Inc. is the parent of an additional 7
wholly-owned subsidiaries incorporated in 4 states and Puerto Rico for the
purpose of conducting its consumer finance operations.
10 American General Investment Management, L.P., a Delaware limited partnership,
is jointly owned by AGIHC and AGIMC. AGIHC holds a 99% limited partnership
interest, and AGIMC owns a 1% general partnership interest.
11 AG Land Associates, LLC is jointly owned by AGLH and AGLL. AGLH holds a
98.75% managing interest and AGLL owns a 1.25% managing interest.
12 AGRI owns a 75% interest in GDI Holding, Inc.
13 AGCL owns 50% of the common stock of TAG Life. Templeton International, Inc.,
a Delaware corporation, owns the remaining 50% of TAG Life. Templeton
International, Inc. is not affiliated with AGC.
C-12
<PAGE>
14 VALIC holds 900 (90%) of the outstanding common shares. The Florida Education
Association/United, a Florida teachers union and unaffiliated third party,
holds the remaining 100 (10%) of the outstanding common shares.
15 VALIC holds (90%) of the outstanding common shares. Gateway Investment
Services, Inc., a California corporation and an unaffiliated third party,
holds the remaining 10% of the outstanding common shares.
16 AGPIC is jointly owned by AGCL and AGLA. AGCL owns 51.85% and AGLA owns
48.15% of the issued and outstanding shares of AGPIC.
COMPANY ABBREVIATIONS AS USED IN
REGISTRATION STATEMENT AMENDMENT
State/Jur.
Abb. Company of Domicile
- - ---- -------------------------------------------------------- -----------
AAL All American Life Insurance Company....................... IL
AAth American Athletic Club, Inc............................... TX
AFLI The American Franklin Life Insurance Company.............. IL
AGA American General Annuity Insurance Company................ TX
AGAC American General Assurance Company........................ IL
AGAS American General Annuity Service Corporation.............. TX
AGBS AGA Brokerage Services, Inc............................... DE
AGC American General Corporation.............................. TX
AGCL AGC Life Insurance Company................................ MO
AGDMC American General Delaware Management Corporation.......... DE
AGF American General Finance, Inc............................. IN
AGFC American General Finance Corporation...................... IN
AGFCI American General Financial Center, Incorporated........... IN
AGFCT American General Financial Center Thrift Company.......... CA
AGFG American General Finance Group, Inc....................... DE
AGF Inv AGF Investment Corp....................................... IN
AGFn American General Financial Center......................... UT
AGFnC American General Financial Center, Inc.................... IN
AGFS American General Financial Services, Inc.................. DE
AGGS American General Gateway Services, L.L.C.................. DE
AGIA American General Insurance Agency, Inc.................... MO
AGIAH American General Insurance Agency of Hawaii, Inc.......... HI
AGIAM American General Insurance Agency of Massachusetts, Inc... MA
AGIAO American General Insurance Agency of Ohio, Inc............ OH
AGIAOK American General Insurance Agency of Oklahoma, Inc........ OK
AGIAS A.G. Investment Advisory Services, Inc.................... DE
AGIAT American General Insurance Agency of Texas, Inc........... TX
AGIHC American General Investment Holding Corporation........... DE
AGIM American General Investment Management, L.P............... DE
AGIMC American General Investment Management Corporation........ DE
AGIND American General Indemnity Company........................ NE
AGFIG American General Financial Institution Group, Inc......... DE
AGL American General Life Insurance Company................... TX
AGLC American General Life Companies .......................... DE
C-13
<PAGE>
State/Jur.
Abb. Company of Domicile
- - ----- --------------------------------------------------------- -----------
AGLA American General Life and Accident Insurance Company....... TN
AGLH American General Land Holding Company...................... DE
AGLL AGLL Corporation........................................... DE
AGNY American General Life Insurance Company of New York........ NY
AGPA American General Life Insurance Company of Pennsylvania.... PA
AGPIC American General Property Insurance Company................ TN
AGRA American General Realty Advisors, Inc...................... DE
AGRI American General Realty Investment Corporation............. TX
AGSI American General Securities Incorporated................... TX
AGX American General Exchange, Inc............................. TN
ASGN American General Assignment Corporation.................... TX
FFSC Franklin Financial Services Corporation.................... DE
FL The Franklin Life Insurance Company........................ IL
GHC Green Hills Corporation.................................... DE
GGDC Good-To-Great Distribution Corporation..................... DE
HBDC HBC Development Corporation................................ VA
KC Knickerbocker Corporation.................................. TX
LADC Life Application Distribution Corporation.................. DE
MDC Millennium Distribution Corporation........................ DE
ML Merit Life Insurance Co.................................... IN
NADC New Age Distribution Corporation........................... DE
NGDC Next Generation Distribution Corporation................... DE
NLA The National Life and Accident Insurance Company........... TX
NTDC New Technology Distribution Corporation.................... DE
OLL The Old Line Life Insurance Company of America............. WI
PAV Pavilions Corporation...................................... DE
PCSC Pebble Creek Service Corporation........................... FL
PIFLA American General Property Insurance Company of Florida..... FL
PPI PESCO Plus, Inc............................................ DE
RMST HSA Residential Mortgage Services of Texas, Inc............ DE
SDC Stylistic Distribution Corporation......................... DE
SRHP SR/HP/CM Corporation....................................... TX
TAG Life Templeton American General Life of Bermuda, Ltd............ BA
TI Thrift, Incorporated....................................... IN
UAS USLIFE Agency Services, Inc................................ IL
UC USLIFE Corporation......................................... DE
UCLA USLIFE Credit Life Insurance Company of Arizona............ AZ
UFI USLIFE Financial Institution Marketing Group, Inc.......... CA
UIS USLIFE Insurance Services Corporation...................... TX
URC USLIFE Realty Corporation.................................. TX
USC USLIFE Systems Corporation................................. DE
USL The United States Life Insurance Company in the City of
New York................................................... NY
USMRP USMRP, Ltd................................................. T&C
VALIC The Variable Annuity Life Insurance Company................ TX
VAMCO The Variable Annuity Marketing Company..................... TX
VISCO VALIC Investment Services Company.......................... TX
VRSCO VALIC Retirement Services Company.......................... TX
VTC VALIC Trust Company........................................ TX
WA The Winchester Agency Ltd.................................. NY
WIS WNL Insurance Services, Inc................................ DE
WNC Western National Corporation............................... DE
C-14
<PAGE>
State/Jur.
Abb. Company of Domicile
- - ----- --------------------------------------------------------- -----------
WNLH Holding Corp............................................. DE
YIC Yosemite Insurance Company............................... IN
ITEM 27. NUMBER OF CERTIFICATE OWNERS
As of May 31, 1999, there were no owners of Certificates offered by this
Registration Statement.
ITEM 28. INDEMNIFICATION
USL's By-Laws, as amended, include provisions concerning the
indemnification of its officers and directors, and certain other persons, which
provide in substance as follows:
Article XI of USL's By-Laws provide, in part, that USL, except to the
extent expressly prohibited by the New York Business Corporation law or New York
Insurance law, shall have the power to indemnity each person made or threatened
to be made a party to or called as a witness in or asked to provide information
in connection with any pending or threatened action, proceeding, hearing or
investigation, whether civil or criminal, and whether judicial, quasi-judicial,
administrative, or legislative, and whether or not for or in the right of USL or
any other enterprise, by reason of the fact that such person or such person's
testator or intestate is or was a director or officer of USL, or is or was a
director or officer of USL who also serves or served at the request of USL, any
other corporation, partnership, joint venture, trust, employee benefit plan or
otherwise enterprise in any capacity, against judgments, fines, penalties,
amounts paid in settlement and reasonable expenses, including attorneys' fees,
incurred in connection with such action or proceeding, or any appeal therein,
provided that no such indemnification shall be made if a judgment or other final
adjudication adverse to such person establishes that his or her acts were
committed in a bad faith or were the result of active and deliberate dishonesty
and were material to the cause of action so adjudicated, or that he or she
personally gained in fact a financial profit or other advantages to which he or
she was not legally entitled, and provided further that no such indemnification
shall be required with respect to any settlement or other nonadjudicated
disposition of any threatened or pending action or proceeding unless USL has
given its prior consent to such settlement or other disposition.
Under Article XI, USL shall advance or promptly reimburse, upon request of
any person entitled to indemnification, all expenses, including attorneys' fees,
reasonably incurred in defending any action or proceeding in advance of its
final disposition upon receipt of a written undertaking by or on behalf of such
person to repay such amount if such person is ultimately found not to be
entitled to indemnification or, where indemnification is granted, to the extent
the expenses so advanced or reimbursed exceed the amount to which such person is
entitled, provided, however, that such person shall cooperate in good faith with
any request by USL that common counsel be utilized by the parties to an action
or proceeding who are similarly situated unless to do so would be inappropriate
due to a actual or potential differing interests between or amount such parties.
USL agrees under Article XI that it shall not, except by elimination or
amendment of the By-Laws, take any corporate action or enter into any agreement
which prohibits, or otherwise limits the
C-15
<PAGE>
rights of any person to, indemnification in accordance with the provisions of
the By-Laws. The indemnification of any person provided by the By-Laws shall
continue after such person has ceased to be a director or officer of USL and
shall inure to the benefit of such person's heirs, executors, administrators and
legal representatives.
USL is authorized to enter into agreements with any of its directors,
officers or employees extending rights to indemnification and advancement of
expenses to such person to the fullest extent permitted by applicable law, but
the failure to enter into any such agreement shall not affect or limit the
rights of such person pursuant to the By-Laws.
A person who has been successful, on the merits or otherwise, in the
defense of a civil or criminal action or proceeding of the character described
in Article XI of USL's By-Laws shall be entitled to indemnification as
authorized by Article XI. Except as provided in the preceding sentence and
unless ordered by a court, any indemnification under Article XI shall be made by
USL if, and only if, authorized in the specific case:
(1) By the Board of Directors acting by a quorum consisting of
directors who are not parties to such action or proceeding upon a
finding that the director or officer has met the standard of conduct
set forth in the first paragraph of Article XI (and which is
described in the first paragraph of this Item 28); or
(2) If such a quorum is not obtainable or, even if obtainable, a quorum
of disinterested directors so directs;
(a) By the Board of Directors upon the opinion in writing of
independent legal counsel that indemnification is proper in the
circumstances because the standard of conduct set forth in the
first paragraph of Article XI has been met by such director or
officer; or
(b) By the shareholders upon a finding that the directors or
officer has met the applicable standard of conduct set forth in
such paragraph.
USL shall make no payments under Article XI until it shall have complied
with all provisions then in force of New York Insurance law with respect to
indemnification.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to Directors, Officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a Director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
Director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
C-16
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Registrant's principal underwriter, American General Securities
Incorporated, also acts as principal underwriter for American General Life
Insurance Company Separate Account A, American General Life Insurance
Company Separate Account D, American General Life Insurance Company
Separate Account VL-R, and American General Life Insurance Company of New
York Separate Account E.
(b) The directors and principal officers of the principal underwriter are:
Position and Offices
with Underwriter,
Name and Principal American General
Business Address Securities Incorporated
--------------------- ------------------------------
F. Paul Kovach, Jr. Director and Chairman,
American General Securities President and Chief Executive Officer
Incorporated
2727 Allen Parkway
Houston, TX 77019
Royce G. Imhoff, II Director
American General Life
Companies
2727-A Allen Parkway
Houston, Texas 77019
Rodney O. Martin, Jr. Director and Vice Chairman
American General Life
Companies
2929 Allen Parkway
Houston, TX 77019
John A. Kalbaugh Vice President - Chief Marketing
American General Life Officer
Companies
2727 Allen Parkway
Houston, TX 77019
Robert M. Roth Vice President -
American General Securities Administration and Compliance,
Incorporated Treasurer and Secretary
2727 Allen Parkway
Houston, TX 77019
C-17
<PAGE>
Pauletta P. Cohn Assistant Secretary
American General Life
Companies
2727 Allen Parkway
Houston, TX 77019
Robert F. Herbert Assistant Treasurer
American General Life
Companies
2727-A Allen Parkway
Houston, Texas 77019
K. David Nunley Assistant Associate Tax Officer
American General Life
Companies
2727-A Allen Parkway
Houston, Texas 77019
(c) Not Applicable.
ITEM 30. LOCATION OF RECORDS
All records referenced under Section 31(a) of the 1940 Act, and Rules
31a-1 through 31a-3 thereunder, are maintained and in the custody of American
General Life Companies at its principal executive office located at 2727-A Allen
Parkway, Houston, Texas 77019.
ITEM 31. MANAGEMENT SERVICES
Not Applicable.
ITEM 32. UNDERTAKINGS
The Registrant undertakes: A) to file a post-effective amendment to this
Registration Statement as frequently as is necessary to ensure that the audited
financial statements in the Registration Statement are never more than 16 months
old for so long as payments under the Certificates may be accepted; B) to
include either (1) as part of any application to purchase a Certificate offered
by a prospectus, a space that an applicant can check to request a Statement of
Additional Information, or (2) a toll-free number or a post card or similar
written communication affixed to or included in the applicable prospectus that
the applicant can remove to send for a Statement of Additional Information; C)
to deliver any Statement of Additional Information and any financial statements
required to be made available under this form promptly upon written or oral
request.
C-18
<PAGE>
REPRESENTATION REGARDING THE REASONABLENESS OF AGGREGATE FEES AND CHARGES
DEDUCTED UNDER THE CONTRACTS PURSUANT TO SECTION 26(E)(2)(A) OF THE INVESTMENT
COMPANY ACT OF 1940
USL represents that the fees and charges deducted under the Contract that is
identified as Contract Form No. 98506N and the Certificates that are identified
as Certificate Form No.98505N, in the aggregate, are reasonable in relation to
the services rendered, the expenses expected to be incurred, and the risks
assumed by USL.
C-19
<PAGE>
POWERS OF ATTORNEY
Each person whose signature appears below hereby appoints Robert F.
Herbert, Jr., Thomas M. Zurek and Pauletta P. Cohn and each of them, any one of
whom may act without the joinder of the others, as his/her attorney-in-fact to
sign on his/her behalf and in the capacity stated below and to file all
amendments to this Registration Statement, which amendment or amendments may
make such changes and additions to this Registration Statement as such attorney-
in-fact may deem necessary or appropriate.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant, The United States Life Insurance Company in the City of
New York Separate Account USL VA-R, has duly caused this Amendment to the
Registration Statement to be signed on its behalf, in the City of Houston, and
State of Texas on this 26th day of May, 1999.
THE UNITED STATES LIFE INSURANCE
COMPANY IN THE CITY OF NEW YORK
SEPARATE ACCOUNT USL VA-R
(Registrant)
BY: THE UNITED STATES LIFE INSURANCE
COMPANY IN THE CITY OF NEW YORK
(On behalf of the Registrant and itself)
BY: /s/ Robert F. Herbert, Jr.
------------------------------
Robert F. Herbert, Jr.
Senior Vice President
[SEAL]
ATTEST: /s/ Pauletta P. Cohn
--------------------------
Pauletta P. Cohn
Secretary
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following officers and directors
of The United States Life Insurance Company in the City of New York in the
capacities and on the dates indicated.
Signature Title Date
---------- ----- -----
/s/ David J. Dietz Principal Executive Officer May 26, 1999
- - --------------------------
David J. Dietz
/s/ Robert F. Herbert, Jr. Principal Financial and May 26, 1999
- - -------------------------- Accounting Officer
Robert F. Herbert, Jr.
Directors
/s/ William A. Bacas May 26, 1999
- - --------------------------
William A. Bacas
/s/ John R. Corcoran May 26, 1999
- - --------------------------
John R. Corcoran
/s/ Felix C. Curcuru May 26, 1999
- - --------------------------
Felix C. Curcuru
/s/ David J. Dietz May 26, 1999
- - --------------------------
David J. Dietz
/s/ Patricia O. Ewers May 26, 1999
- - --------------------------
Patricia O. Ewers
<PAGE>
/s/ Thomas H. Fox May 26, 1999
- - --------------------------
Thomas H. Fox
/s/ David A. Fravel May 26, 1999
- - --------------------------
David A. Fravel
/s/ Robert F. Herbert. Jr. May 26, 1999
- - --------------------------
Robert F. Herbert, Jr.
/s/ William M. Keeler May 26, 1999
- - --------------------------
William M. Keeler
/s/ Rodney O. Martin, Jr. May 26, 1999
- - --------------------------
Rodney O. Martin, Jr.
- - -------------------------- May __, 1999
Jon P. Newton
/s/ William J. O'Hara, Jr. May 26, 1999
- - --------------------------
William J. O'Hara, Jr.
/s/ Gary D. Reddick May 18, 1999
- - --------------------------
Gary D. Reddick
/s/ George B. Trotta May 26, 1999
- - --------------------------
George B. Trotta
/s/ R. Stephen Watson May 26, 1999
- - --------------------------
R. Stephen Watson
<PAGE>
EXHIBIT INDEX
(3)(a) Form of Distribution Agreement between The United States Life
Insurance Company in the City of New York and American General
Securities Incorporated.
(3)(b)(i) Form of Participation Agreement, including administrative services
agreement, between The United States Life Insurance Company in the
City of New York and American General Series Portfolio Company.
(3)(b)(ii) Participation Agreement between The United States Life Insurance
Company in the City of New York and Hotchkis and Wiley Variable
Trust dated December 1, 1998.
(3)(b)(iii) Participation Agreement between The United States Life Insurance
Company in the City of New York and LEVCO Series Trust dated
December 1, 1998.
(3)(b)(iv) Participation Agreement between The United States Life Insurance
Company in the City of New York and Navellier Variable Insurance
Series Fund, Inc. dated December 1, 1998.
(3)(b)(v) Participation Agreement between The United States Life Insurance
Company in the City of New York and OFFITBANK Variable Insurance
Fund, Inc. dated December 1, 1998.
(3)(b)(vi) Participation Agreement between The United States Life Insurance
Company in the City of New York and Royce Capital Fund dated
December 1, 1998.
(3)(b)(vii) Form of Participation Agreement between The United States Life
Insurance Company in the City of New York and Wright Managed Blue
Chip Series Trust dated December 1, 1998.
(3)(c) Form of Selling Group Agreement among The United States Life
Insurance Company in the City of New York, American General
Securities Incorporated, and Selling Group Member.
(5)(a)(ii) Form of Application for Certificate, amended (Form No. USL 8986-33
REV 0499).
(5)(b) Specimen form of Select Reserve(SM) Service Request.
(5)(c) Form of Confirmation of Initial Purchase Payment for Certificate
Form No. 98505N.
(5)(h) Form of Request for Statement of Additional Information for
Certificate Form No. 98505N.
(8)(a) Administrative Services Agreement between Hotchkis and Wiley and The
United States Life Insurance Company in the City of New York.
<PAGE>
(8)(b) Administrative Services Agreement between John A. Levin and Co.,
Inc. and The United States Life Insurance Company in the City of New
York dated December 1, 1998.
(8)(c) Administrative Services Agreement between Navellier Variable
Insurance Series Fund, Inc.
(8)(d) Administrative Services Agreement between OFFITBANK Variable
Insurance Fund, Inc. and The United States Life Insurance Company in
the City of New York dated December 1, 1998.
(8)(e) Administrative Services Agreement between Royce Capital Fund and The
United States Life Insurance Company in the City of New York dated
December 1, 1998.
(8)(f) Form of Administrative Services Agreement between Wright Managed
Blue Chip Series Trust and The United States Life Insurance Company
in the City of New York dated December 1, 1998.
(9) Opinion and Consent of Counsel.
(10) Consent of Independent Auditors.
(13)(a) Computations of hypothetical historical average annual total returns
for each Division available under Certificate Form No. 98505N for
the one, five and ten year periods ended December 31, 1998, and
since inception.
(13)(b) Computations of hypothetical historical cumulative total returns for
each Division available under Certificate Form No. 98505N for the
one, five and ten year periods ended December 31, 1998, and since
inception.
(13)(c) Computations of hypothetical historical seven day yield and
effective yield for the Money Market Division available under
Certificate Form No. 98505N for the seven day period ended
December 31, 1998.
<PAGE>
EXHIBIT 3(a)
<PAGE>
DISTRIBUTION AGREEMENT
BETWEEN
THE UNITED STATES LIFE INSURANCE COMPANY
IN THE CITY OF NEW YORK
AND
AMERICAN GENERAL SECURITIES INCORPORATED
THIS DISTRIBUTION AGREEMENT (this "Agreement") is made by and between THE UNITED
STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK, a New York corporation
(the "Company") and AMERICAN GENERAL SECURITIES INCORPORATED, a Texas
corporation ("AGSI" or "Distributor").
WITNESSETH:
In consideration of the mutual covenants herein contained and other good and
valuable consideration, the receipt whereof is hereby acknowledged, the parties
hereto agree as follows:
FIRST: The Company hereby grants AGSI a non-exclusive right to promote the sale
of the Company's variable life insurance policies and certificates and variable
annuity contracts and certificates, as the case may be, listed on Schedule A
attached hereto and made a part hereof (the "Contracts") to the public through
investment dealers which are members of the National Association of Securities
Dealers, Inc. (or exempt from such registration) in U. S. states where the
Company is licensed.
SECOND: AGSI hereby accepts the grant made herein for the sale of the Contracts
and agrees that it will use its best efforts to promote the sale of such
Contracts; provided, however, that:
A. AGSI may, and when requested by the Company, shall suspend its efforts
to promote the sale of the Contracts at any time AGSI or the Company
believes sales should be suspended because of market conditions, other
economic considerations, or other circumstances of any kind; and
B. the Company may withdraw the offering of the Contracts at any time.
THIRD: The Company shall bear:
A. The expenses of printing and distributing registration statements and
prospectuses of the Separate Account and the Contracts;
B. The expenses of state and federal qualification of such Contracts for
sale in connection with such offerings;
C. All legal expenses in connection with the foregoing; and
Page 1 of 4 Pages
<PAGE>
D. Any other expenses which may be deemed mutually appropriate.
FOURTH: The solicitation of the Contracts shall be made by investment dealers
or their sales representatives who are also licensed agents of the Company.
AGSI shall bear such costs of obtaining insurance department licenses and fees
for registered representatives as may be mutually agreed upon between the
parties hereto from time to time.
The Company shall reimburse AGSI for its costs in the promotion of the sale of
the Contracts, including its administrative and ministerial costs. AGSI shall
submit to the Company original invoices or other documentation acceptable to the
Company, no less frequently than monthly, for all such reimbursable expenses.
FIFTH: The Company agrees to maintain all books and records in connection with
the sale of the Contracts on behalf of AGSI in conformity with the requirements
of Rules 17a-3 and 17a-4 under the Securities Exchange Act of 1934, to the
extent that such requirements are applicable to the Contracts.
SIXTH: A transaction statement for each purchase payment for a Contract will be
sent to the Contract owner by the Company as required. The transaction
statement will reflect the facts of the transaction.
SEVENTH: The Company and AGSI shall each comply with all applicable federal and
state laws, rules, and regulations governing the issuance and sale of the
Contracts.
EIGHTH: The Company agrees to indemnify AGSI against any and all claims,
liabilities, and expenses which AGSI may incur due to any alleged untrue
statements of a material fact, or any alleged omission to state a material fact
in the registration statement or prospectus of the Company's Separate Account(s)
used in connection with the offering and sale of the Contracts. AGSI agrees to
indemnify the Company against any and all claims, demands, liabilities, and
expenses which the Company may incur arising out of or based upon any act of an
employee of AGSI.
NINTH: All disputes or differences arising out of this Agreement shall be
submitted to the decision of two arbitrators, one to be chosen by the Company
and the other to be chosen by AGSI, and in the event of the arbitrators failing
to agree, to the decision of a third arbitrator to be chosen by the first two
arbitrators. If the first two arbitrators fail to appoint a third arbitrator
within one month of a request in writing to either of them to do so, the third
arbitrator shall, at the request of either party, be appointed by the American
Arbitration Association. The arbitration proceedings shall take place in New
York City, New York. Unless otherwise agreed, the applicant(s) shall submit its
case within one month after the appointment of the arbitration panel, and the
respondent(s) shall submit its reply within one month after its own receipt of
the claim. The decision of the arbitration panel shall be final and not subject
to appeal, and may be entered into any court having jurisdiction thereof. The
expenses of the arbitration shall be borne equally by the parties involved in
the arbitration. This article shall survive the termination of this Agreement.
Page 2 of 4 Pages
<PAGE>
TENTH. Nothing contained herein shall require the Company or AGSI to take any
action contrary to any provision of its charter or any applicable statutes,
regulation, or rule of the National Association of Securities Dealers, Inc.
ELEVENTH: This Agreement shall supersede all prior agreements of the parties,
whether written or oral, with respect to sale of the Contracts issued on or
after the effective date of this Agreement.
TWELFTH: This Agreement shall become effective as of ______________, and
shall continue in force and effect from year to year thereafter.
THIRTEENTH: This Agreement may be terminated at any time by either party,
without the payment of any penalty, upon thirty (30) days prior notice in
writing to the other party.
FOURTEENTH: This Agreement shall be binding upon the successors and assigns of
the parties hereto.
FIFTEENTH: Any notice under this Agreement shall be in writing addressed,
delivered, or mailed, postage paid, to the other party at such address as such
other party may designate for the receipt of such notices.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate.
THE UNITED STATES LIFE INSURANCE COMPANY
IN THE CITY OF NEW YORK
By: Date:
---------------------------------------- ----------------------
David J. Dietz, President
and Chief Executive Officer
AMERICAN GENERAL SECURITIES INCORPORATED
By: Date:
---------------------------------------- ----------------------
F. Paul Kovach, President
Page 3 of 4 Pages
<PAGE>
SCHEDULE A
SELECT RESERVE(SM) FLEXIBLE PAYMENT VARIABLE AND FIXED INDIVIDUAL DEFERRED
ANNUITY, FORM NO. 98505N.
Page 4 of 4 Pages
<PAGE>
EXHIBIT 3(b)(i)
<PAGE>
PARTICIPATION AGREEMENT
AMONG
THE UNITED STATES LIFE INSURANCE COMPANY
IN THE CITY OF NEW YORK
AMERICAN GENERAL SECURITIES INCORPORATED
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
AND
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
DATED AS OF
DECEMBER 1, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. Fund Shares............................................ 4
ARTICLE II. Representations and Warranties......................... 6
ARTICLE III. Prospectuses, Reports to Shareholders
and Proxy Statements, Voting........................... 8
ARTICLE IV. Sales Material and Information......................... 12
ARTICLE V. [Reserved]............................................. 13
ARTICLE VI. Diversification........................................ 14
ARTICLE VII. Potential Conflicts.................................... 14
ARTICLE VIII. Applicable Law......................................... 15
ARTICLE IX. Termination............................................ 15
ARTICLE X. Notices................................................ 18
ARTICLE XI. Miscellaneous.......................................... 18
SCHEDULE A Portfolios of American General Series Portfolio
Company Available for Purchase by
The United States Life Insurance Company
in the City of New York............................... 21
SCHEDULE B Separate Accounts and Contracts....................... 22
SCHEDULE C Proxy Voting Procedures............................... 23
<PAGE>
THIS PARTICIPATION AGREEMENT, made and entered into as of the 1st day of
December, 1998 by and among THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY
OF NEW YORK (hereinafter the "Company"), a New York insurance company, on its
own behalf and on behalf of each separate account of the Company set forth on
Schedule B hereto as may be amended from time to time (each such account
hereinafter referred to as the "Account"), AMERICAN GENERAL SECURITIES
INCORPORATED ("AGSI"), a Texas corporation, AMERICAN GENERAL SERIES PORTFOLIO
COMPANY (hereinafter the "Fund"), a Maryland corporation, and THE VARIABLE
ANNUITY LIFE INSURANCE COMPANY (the "Adviser"), a Texas corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as (i) the investment vehicle for separate
accounts established by insurance companies for individual and group life
insurance policies and annuity contracts with variable accumulation and/or pay-
out provisions (hereinafter referred to individually and/or collectively as
"Variable Insurance Products") and (ii) the investment vehicle for certain
qualified pension and retirement plans (hereinafter "Qualified Plans"); and
WHEREAS, insurance companies desiring to utilize the Fund as an investment
vehicle under their Variable Insurance Products are required to enter into a
participation agreement with the Fund and the Adviser (the "Participating
Insurance Companies"); and
WHEREAS, shares of the Fund are divided into several series of shares, each
representing the interest in a particular managed portfolio of securities and
other assets, any one or more of which may be made available for Variable
Insurance Products of Participating Insurance Companies; and
WHEREAS, the Fund intends to offer shares of the series set forth on Schedule A
(each such series hereinafter referred to as a "Portfolio"), as may be amended
from time to time by mutual agreement of the parties hereto, under this
Agreement to the Accounts of the Company; and
WHEREAS, the Fund is registered as an open-end management investment company
under the Investment Company Act of 1940 (hereinafter the "1940 Act") and its
shares are registered under the Securities Act of 1933, as amended (hereinafter
the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
laws; and
WHEREAS, the Adviser manages certain Portfolios of the Fund; and
WHEREAS, The Variable Annuity Marketing Company, (the "Underwriter") is
registered as a broker/dealer under the Securities Exchange Act of 1934, as
amended (hereinafter the "1934 Act"), is a member in good standing of the
National Association of Securities Dealers, Inc. (hereinafter "NASD") and serves
as principal underwriter of the shares of the Fund; and
WHEREAS, the Company has registered or will register certain Variable Insurance
Products under the 1933 Act; and
3
<PAGE>
WHEREAS, the Variable Insurance Products issued by the Accounts are variable
annuity contracts or are variable life insurance policies relying on certain
exemptions from the 1930 Act pursuant to Rule 6e-3(T), and not Rule 6e-2,
thereunder.
WHEREAS, each Account is a duly organized, validly existing segregated asset
account, established by resolution or under authority of the Board of Directors
of the Company, on the date shown for such Account on Schedule B hereto, to set
aside and invest assets attributable to the aforesaid Variable Insurance
Product; and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company intends to purchase shares in the Portfolios on behalf of each
Account to fund certain of the aforesaid Variable Insurance Products and the
Underwriter is authorized to sell such shares to each such Account at net asset
value; and
WHEREAS, AGSI serves as both the distributor and the principal underwriter of
the Variable Insurance Products that are set forth on Schedule B;
NOW, THEREFORE, in consideration of their mutual promises, the Company, AGSI,
the Fund, and the Adviser agree as follows:
ARTICLE I. FUND SHARES
1.1. The Fund agrees to make available for purchase by the Company shares
of the Portfolios set forth on Schedule A and shall execute orders placed for
each Account on a daily basis at the net asset value next computed after receipt
by the Fund or its designee of such order. For purposes of this Section 1.1,
the Company shall be the designee of the Fund for receipt of such orders from
each Account and receipt by such designee shall constitute receipt by the Fund;
provided that the Fund receives notice of such order as soon as reasonably
practical (normally by 10:00 a.m. Eastern time) on the next following Business
Day. Notwithstanding the foregoing, the Company shall use its best efforts to
provide the Fund with notice of such orders by 10:15 a.m. Eastern time on the
next following Business Day. "Business Day" shall mean any day on which the New
York Stock Exchange is open for trading and on which the Fund calculates the net
asset value pursuant to the rules of the SEC, as set forth in the Fund's
Prospectus and Statement of Additional Information. Notwithstanding the
foregoing, the Board of Directors of the Fund (hereinafter the "Board") may
refuse to permit the Fund to sell shares of any Portfolio to any person, or
suspend or terminate the offering of shares of any Portfolio, if such action is
required by law or by regulatory authorities having jurisdiction or is, in the
sole discretion of the Board acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, necessary in the
best interests of the shareholders of such Portfolio.
1.2. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance
4
<PAGE>
Companies and their Variable Insurance Products and to certain Qualified Plans.
No shares of any Portfolio will be sold to the general public.
1.3. The Fund will not make its shares available for purchase by any
insurance company or separate account unless an agreement containing provisions
substantially the same as Sections 2.4, 2.9, 3.4 and Article VII of this
Agreement is in effect to govern such sales.
1.4. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.4, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day in accordance with the
timing rules described in Section 1.1.
1.5. The Company agrees that purchases and redemptions of Portfolio shares
offered by the then current prospectus of the Fund shall be made in accordance
with the provisions of such prospectus. The Accounts of the Company, under
which amounts may be invested in the Fund, are listed on Schedule B attached
hereto and incorporated herein by reference, as such Schedule B may be amended
from time to time by mutual written agreement of all of the parties hereto. The
Company will give the Fund and the Adviser sixty (60) days written notice of its
intention to make available in the future, as a funding vehicle under the
Contracts, any other investment company.
1.6. The Company will place separate orders to purchase or redeem shares
of each Portfolio. Each order shall describe the net amount of shares and
dollar amount of each Portfolio to be purchased or redeemed. In the event of
net purchases, the Company shall pay for Portfolio shares on the next Business
Day after an order to purchase Portfolio shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted
by wire. In the event of net redemptions, the Portfolio shall pay the redemption
proceeds in federal funds transmitted by wire on the next Business Day after an
order to redeem a Portfolio's shares is made in accordance with the provision of
Section 1.4 hereof. Notwithstanding the foregoing, if the payment of redemption
proceeds on the next Business Day would require the Portfolio to dispose of
securities or otherwise incur substantial additional costs, and if the Portfolio
has determined to settle redemption transactions for all shareholders on a
delayed basis, proceeds shall be wired to the Company within seven (7) days and
the Portfolio shall notify in writing the person designated by the Company as
the recipient for such notice of such delay by 3:00 p.m. Eastern time on the
same Business Day that the Company transmits the redemption order to the
Portfolio.
1.7. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
5
<PAGE>
1.8. The Fund shall make the dividends or capital gain distributions
payable on the Fund's shares available to the Company as soon as reasonably
practical after the dividends or capital gains are calculated (normally by 6:30
p.m. Eastern time) and shall use its best efforts to furnish same day notice by
7:00 p.m. Eastern time (by wire or telephone, followed by written confirmation)
to the Company of any dividends or capital gain distributions payable on the
Fund's shares. The Company hereby elects to receive all such dividends and
capital gain distributions as are payable on the Portfolio shares in additional
shares of that Portfolio. The Fund shall notify the Company of the number of
shares so issued as payment of such dividends and distributions.
1.9. The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated (normally by 6:30 p.m. Eastern time)
and shall use its best efforts to make such net asset value per share available
by 7:00 p.m. Eastern time. In the event that the Fund is unable to meet the
7:00 p.m. time stated immediately above, then the Fund shall provide the Company
with additional time to notify the Fund of purchase or redemption orders
pursuant to Sections 1.1 and 1.4, respectively, above. Such additional time
shall be equal to the additional time that the Fund takes to make the net asset
values available to the Company; provided, however, that notification must be
made by 10:15 a.m. Eastern time on the Business Day such order is to be executed
regardless of when the net asset value is made available.
1.10. If the Fund provides materially incorrect share net asset value
information through no fault of the Company, the Company shall be entitled to an
adjustment with respect to the Fund shares purchased or redeemed to reflect the
correct net asset value per share. The determination of the materiality of any
net asset value pricing error shall be based on the Fund's policy on determining
materiality. The correction of any such errors shall be made at the Company
level and shall be made pursuant to the Fund's policy on determining
materiality. Any material error in the calculation or reporting of net asset
value per share, dividend or capital gain information shall be reported promptly
upon discovery to the Company.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the interests of the
Accounts (the "Contracts") are or will be registered and will maintain the
registration under the 1933 Act and the regulations thereunder to the extent
required by the 1933 Act; that the Contracts will be issued in compliance in all
material respects with all applicable federal and state laws and regulations.
The Company further represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it has legally and
validly established each Account prior to any issuance or sale thereof as a
segregated asset account under the insurance laws of the State of New York and
the regulations thereunder and has registered or, prior to any issuance or sale
of the Contracts, will register and will maintain the registration of each
Account as a unit investment trust in accordance with and to the extent required
by the provisions of the 1940 Act and the regulations thereunder to serve as a
segregated investment account for the Contracts. The Company shall amend its
registration statement for its contracts under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of its
Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement
6
<PAGE>
shall be registered under the 1933 Act and the regulations thereunder to the
extent required by the 1933 Act, duly authorized for issuance in accordance with
the laws of the State of Maryland and sold in compliance with all applicable
federal and state securities laws and regulations and that the Fund is and shall
remain registered under the 1940 Act and the regulations thereunder to the
extent required by the 1940 Act. The Fund shall amend the registration statement
for its shares under the 1933 Act and the 1940 Act from time to time as required
in order to effect the continuous offering of its shares. The Fund shall
register and qualify the shares for sale in accordance with the laws of the
various states only if and to the extent deemed advisable by the Fund.
2.3 The Fund and the Adviser represent that the Fund is currently
qualified as a Regulated Investment Company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), and that the Fund and the Adviser
(with respect to those Portfolios for which such Adviser acts as investment
adviser) will make every effort to maintain such qualification (under Subchapter
M or any successor or similar provision) and that the Fund [or the appropriate
Adviser] will notify the Company immediately upon having a reasonable basis for
believing that a Portfolio has ceased to so qualify or that a Portfolio might
not so qualify in the future.
2.4. The Company represents that each Account is and will continue to be a
"segregated account" under applicable provisions of the Code and that each
Contract is and will be treated as a "variable contract" under applicable
provisions of the Code and that it will make every effort to maintain such
treatments and that it will notify the Fund immediately upon having a reasonable
basis for believing that the Account or Contract has ceased to be so treated or
that they might not be so treated in the future.
2.5. The Fund represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Fund
undertakes to have a board of directors, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states.
2.7. The Fund and the Adviser represent that the Fund is lawfully
organized and validly existing under the laws of the State of Maryland and that
the Fund does and will comply in all material respects with the 1940 Act.
2.8. The Adviser and AGSI each represents and warrants that it is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and that it will perform its obligations for
the Fund and the Company in compliance in all material respects with the laws
and regulations of its state of domicile and any applicable state and federal
securities laws and regulations.
2.9. The Company represents and warrants that all of its trustees,
officers, employees, investment adviser, and other individuals/entities dealing
with the money and/or securities of the
7
<PAGE>
Fund are covered by a blanket fidelity bond or similar coverage, in an amount
equal to the greater of $5 million or any amount required by applicable federal
or state law or regulation. The aforesaid includes coverage for larceny and
embezzlement is issued by a reputable bonding company. The Company agrees to
make all reasonable efforts to see that this bond or another bond containing
these provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies.
ARTICLE III. PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS; VOTING
3.1(a) The Fund or its designee, at its option shall provide the Company
with as many printed copies of the Fund's current prospectus, including the
profile prospectus, (the "Fund Prospectus") as the Company may reasonably
request or in lieu of providing printed copies of the Fund Prospectus, the Fund
shall provide camera-ready film or computer diskettes containing the Fund
Prospectus and such other assistance as is reasonably necessary in order for the
Company once each year (or more frequently if the Fund Prospectus is materially
amended during the year) to have the prospectus for the Contracts (the "Contract
Prospectus") and the Fund Prospectus printed together in one document or
separately. The Company may elect to print the Fund Prospectus in combination
with other fund companies' prospectuses. For purposes hereof, any combined
prospectus including the Fund Prospectus along with the Contract Prospectus or
prospectus of other fund companies shall be referred to as a "Combined
Prospectus." For purposes hereof, the term "Fund Portion of the Combined
Prospectus" shall refer to the percentage of the number of Fund Prospectus pages
in the Combined Prospectus in relation to the total number of pages of the
Combined Prospectus.
3.1(b) The Fund, at its option, shall provide the Company with as many
printed copies of the Fund's current statement of additional information (the
"Fund SAI") as the Company may reasonably request or in lieu of providing
printed copies of the Fund SAI, the Fund shall provide camera-ready film or
computer diskettes containing the Fund SAI, and such other assistance as is
reasonably necessary in order for the Company once each year (or more frequently
if the Fund SAI is materially amended during the year) to have the statement of
additional information for the Contracts (the "Contract SAI") and the Fund SAI
printed together or separately. The Company may also elect to print the Fund
SAI in combination with other fund companies' statements of additional
information. For purposes hereof, any combined statement of additional
information including the Fund SAI along with the Contract SAI or statement of
additional information of other fund companies shall be referred to as a
"Combined SAI." For purposes hereof, the term "Fund Portion of the Combined
SAI" shall refer to the percentage of the number of Fund SAI pages in the
Combined SAI in relation to the total number of pages of the Combined SAI.
3.1(c) The Fund, at its option, shall provide the Company with as many
printed copies of the Fund's annual report and semi-annual report (collectively,
the "Fund Reports") as the Company may reasonably request or in lieu of
providing printed copies of the Fund Reports, the Fund shall
8
<PAGE>
provide camera-ready film or computer diskettes containing the Fund's Reports,
and such other assistance as is reasonably necessary in order for the Company
once each year to have the annual report and semi-annual report for the
Contracts (collectively, the "Contract Reports") and the Fund Reports printed
together or separately. The Company may also elect to print the Fund Reports in
combination with other fund companies' annual reports and semi-annual reports.
For purposes hereof, any combined annual reports and semi-annual reports
including the Fund Reports along with the Contract Reports or annual reports and
semi-annual reports of other fund companies shall be referred to as "Combined
Reports." For purposes hereof, the term "Fund Portion of the Combined Reports"
shall refer to the percentage of the number of Fund Reports pages in the
Combined Reports in relation to the total number or pages of the Combined
Reports.
3.2 Expenses
3.2(a) Expenses Borne by Company. Except as otherwise provided in this
Section 3.2., all expenses of preparing, setting in type and printing and
distributing (i) Contract Prospectuses, Fund Prospectuses, and Combined
Prospectuses; (ii) Fund SAIs, Contract SAIs, and Combined SAIs; (iii) Fund
Reports, Contract Reports, and Combined Reports, and (iv) Contract proxy
material that the Company may require in sufficient quantity to be sent to
Contract owners, annuitants, or participants under Contracts (collectively, the
"Participants"), shall be the expense of the Company.
3.2(b) Expenses Borne by Fund
Fund Prospectuses
With respect to existing Participants, the Fund shall pay the cost of
setting in type, printing and distributing Fund Prospectuses made available by
the Company to such existing Participants in order to update disclosure as
required by the 1933 Act and/or the 1940 Act. With respect to existing
Participants, in the event the Company elects to prepare a Combined Prospectus,
the Fund shall pay the cost of setting in type, printing and distributing the
Fund Portion of the Combined Prospectus made available by the Company to its
existing Participants in order to update disclosure as required by the 1933 Act
and/or the 1940 Act. In such event, the Fund shall bear the cost of typesetting
to provide the Fund Prospectus to the Company in the format in which the Fund is
accustomed to formatting prospectus. Notwithstanding the foregoing, in no event
shall the Fund pay for any such costs that exceed by more than five (5) percent
what the Fund would have paid to print such documents. The Fund shall not pay
any costs of typesetting, printing and distributing the Fund Prospectus (or
Combined Prospectus, if applicable) to prospective Participants.
Fund SAIs, Fund Reports and Proxy Material
With respect to existing Participants, the Fund shall pay the cost of
setting in type and printing Fund SAIs, Fund Reports and Fund proxy material
made available by the Company to its
9
<PAGE>
existing Participants. With respect to existing Participants, in the event the
Company elects to prepare a Combined SAI or Combined Reports, the Fund shall pay
the cost of setting in type and printing the Fund Portion of the Combined SAI or
Combined Reports, respectively, made available by the Company to its existing
Participants. In such event, the Fund shall bear the cost of typesetting to
provide the Fund SAI or Fund Reports to the Company in the format in which the
Fund is accustomed to formatting statements of additional information and annual
and semi-annual reports. Notwithstanding the foregoing, in no event shall the
Fund pay for any such costs that exceed by more than five (5) percent what the
Fund would have paid to print such documents. The Fund shall pay one half the
cost of distributing Fund SAIs, Fund Reports and Fund proxy statements and
proxy-related material to such existing Participants. The Fund shall pay the
cost of distributing the Fund Portion of the Combined SAIs and the Fund Portion
of the Combined Reports to existing Participants. The Fund shall not pay any
costs of distributing Fund SAIs, Combined SAIs, Fund Reports, Combined Reports
or proxy statements or proxy-related material to prospective Participants.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of typesetting, printing or distributing any of
the foregoing documents other than those actually distributed to existing
Participants.
The Fund shall pay no fee or other compensation to the Company under this
Agreement, except that if the Fund or any Portfolio adopts and implements a plan
pursuant to Rule 12b-1 to finance distribution expenses, then the Underwriter
may make payments to the Company or to AGSI if and in amounts agreed to by the
Underwriter in writing.
All expenses, including expenses to be borne by the Fund pursuant to
Section 3.2 hereof, incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed available by the Fund, in accordance with
applicable state laws prior to their sale.
3.2(c) Expenses Borne by AGSI.
Fund Prospectuses
With respect to prospective Participants, AGSI shall pay one half of the
cost of setting in type, printing and distributing Fund Prospectuses made
available by the Company as sales literature to such prospective Participants.
With respect to prospective Participants, in the event the Company elects to
prepare a Combined Prospectus, AGSI shall pay one half of the cost of printing
and distributing the Combined Prospectus made available by the Company to its
prospective Participants as sales literature. In such event, AGSI shall bear
the cost of typesetting to provide the Fund Prospectus to the Company in the
format in which the Fund is accustomed to formatting prospectuses.
Notwithstanding the foregoing, in no event shall AGSI pay for any such costs
that exceed by more than five (5) percent what AGSI would have paid to print
such documents.
10
<PAGE>
Fund SAIs, Fund Reports and Proxy Material.
With respect to prospective Participants, AGSI shall pay one half of the
cost of setting in type and printing Fund SAIs, Fund Reports and Fund proxy
material made available by the Company to its prospective Participants as sales
literature. In the event the Company elects to prepare a Combined SAI or
Combined Reports, AGSI shall pay one half of the cost of printing the Combined
SAI or Combined Reports, respectively, made available by the Company to its
prospective Participants as sales literature. In such event, AGSI shall bear
the cost of typesetting to provide the Fund SAI and Fund Reports to the Company
in the format in which the Fund is accustomed to formatting statements of
additional information and annual and semi-annual reports. Notwithstanding the
foregoing, in no event shall AGSI pay for any such costs that exceed by more
than five (5) percent what AGSI would have paid to print such documents. AGSI
shall pay one half the cost of distributing Fund SAIs, Combined SAIs, Fund
Reports, Combined Reports, and Fund proxy material to such prospective
Participants as sales literature.
3.2(d) If the Company chooses to receive camera-ready film or computer
diskettes in lieu of receiving printed copies of the Fund Prospectus, Fund SAI
or Fund Reports, the Fund or its designee will be responsible for providing the
Fund Prospectus, Fund SAI or Fund Reports in the format in which it is
accustomed to formatting such documents, and, notwithstanding anything in
Sections 3.2(b) or 3.2(c), the Company shall bear the expense of adjusting or
changing the format to conform with any of its prospectuses or reports.
3.2(e) Certain Administrative Expenses of the Company. The Adviser will
quarterly reimburse the Company certain of the administrative costs and expenses
incurred by the Company as a result of operations necessitated by the beneficial
ownership by Contract owners of shares of the Portfolios of the Fund, equal to
fifteen (15) basis points per annum of the net assets of the Funds attributable
to the Contracts. The determination of applicable assets shall be made by
averaging assets in applicable Portfolios as of the last Business Day of each
calendar month falling within the applicable calendar quarter. In no event
shall such fee be paid by the Fund, its shareholders or by any Contract owner.
3.3. The Fund SAI shall be obtainable from the Fund, the Company or such
other person as the Fund may designate.
3.4. If and to the extent required by law the Company shall distribute all
proxy material furnished by the Fund to Participants to whom voting privileges
are required to be extended and shall:
(i) solicit voting instructions from Participants;
(ii) vote the Fund shares in accordance with instructions received from
Participants; and
(iii) vote Fund shares for which no instructions have been received in the
same proportion as Fund shares of such Portfolio for which
instructions have been received;
11
<PAGE>
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners. The
Company reserves the right to vote Fund shares held in any segregated asset
account in its own right, to the extent permitted by law. The Fund and the
Company shall follow the procedures, and shall have the corresponding
responsibilities, for the handling of proxy and voting instruction
solicitations, as set forth in Schedule C attached hereto and incorporated
herein by reference. Participating Insurance Companies shall be responsible for
ensuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the standards set forth
on Schedule C, which standards will also be provided to the other Participating
Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings (except insofar as the Securities and Exchange Commission may
interpret Section 16 not to require such meetings) or comply with Section 16(c)
of the 1940 Act (although the Fund is not one of the trusts described in Section
16(c) of that Act) as well as with Sections 16(a) and, if and when applicable,
16(b). Further, the Fund will act in accordance with the Securities and
Exchange Commission's interpretation of the requirements of Section 16(a) with
respect to periodic elections of directors and with whatever rules the
Commission may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material prepared by the Company, AGSI or any person contracting with the
Company or AGSI in which the Fund or the Adviser is named, at least ten Business
Days prior to its use. No such material shall be used if the Fund, the Adviser,
or their designee reasonably objects to such use within ten Business Days after
receipt of such material.
4.2. Neither the Company, AGSI nor any person contracting with the Company
or AGSI shall give any information or make any representations or statements on
behalf of the Fund or concerning the Fund in connection with the sale of the
Contracts other than the information or representations contained in the
registration statement or the Fund Prospectus, as such registration statement or
Fund Prospectus may be amended or supplemented from time to time, or in reports
or proxy statements for the Fund, or in sales literature or other promotional
material approved by the Fund or its designee, except with the permission of the
Fund.
4.3. The Fund or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material prepared by the Fund in which the Company or its
Account(s) are named at least ten Business Days prior to its use. No such
material shall be used if the Company or its designee reasonably objects to such
use within ten Business Days after receipt of such material.
4.4. Neither the Fund nor the Adviser shall give any information or make
any representations
12
<PAGE>
on behalf of the Company or concerning the Company, each Account, or the
Contracts, other than the information or representations contained in a
registration statement or prospectus for the Contracts, as such registration
statement and prospectus may be amended or supplemented from time to time, or in
published reports or solicitations for voting instructions for each Account
which are in the public domain or approved by the Company for distribution to
Participants, or in sales literature or other promotional material approved by
the Company or its designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the SEC or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the investment
in an Account or Contract contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following: advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, or other
public media), sales literature (i.e., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents or employees, and registration
statements, prospectuses, statements of additional information, shareholder
reports, and proxy materials.
ARTICLE V. [RESERVED]
ARTICLE VI. DIVERSIFICATION
6.1. The Adviser represents, as to the Portfolios for which it acts as
investment adviser, that it will use its best efforts at all times to comply
with Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event a Portfolio ceases to so qualify, the Adviser will
take all reasonable steps (a) to notify the Company of such breach and (b) to
adequately diversify the Portfolio so as to achieve compliance
13
<PAGE>
within the grace period afforded by Regulation 817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract owners and variable life
insurance contract owners; or (f) a decision by a Participating Insurance
Company to disregard the voting instructions of Contract owners. The Board
shall promptly inform the Company if it determines that an irreconcilable
material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing material
irreconcilable conflicts of which it is aware to the Board.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested directors, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested directors), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the Separate Accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance policy
owners, or variable Contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
Contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account. No charge
or penalty will be imposed as a result of such withdrawal. The Company agrees
that it bears the responsibility to take remedial action in the event of a Board
determination of an irreconcilable material conflict and the cost of such
remedial action, and these responsibilities will be carried out with a view only
to the interests of Contract owners.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
(at the Company's expense); provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. No charge or penalty will be imposed as a result of such
withdrawal. The Company agrees that it bears the responsibility to take
remedial action in the event of a Board determination of an irreconcilable
material conflict and the cost of such remedial action, and these
responsibilities will be carried out with a view only to the interests
14
<PAGE>
of Contract owners.
7.5. For purposes of Sections 7.3 and 7.4 of this Agreement, a majority of
the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 or 7.4 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict.
7.6. The Company and the Adviser shall at least annually submit to the
Board of the Fund such reports, materials or data as the Board may reasonably
request so that the Board may fully carry out the obligations imposed upon them
by the provisions hereof, and said reports, materials and data shall be
submitted more frequently if deemed appropriate by the Board. All reports
received by the Board of potential or existing conflicts, and all Board action
with regard to determining the existence of a conflict, notifying Participating
Insurance Companies of a conflict, and determining whether any proposed action
adequately remedies a conflict, shall be properly recorded in the minutes of the
Board or other appropriate records, and such minutes or other records shall be
made available to the SEC upon request.
ARTICLE VIII. APPLICABLE LAW
8.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Texas.
8.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
and the terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE IX. TERMINATION
9.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason upon six-months advance
written notice delivered to the other parties; or
(b) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio based upon the
Company's determination that shares of such Portfolio are not
reasonably available to meet the requirements of the Contracts.
Reasonable advance notice of election to terminate shall be
furnished by the Company, said termination to be effective ten
(10) days after receipt of notice unless the Fund makes available
a sufficient number of shares to reasonably meet the requirements
of the Account within said ten (10) day period; or
(c) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio in the event any of
the Portfolio's shares
15
<PAGE>
are not registered, issued or sold in accordance with applicable
state and/or federal law or such law precludes the use of such
shares as the underlying investment medium of the Contracts
issued or to be issued by the Company. The terminating party
shall give prompt notice to the other parties of its decision to
terminate; or
(d) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio in the event that
such Portfolio ceases to qualify as a Regulated Investment
Company under Subchapter M of the Code or under any successor or
similar provision, or if the Company or AGSI reasonably believes
that the Fund may fail to so qualify; or
(e) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio in the event that
such Portfolio fails to meet the diversification requirements
specified in Article VI hereof; or
(f) termination by either the Fund or the Adviser by written notice
to the Company if the Adviser or the Fund shall determine, in
its sole judgment exercised in good faith, that the Company, AGSI
and/or their affiliated companies has suffered a material adverse
change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject of
material adverse publicity, provided that the Fund or the Adviser
will give the Company sixty (60) days' advance written notice of
such determination of its intent to terminate this Agreement, and
provided further that after consideration of the actions taken by
the Company or AGSI and any other changes in circumstances since
the giving of such notice, the determination of the Fund or the
Adviser shall continue to apply on the 60th day since giving of
such notice, then such 60th day shall be the effective date of
termination; or
(g) termination by the Company or AGSI by written notice to the Fund
and the Adviser, if the Company or AGSI shall determine, in its
sole judgment exercised in good faith, that either the Fund or
the Adviser (with respect to the appropriate Portfolio) has
suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement
or is the subject of material adverse publicity; provided that
the Company will give the Fund or the Adviser sixty (60) days'
advance written notice of such determination of its intent to
terminate this Agreement, and provided further that after
consideration of the actions taken by the Company and any other
changes in circumstances since the giving of such notice, the
determination of the Company or AGSI shall continue to apply on
the 60th day since giving of such notice, then such 60th day
shall be the effective date of termination; or
(h) termination by the Fund or the Adviser by written notice to the
Company, if the Company gives the Fund and the Adviser the
written notice specified in
16
<PAGE>
Section 2.4 hereof and at the time such notice was given there
was no notice of termination outstanding under any other
provision of this Agreement; provided, however any termination
under this Section 10.1(h) shall be effective sixty (60) days
after the notice specified in Section 2.4 was given; or
(i) termination by any party upon the other party's breach of any
representation in Section 2 or any material provision of this
Agreement, which breach has not been cured to the satisfaction of
the terminating party within ten (10) days after written notice
of such breach is delivered to the Fund or the Company, as the
case may be; or
(j) termination by the Fund or the Adviser by written notice to the
Company in the event an Account or Contract is not registered or
sold in accordance with applicable federal or state law or
regulation, or the Company fails to provide pass-through voting
privileges as specified in Section 3.4.
9.2. Notwithstanding any termination of this Agreement, the Fund shall at
the option of the Company, continue to make available additional shares of the
Fund pursuant to the terms and conditions of this Agreement, for all Contracts
in effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts") unless such further sale of Fund shares is
proscribed by law, regulation or applicable regulatory body, or unless the Fund
determines that liquidation of the Fund following termination of this Agreement
is in the best interests of the Fund and its shareholders. Specifically,
without limitation, the owners of the Existing Contracts shall be permitted to
direct reallocation of investments in the Fund, redemption of investments in the
Fund and/or investment in the Fund upon the making of additional purchase
payments under the Existing Contracts. The parties agree that this Section 10.2
shall not apply to any terminations under Article VII and the effect of such
Article VII terminations shall be governed by Article VII of this Agreement.
9.3. The Company shall not redeem Fund shares attributable to the
Contracts (as distinct from Fund shares attributable to the Company's assets
held in the Account) except (i) as necessary to implement Contract Owner
initiated or approved transactions, or (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act.
Upon request, the Company will promptly furnish to the Fund the opinion of
counsel for the Company (which counsel shall be reasonably satisfactory to the
Fund and the Adviser) to the effect that any redemption pursuant to clause (ii)
above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts, the Company shall not prevent
Contract Owners from allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving the Fund or the Adviser 90
days prior written notice of its intention to do so.
17
<PAGE>
ARTICLE X. 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: American General Series Portfolio Company
2929 Allen Parkway, L4-01
Houston, TX 77019
Attention: Nori L. Gabert
IF TO ADVISER: The Variable Annuity Life Insurance Company
P. O. Box 3206
Houston, TX 77253-3206
Attention: Cynthia A. Toles
IF TO THE COMPANY: The United States Life Insurance Company
in the City of New York
125 Maiden Lane
New York, NY 10038-4992
Attention: Jane K. Rushton, Esq.
IF TO AGSI: American General Securities Incorporated
2727 Allen Parkway
Houston, Texas 77019
Attention: F. Paul Kovach, Jr.
ARTICLE XI. MISCELLANEOUS
11.1. All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
11.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
11.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
11.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
18
<PAGE>
11.5. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
11.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
11.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
11.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Adviser may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Adviser, if such assignee is duly licensed and registered to
perform the obligations of the Adviser under this Agreement.
11.9 The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) The Company's annual statement (prepared under statutory accounting
principles) and annual report (prepared under generally accepted
accounting principles ("GAAP"), if any), as soon as practical and in
any event within 90 days after the end of each fiscal year;
(b) The Company's June 30th quarterly statements (statutory) (and GAAP, if
any), as soon as practical and in any event within 45 days after the
end of each semi-annual period:
(c) Any financial statement, proxy statement, notice or report of the
Company sent to stockholders and/or policyholders, as soon as
practical after the delivery thereof to stockholders;
(d) Any registration statement (without exhibits) and financial reports of
the Company filed with the SEC or any state insurance regulator, as
soon as practical after the filing thereof;
(e) any other public report submitted to the Company by independent
accountants in connection with any annual, interim or special audit
made by them of the books of the Company, as soon as practical after
the receipt thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed in its name and on its behalf by its duly authorized representative
hereto as of the date specified above.
19
<PAGE>
THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK on behalf
of itself and each of its Accounts named in Schedule B hereto, as amended
from time to time.
By:
-------------------------------
Name:
Title:
AMERICAN GENERAL SECURITIES INCORPORATED
By:
-------------------------------
Name: F. Paul Kovach, Jr.
Title: President
THE VARIABLE ANNUITY LIFE INSURANCE COMPANY
By:
-------------------------------
Name: Thomas L. West, Jr.
Title: President and CEO
AMERICAN GENERAL SERIES PORTFOLIO COMPANY
By:
-------------------------------
Name: Cynthia A. Toles
Title: General Counsel and Secretary
20
<PAGE>
SCHEDULE A
PORTFOLIOS OF AMERICAN GENERAL SERIES PORTFOLIO COMPANY
AVAILABLE FOR PURCHASE BY
THE UNITED STATES LIFE INSURANCE COMPANY
IN THE CITY OF NEW YORK
UNDER THIS AGREEMENT
FUND NAME SEPARATE ACCOUNT
- - --------- -----------------
Money Market Fund The United States Life Insurance Company
in the City of New York
Separate Account USL VA-R
Established: August 8, 1997
21
<PAGE>
SCHEDULE B
SEPARATE ACCOUNTS AND CONTRACTS
<TABLE>
<CAPTION>
NAME OF SEPARATE ACCOUNT AND FORM NUMBERS AND NAMES OF CONTRACT FUNDED BY
DATE ESTABLISHED BY BOARD OF DIRECTORS SEPARATE ACCOUNT
- - ------------------------------------------ -------------------------------------------------
<S> <C> <C>
The United States Life Insurance Company Form No: 98505N
in the City of New York
Separate Account USL VA-R Name of Contract: Select Reserve[] Flexible
Established: August 8, 1997 Payment Variable and Fixed
Individual Deferred Annuity
</TABLE>
22
<PAGE>
SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
1. The proxy proposals are given to the Company by the Fund as early as possible
before the date set by the Fund for the shareholder meeting to enable the
Company to consider and prepare for the solicitation of voting instructions
from owners of the Contracts and to facilitate the establishment of
tabulation procedures. At this time the Fund will inform the Company of the
Record, Mailing and Meeting dates. This will be done verbally approximately
two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of units
which are attributed to each contract owner/policyholder (the "Customer") as
of the Record Date. Allowance should be made for account adjustments made
after this date that could affect the status of the Customers' accounts as of
the Record Date.
Note: The number of proxy statements is determined by the activities
described in this Step #2. The Company will use its best efforts to call in
the number of Customers to the Fund , as soon as possible, but no later than
two weeks after the Record Date.
3. Assuming that the Fund has called an annual meeting, then in that event the
Fund's Annual Report must be sent to each Customer by the Company either
before or together with the Customers' receipt of a proxy statement or other
voting instructions and solicitation material. The Fund will provide at
least one copy of the last Annual Report to the Company pursuant to the terms
of Section 3.3 of the Agreement to which this Schedule relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Fund or its
affiliate must approve the Card before it is printed. Allow approximately 2-
4 business days for printing information on the Cards. Information commonly
found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund).
(This and related steps may occur later in the chronological process due to
possible
23
<PAGE>
uncertainties relating to the proposals.)
5. During this time, the Fund will develop, produce and pay for the Notice of
Proxy and the Proxy Statement (one document). Printed and folded notices and
statements will be sent to Company for insertion into envelopes (envelopes
and return envelopes are provided and paid for by the Company). Contents of
envelope sent to Customers by the Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the Company or
its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small, single
sheet of paper that requests Customers to vote as quickly as possible and
that their vote is important. One copy will be supplied by the Fund.)
e. cover letter - optional, supplied by Company and reviewed and approved in
advance by the Fund.
6. The proxy notice and statement as provided by the Fund should be received by
the Company approximately 3-5 business days before mail date. Individual in
charge at Company reviews and approves the contents of the mailing package to
ensure correctness and completeness. Copy of this approval should be sent to
the Fund.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the Company as
the shareowner. (A 5-week period is recommended.) Solicitation time is
calculated as calendar days from (but not including,) the meeting,
counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place in
another department or another vendor depending on process used. An often
used procedure is to sort Cards on arrival by proposal into vote categories
of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by the Fund in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For example, if the account registration is under "John A. Smith,
Trustee," then that is the exact legal name to be printed on the Card and is
the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter and a
new Card and return envelope. The
24
<PAGE>
mutilated or illegible Card is disregarded and considered to be not received
for purposes of vote tabulation. Any Cards that have been "kicked out" (e.g.
mutilated, illegible) of the procedure are "hand verified," i.e., examined
as to why they did not complete the system. Any questions on those Cards are
usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated
in terms of a percentage and the number of shares.) The Fund must review
and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to the Fund on
the morning of the meeting not later than 10:00 a.m. Eastern time. The Fund
may request an earlier deadline if reasonable and if required to calculate
the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be required
from the Company as well as an original copy of the final vote. The Fund
will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Fund will be
permitted reasonable access to such Cards.
16. All approvals and "signing-off' may be done orally, but must always be
followed up in writing.
25
<PAGE>
EXHIBIT 3(b)(ii)
<PAGE>
PARTICIPATION AGREEMENT
AMONG
THE UNITED STATES LIFE INSURANCE COMPANY
IN THE CITY OF NEW YORK
AMERICAN GENERAL SECURITIES INCORPORATED
HOTCHKIS AND WILEY VARIABLE TRUST
AND
HOTCHKIS AND WILEY
DATED AS OF
December 1, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. Fund Shares 4
ARTICLE II. Representations and Warranties 7
ARTICLE III. Prospectuses, Reports to Shareholders
and Proxy Statements, Voting 8
ARTICLE IV. Sales Material and Information 12
ARTICLE V. [Reserved] 14
ARTICLE VI. Diversification 14
ARTICLE VII. Potential Conflicts 14
ARTICLE VIII. Indemnification 16
ARTICLE IX. Applicable Law 19
ARTICLE X. Termination 19
ARTICLE XI. Notices 22
ARTICLE XII. Foreign Tax Credits 22
ARTICLE XIII. Miscellaneous 23
SCHEDULE A Portfolios of Hotchkis and Wiley Variable Trust
Available for Purchase by the United States Life
Insurance Company in the City of New York 26
SCHEDULE B Separate Accounts and Contracts 27
SCHEDULE C Proxy Voting Procedures 28
<PAGE>
THIS PARTICIPATION AGREEMENT, made and entered into as of the 1st day of
December, 1998 by and among THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY
OF NEW YORK (hereinafter the "Company"), a New York insurance company, on its
own behalf and on behalf of each separate account of the Company set forth on
Schedule B hereto as may be amended from time to time (each such account
hereinafter referred to as the "Account"); AMERICAN GENERAL SECURITIES
INCORPORATED ("AGSI"), a Texas corporation; HOTCHKIS AND WILEY VARIABLE TRUST
(hereinafter the "Fund"), a Massachusetts business trust; and HOTCHKIS AND WILEY
(the "Adviser"), a division of The Merrill Lynch Capital Management Group of
Merrill Lynch Asset Management, L.P.
WHEREAS, the Fund desires to act as (i) the investment vehicle for separate
accounts established by insurance companies for individual and group life
insurance policies and annuity contracts with variable accumulation and/or pay-
out provisions (hereinafter referred to individually and/or collectively as
"Variable Insurance Products") and (ii) the investment vehicle for certain
qualified pension and retirement plans (hereinafter "Qualified Plans"); and
WHEREAS, insurance companies desiring to utilize the Fund as an investment
vehicle under their Variable Insurance Products are required to enter into a
participation agreement with the Fund and the Adviser (the "Participating
Insurance Companies"); and
WHEREAS, shares of the Fund are divided into several series of shares, each
representing the interest in a particular managed portfolio of securities and
other assets, any one or more of which may be made available for Variable
Insurance Products of Participating Insurance Companies; and
WHEREAS, the Fund intends to offer shares of the series set forth on Schedule A
(each such series hereinafter referred to as a "Portfolio"), as may be amended
from time to time by mutual agreement of the parties hereto, under this
Agreement to the Accounts of the Company; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated August 13, 1997, (Rel. No. 1C-22786), granting Participating
Insurance Companies and Variable Insurance Product separate accounts exemptions
from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment
Company Act of 1940, as amended (hereinafter the "1940 Act"), and Rules
6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit
shares of the Fund to be sold to and held by Variable Insurance Product separate
accounts of both affiliated and unaffiliated life insurance companies and
Qualified Plans (hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment company
under the 1940 Act and its shares are registered under the Securities Act of
1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers
3
<PAGE>
Act of 1940, as amended, and any applicable state securities laws; and
WHEREAS, the Adviser acts as investment adviser to the Portfolios of the Fund;
and
WHEREAS, Princeton Funds Distributor, Inc. (formerly Merrill Lynch Funds
Distributor, Inc.), (the "Underwriter") is registered as a broker/dealer under
the Securities Exchange Act of 1934, as amended (hereinafter the "1934 Act"), is
a member in good standing of the National Association of Securities Dealers,
Inc. (hereinafter "NASD") and serves as principal underwriter of the shares of
the Fund; and
WHEREAS, the Company has registered or will register certain Variable Insurance
Products under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated asset
account, established by resolution or under authority of the Board of Directors
of the Company, on the date shown for such Account on Schedule B hereto, to set
aside and invest assets attributable to the aforesaid Variable Insurance
Product; and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company intends to purchase shares in the Portfolios on behalf of each
Account to fund certain of the aforesaid Variable Insurance Products and the
Fund intends to sell such shares to the relevant Account at net asset value; and
WHEREAS, AGSI serves as both the distributor and the principal underwriter of
the Variable Insurance Products that are set forth on Schedule B;
NOW, THEREFORE, in consideration of their mutual promises, the Company, AGSI,
the Fund and the Adviser agree as follows:
ARTICLE I. FUND SHARES
1.1. The Fund agrees to make available for purchase by the Company shares
of the Portfolios set forth on Schedule A and shall execute orders placed for
each Account on a daily basis at the net asset value next computed after receipt
by the Fund or its designee of such order. For purposes of this Section 1.1,
the Company shall be the designee of the Fund for receipt of such orders from
each Account and receipt by such designee by 4:00 p.m. Eastern time on a
Business Day shall constitute receipt by the Fund; provided that the Fund
receives notice of such order as soon as reasonably practical (normally by 10:00
a.m. Eastern time) on the next following Business Day. Notwithstanding the
foregoing, the Company shall use its best efforts to provide the Fund with
notice of such orders by 10:15 a.m. Eastern time on the next following Business
Day. "Business Day" shall
4
<PAGE>
mean any day on which the New York Stock Exchange is open for trading and on
which the Fund calculates the net asset value of the Portfolios' shares pursuant
to the rules of the Securities and Exchange Commission ("SEC"), as set forth in
the Fund's Prospectus and Statement of Additional Information. Notwithstanding
the foregoing, the Board of Trustees of the Fund (hereinafter the "Board") may
refuse to permit the Fund to sell shares of any Portfolio, to any person, or
suspend or terminate the offering of shares of any Portfolio, if such action is
required by law or by regulatory authorities having jurisdiction or is, in the
sole discretion of the Board acting in good faith and in light of their
fiduciary duties under federal and any applicable state laws, necessary in the
best interests of the shareholders of such Portfolio.
1.2. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their Variable Insurance Products and to
certain Qualified Plans. No shares of any Portfolio will be sold to the general
public.
1.3. The Fund will not make its shares available for purchase by any
insurance company or separate account unless an agreement containing provisions
substantially the same as Sections 2.4, 2.9, 3.4 and Article VII of this
Agreement is in effect to govern such sales.
1.4. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.4, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee by 4:00
p.m. Eastern time on a Business Day shall constitute receipt by the Fund;
provided that the Fund receives notice of such request for redemption on the
next following Business Day in accordance with the timing rules described in
Section 1.1.
1.5. The Company agrees that purchases and redemptions of Portfolio shares
offered by the then current prospectus of the Fund shall be made in accordance
with the provisions of such prospectus. The Accounts of the Company, under
which amounts may be invested in the Fund, are listed on Schedule B attached
hereto and incorporated herein by reference, as such Schedule B may be amended
from time to time by mutual written agreement of all of the parties hereto. The
Company will give the Fund and the Adviser sixty (60) days' written notice of
its intention to make available in the future, as a funding vehicle under the
Variable Insurance Products, any other investment company.
1.6. The Company will place separate orders to purchase or redeem shares
of each Portfolio. Each order shall describe the net amount of shares and
dollar amount of each Portfolio to be purchased or redeemed. In the event of
net purchases, the Company shall pay for Portfolio shares on the next Business
Day after an order to purchase Portfolio shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted
by wire. In the event of net redemptions, the Portfolio shall pay the redemption
proceeds in federal funds transmitted by wire on the next Business Day after an
order to redeem a Portfolio's shares is made in accordance with the provision of
Section 1.4 hereof. Notwithstanding the foregoing, if the payment of redemption
proceeds on the next Business Day would require the Portfolio to dispose of
securities or otherwise incur substantial additional costs, and if the Portfolio
has determined to settle
5
<PAGE>
redemption transactions for all shareholders on a delayed basis, proceeds shall
be wired to the Company within seven (7) days and the Portfolio shall notify in
writing the person designated by the Company as the recipient for such notice of
such delay by 3:00 p.m. Eastern time on the same Business Day that the Company
transmits the redemption order to the Portfolio.
1.7. Issuance and transfer of the Fund's shares will be by book entry
only. Share certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.8. The Fund shall make the dividends or capital gain distributions
payable on the Fund's shares available to the Company as soon as reasonably
practical after the dividends or capital gains are calculated (normally by 6:30
p.m. Eastern time) and shall use its best efforts to furnish same day notice by
7:00 p.m. Eastern time (by wire or telephone, followed by written confirmation)
to the Company of any dividends or capital gain distributions payable on the
Fund's shares. The Company hereby elects to receive all such dividends and
capital gain distributions as are payable on the Portfolio shares in additional
shares of that Portfolio. The Company reserves the right to revoke this
election and to receive all such dividends and capital gain distributions in
cash. The Fund shall notify the Company of the number of shares so issued as
payment of such dividends and distributions.
1.9. The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated (normally by 6:30 p.m. Eastern time)
and shall use its best efforts to make such net asset value per share available
by 7:00 p.m. Eastern time. In the event that the Fund is unable to meet the
7:00 p.m. time stated immediately above, then the Fund shall provide the Company
with additional time to notify the Fund of purchase or redemption orders
pursuant to Sections 1.1 and 1.4, respectively, above. Such additional time
shall be equal to the additional time that the Fund takes to make the net asset
values available to the Company; provided, however, that notification must be
made by 10:15 a.m. Eastern time on the Business Day such order is to be executed
regardless of when the net asset value is made available.
1.10. If the Fund provides materially incorrect share net asset value
information through no fault of the Company, the Company shall be entitled to an
adjustment with respect to the Fund shares purchased or redeemed to reflect the
correct net asset value per share. The determination of the materiality of any
net asset value pricing error shall be based on the SEC's recommended
guidelines, if any. The correction of any such errors shall be made at the
Company level and shall be made pursuant to the SEC's recommended guidelines.
Any material error in the calculation or reporting of net asset value per share,
dividend or capital gain information shall be reported promptly upon discovery
to the Company.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the interests of the
Accounts (the
6
<PAGE>
"Contracts") are or will be registered and will maintain the registration under
the 1933 Act and the regulations thereunder to the extent required by the 1933
Act; that the Contracts will be issued in compliance in all material respects
with all applicable federal and state laws and regulations. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a segregated
asset account under the insurance laws of the State of New York and the
regulations thereunder and has registered or, prior to any issuance or sale of
the Contracts, will register and will maintain the registration of each Account
as a unit investment trust in accordance with and to the extent required by the
provisions of the 1940 Act and the regulations thereunder to serve as a
segregated investment account for the Contracts. The Company shall amend its
registration statement for its Contracts under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of its
Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and the regulations
thereunder to the extent required by the 1933 Act, duly authorized for issuance
in accordance with the laws of the Commonwealth of Massachusetts and sold in
compliance with all applicable federal and state securities laws and regulations
and that the Fund is and shall remain registered under the 1940 Act and the
regulations thereunder to the extent required by the 1940 Act. The Fund shall
amend the registration statement for its shares under the 1933 Act and the 1940
Act from time to time as required in order to effect the continuous offering of
its shares. The Fund shall register the shares for sale in accordance with the
laws of the various states only if and to the extent deemed advisable by the
Fund.
2.3 The Fund and the Adviser will make every effort to qualify each
Portfolio as a Regulated Investment Company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), and that the Fund and the Adviser
(with respect to those Portfolios for which such Adviser acts as investment
adviser) thereafter will make every effort to maintain such qualification (under
Subchapter M or any successor or similar provision) and the Fund or the Adviser
will notify the Company immediately upon having a reasonable basis for believing
that a Portfolio has ceased to so qualify or that a Portfolio might not so
qualify in the future.
2.4. The Company represents that each Account is and will continue to be a
"segregated account" under applicable provisions of the Code and that each
Contract is and will be treated as a "variable contract" under applicable
provisions of the Code and that it will make every effort to maintain such
treatments and that it will notify the Fund immediately upon having a reasonable
basis for believing that the Account or Contract has ceased to be so treated or
that they might not be so treated in the future.
2.5. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states.
7
<PAGE>
2.6. The Fund and the Adviser represent that the Fund is lawfully
organized and validly existing under the laws of the Commonwealth of
Massachusetts and that the Fund does and will comply in all material respects
with the applicable provisions of the 1940 Act.
2.7. The Adviser and AGSI each represents and warrants that it is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and that it will perform its obligations for
the Fund and the Company in compliance in all material respects with the laws
and regulations of its state of domicile and any applicable state and federal
securities laws and regulations.
2.8. The Company represents and warrants that all of its trustees,
officers, employees and other individuals/entities dealing with the money and/or
securities of the Fund are covered by a blanket fidelity bond or similar
coverage, in an amount equal to the greater of $5 million or any amount required
by applicable federal or state law or regulation. The aforesaid includes
coverage for larceny and embezzlement is issued by a reputable bonding company.
The Company agrees to make all reasonable efforts to see that this bond or
another bond containing these provisions is always in effect, and agrees to
notify the Fund and the Adviser in the event that such coverage no longer
applies.
ARTICLE III. PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS,
VOTING
3.1(a) The Fund or its designee shall provide the Company with as many
printed copies of the Fund's current prospectus, including the profile
prospectus, (the "Fund Prospectus") as the Company may reasonably request for
distribution to Contract owners whose Contracts are funded by Portfolio shares.
If requested by the Company, in lieu of providing printed copies of the Fund
Prospectus, the Fund shall provide camera-ready film or computer diskettes
containing the Fund Prospectus and such other assistance as is reasonably
necessary in order for the Company once each year (or more frequently if the
Fund Prospectus is amended during the year) to have the prospectus for the
Contracts (the "Contract Prospectus") and the Fund Prospectus printed together
in one document or separately. The Company may elect to print the Fund
Prospectus in combination with other fund companies' prospectuses. For purposes
hereof, any combined prospectus including the Fund Prospectus along with the
Contract Prospectus or prospectus of other fund companies shall be referred to
as a "Combined Prospectus." For purposes hereof, the term "Fund Portion of the
Combined Prospectus" shall refer to the percentage of the number of Fund
Prospectus pages in the Combined Prospectus in relation to the total number of
pages of the Combined Prospectus.
3.1(b) The Fund shall provide the Company with as many printed copies of
the Fund's current statement of additional information (the "Fund SAI") as the
Company may reasonably request for distribution to any owner of a Contract
funded by Portfolio shares. If requested by the Company in lieu of providing
printed copies of the Fund SAI, the Fund shall provide camera-ready film or
computer diskettes containing the Fund SAI, and such other assistance as is
reasonably
8
<PAGE>
necessary in order for the Company once each year (or more frequently if the
Fund SAI is amended during the year) to have the statement of additional
information for the Contracts (the "Contract SAI") and the Fund SAI printed
together or separately. The Company may also elect to print the Fund SAI in
combination with other fund companies' statements of additional information. For
purposes hereof, any combined statement of additional information including the
Fund SAI along with the Contract SAI or statement of additional information of
other fund companies shall be referred to as a "Combined SAI." For purposes
hereof, the term "Fund Portion of the Combined SAI" shall refer to the
percentage of the number of Fund SAI pages in the Combined SAI in relation to
the total number of pages of the Combined SAI.
3.1(c) The Fund shall provide the Company with as many printed copies of
the Fund's annual report and semi-annual report (collectively, the "Fund
Reports") as the Company may reasonably request for distribution to Contract
owners whose Contracts are funded by Portfolio shares. If requested by the
Company in lieu of providing printed copies of the Fund Reports, the Fund shall
provide camera-ready film or computer diskettes containing the Fund's Reports,
and such other assistance as is reasonably necessary in order for the Company
once each year to have the annual report and semi-annual report for the
Contracts (collectively, the "Contract Reports") and the Fund Reports printed
together or separately. The Company may also elect to print the Fund Reports in
combination with other fund companies' annual reports and semi-annual reports.
For purposes hereof, any combined annual reports and semi-annual reports
including the Fund Reports along with the Contract Reports or annual reports and
semi-annual reports of other fund companies shall be referred to as "Combined
Reports." For purposes hereof, the term "Fund Portion of the Combined Reports"
shall refer to the percentage of the number of Fund Reports pages in the
Combined Reports in relation to the total number or pages of the Combined
Reports.
3.2 Expenses
3.2(a) Expenses Borne by Company. Except as otherwise provided in this
Section 3.2., all expenses of preparing, setting in type and printing and
distributing (i) Contract Prospectuses, Fund Prospectuses, and Combined
Prospectuses; (ii) Fund SAIs, Contract SAIs, and Combined SAIs; (iii) Fund
Reports, Contract Reports, and Combined Reports, and (iv) Contract proxy
material that the Company may require in sufficient quantity to be sent to
Contract owners, annuitants, or participants under Contracts (collectively, the
"Participants"), shall be the expense of the Company.
3.2(b) Expenses Borne by Fund
Fund Prospectuses
With respect to existing Participants, the Fund shall pay the cost of
setting in type, printing and distributing Fund Prospectuses to be made
available by the Company to such existing Participants in order to update
disclosure as required by the 1933 Act and/or the 1940 Act. With respect to
existing Participants, in the event the Company elects to prepare a Combined
Prospectus, the Fund shall pay the cost of setting in type, printing and
distributing the Fund Portion of the Combined Prospectus to be made available by
the Company to its existing Participants in order to update disclosure as
required by the 1933 Act and/or the 1940 Act. In such event, the Fund shall
bear the cost of typesetting to provide the Fund Prospectus to the Company in
the format in which the Fund is accustomed to formatting prospectuses.
Notwithstanding the foregoing, in no event shall the Fund pay for any such costs
that exceed by more than five (5) percent what the Fund would have
9
<PAGE>
paid to print such documents. The Fund shall not pay any costs of typesetting,
printing and distributing the Fund Prospectus (or Combined Prospectus, if
applicable) to prospective Participants.
Fund SAIs, Fund Reports and Proxy Material
With respect to existing Participants, the Fund shall pay the cost of
setting in type and printing Fund SAIs, Fund Reports and Fund proxy material to
be made available by the Company to its existing Participants. With respect to
existing Participants, in the event the Company elects to prepare a Combined SAI
or Combined Reports, the Fund shall pay the cost of setting in type and printing
the Fund Portion of the Combined SAI or Combined Reports, respectively, to be
made available by the Company to its existing Participants. In such event, the
Fund shall bear the cost of typesetting to provide the Fund SAI or Fund Reports
to the Company in the format in which the Fund is accustomed to formatting
statements of additional information and annual and semi-annual reports.
Notwithstanding the foregoing, in no event shall the Fund pay for any such costs
that exceed by more than five (5) percent what the Fund would have paid to print
such documents. The Fund shall pay one half the cost of distributing Fund SAIs,
Fund Reports and Fund proxy statements and proxy-related material to such
existing Participants. The Fund shall pay the cost of distributing the Fund
Portion of the Combined SAIs and the Fund Portion of the Combined Reports to
existing Participants. The Fund shall not pay any costs of distributing Fund
SAIs, Combined SAIs, Fund Reports, Combined Reports or proxy statements or
proxy-related material to prospective Participants.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of typesetting, printing or distributing any of
the foregoing documents other than those actually distributed to existing
Participants.
The Fund shall pay no fee or other compensation to the Company under this
Agreement, except that if the Fund or any Portfolio adopts and implements a plan
pursuant to Rule 12b-1 under the 1940 Act to finance distribution expenses, then
the Underwriter may make payments to the Company or to AGSI if and in amounts
agreed to by the Underwriter in writing.
All expenses, including expenses to be borne by the Fund pursuant to
Section 3.2 hereof, incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed advisable by the Fund, in accordance with
applicable state laws prior to their sale. The Fund shall bear the expenses for
the cost of registration of the Fund's shares.
3.2(c) Expenses Borne by AGSI.
Fund Prospectuses
With respect to prospective Participants, AGSI shall pay one half of the
cost of setting in type, printing and distributing Fund Prospectuses made
available by the Company as sales literature
10
<PAGE>
to such prospective Participants. With respect to prospective Participants, in
the event the Company elects to prepare a Combined Prospectus, AGSI shall pay
one half of the cost of printing and distributing the Combined Prospectus made
available by the Company to its prospective Participants as sales literature. In
such event, AGSI shall bear the cost of typesetting to provide the Fund
Prospectus to the Company in the format in which the Fund is accustomed to
formatting prospectuses. Notwithstanding the foregoing, in no event shall AGSI
pay for any such costs that exceed by more than five (5) percent what AGSI would
have paid to print such documents.
Fund SAIs, Fund Reports and Proxy Material.
With respect to prospective Participants, AGSI shall pay one half of the
cost of setting in type and printing Fund SAIs, Fund Reports and Fund proxy
material made available by the Company to its prospective Participants as sales
literature. In the event the Company elects to prepare a Combined SAI or
Combined Reports, AGSI shall pay one half of the cost of printing the Combined
SAI or Combined Reports, respectively, made available by the Company to its
prospective Participants as sales literature. In such event, AGSI shall bear
the cost of typesetting to provide the Fund SAI and Fund Reports to the Company
in the format in which the Fund is accustomed to formatting statements of
additional information and annual and semi-annual reports. Notwithstanding the
foregoing, in no event shall AGSI pay for any such costs that exceed by more
than five (5) percent what AGSI would have paid to print such documents. AGSI
shall pay one half the cost of distributing Fund SAIs, Combined SAIs, Fund
Reports, Combined Reports, and Fund proxy material to such prospective
Participants as sales literature.
3.2(d) If the Company chooses to receive camera-ready film or computer
diskettes in lieu of receiving printed copies of the Fund Prospectus, Fund SAI
or Fund Reports, the Fund or its designee will be responsible for providing the
Fund Prospectus, Fund SAI or Fund Reports in the format in which it is
accustomed to formatting such documents, and, notwithstanding anything in
Sections 3.2(b) or 3.2(c), the Company shall bear the expense of adjusting or
changing the format to conform with any of its prospectuses or reports.
3.3. The Fund SAI shall be obtainable from the Fund, the Company or such
other person as the Fund may designate.
3.4. If and to the extent required by law the Company shall distribute all
proxy material furnished by the Fund to Participants to whom voting privileges
are required to be extended and shall:
(i) solicit voting instructions from Participants;
(ii) vote the Fund shares in accordance with instructions
received from Participants; and
(iii) vote Fund shares for which no instructions have been received in
the same proportion as Fund shares of such Portfolio for which
instructions have been received,
11
<PAGE>
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners. The
Company reserves the right to vote Fund shares held in any segregated asset
account in its own right, to the extent permitted by law. The Fund and the
Company shall follow the procedures, and shall have the corresponding
responsibilities, for the handling of proxy and voting instruction
solicitations, as set forth in Schedule C attached hereto and incorporated
herein by reference. Participating Insurance Companies shall be responsible for
ensuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the standards set forth
on Schedule C, which standards will also be provided to the other Participating
Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders. Further, the Fund will act in accordance with the SEC's
interpretation of the requirements of Section 16(a) with respect to periodic
elections of Trustees and with whatever rules the SEC may promulgate with
respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material prepared by the Company, AGSI or any person contracting with the
Company or AGSI in which the Fund or the Adviser is named, at least ten Business
Days prior to its use. No such material shall be used if the Fund, the Adviser,
or their designee reasonably objects to such use within ten Business Days after
receipt of such material.
4.2. Neither the Company, AGSI nor any person contracting with the Company
or AGSI shall give any information or make any representations or statements on
behalf of the Fund or concerning the Fund or the Adviser in connection with the
sale of the Contracts other than the information or representations contained in
the registration statement or the Fund Prospectus, as such registration
statement or Fund Prospectus may be amended or supplemented from time to time,
or in reports or proxy statements for the Fund, or in sales literature or other
promotional material approved by the Fund or its designee, except with the
written permission of the Fund.
12
<PAGE>
4.3. The Fund or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material prepared by the Fund in which the Company or its
Account(s) are named at least ten Business Days prior to its use. No such
material shall be used if the Company or its designee reasonably objects to such
use within ten Business Days after receipt of such material.
4.4. Neither the Fund nor the Adviser shall give any information or make
any representations on behalf of the Company or concerning the Company, each
Account, or the Contracts, other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports or solicitations for voting instructions for
each Account which are in the public domain or approved by the Company for
distribution to Participants, or in sales literature or other promotional
material approved by the Company or its designee, except with the written
permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, within five (5)
Business Days of the filing of such document with the SEC or other regulatory
authorities.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the investment
in an Account or Contract within five (5) Business Days of the filing of such
document with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following: advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, or other
public media), sales literature (i.e., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents or employees, and registration
statements, prospectuses, statements of additional information, shareholder
reports, and proxy materials.
13
<PAGE>
ARTICLE V. [RESERVED]
ARTICLE VI. DIVERSIFICATION
6.1. The Adviser represents, as to the Portfolios, that it will use its
best efforts at all times to comply with Section 817(h) of the Code and Treasury
Regulation 1.817-5, relating to the diversification requirements for variable
annuity, endowment, or life insurance contracts and any amendments or other
modifications to such Section or Regulations. In the event a Portfolio ceases
to so qualify, the Adviser will take all reasonable steps (a) to notify the
Company and (b) to adequately diversify the Portfolio so as to achieve
compliance within the grace period afforded by Regulation 817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract owners and variable life
insurance contract owners; or (f) a decision by a Participating Insurance
Company to disregard the voting instructions of Contract owners. The Board
shall promptly inform the Company if it determines that an irreconcilable
material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing material
irreconcilable conflicts of which it is aware to the Board. The Company will
assist the Board in carrying out its responsibilities under the Shared Funding
Exemptive Order, by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is
not limited to, an obligation by the Company to inform the Board whenever
contract owner voting instructions are disregarded.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested Trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the Separate Accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance policy
owners, or variable Contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
Contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account. No charge
or penalty will be
14
<PAGE>
imposed as a result of such withdrawal. The Company agrees that it bears the
responsibility to take remedial action in the event of a Board determination of
an irreconcilable material conflict and the cost of such remedial action, and
these responsibilities will be carried out with a view only to the interests of
Contract owners.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
(at the Company's expense); provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested
Trustees of the Board. No charge or penalty will be imposed as a result of such
withdrawal. The Company agrees that it bears the responsibility to take
remedial action in the event of a Board determination of an irreconcilable
material conflict and the cost of such remedial action, and these
responsibilities will be carried out with a view only to the interests of
Contract owners.
7.5. For purposes of Sections 7.3 and 7.4 of this Agreement, a majority of
the disinterested Trustees of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 or 7.4 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict.
7.6. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable.
7.7 The Company and the Adviser shall at least annually submit to the
Board of the Fund such reports, materials or data as the Board may reasonably
request so that the Board may fully carry out the obligations imposed upon them
by the provisions hereof, and said reports, materials and data shall be
submitted more frequently if deemed appropriate by the Board. All reports
received by the Board of potential or existing conflicts, and all Board action
with regard to determining the existence of a conflict, notifying Participating
Insurance Companies of a conflict, and determining whether any proposed action
adequately remedies a conflict, shall be properly recorded in the minutes of the
Board or other appropriate records, and such minutes or other records shall be
made available to the SEC upon request.
ARTICLE VIII. INDEMNIFICATION
8.1. Indemnification By Company and AGSI
15
<PAGE>
8.1(a) The Company and AGSI agree to indemnify and hold harmless the Fund
and each member of the Board and officers and agents and the Adviser and each
director and officer of the Adviser, and each person, if any, who controls the
Fund or the Adviser within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" and individually, "Indemnified Party,"
for purposes of this Section 8.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Company or AGSI) or expenses (including legal and other expenses), to which
the Indemnified Parties may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the sale
or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the registration statement or
prospectus for the Contracts or contained in the Contracts or sales
literature for the Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished to the Company
by or on behalf of the Fund for use in the registration statement or
prospectus for the Contracts or in the Contracts or sales literature (or
any amendment or supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration statement,
prospectus or sales literature of the Fund not supplied by the Company or
AGSI, or persons under its control and other than statements or
representations authorized by the Fund or the Adviser) or unlawful conduct
of the Company or AGSI or persons under its control, with respect to the
sale or distribution of the Contracts or Fund shares; or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature of the Fund or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission was made
in reliance upon and in conformity with information furnished to the Fund
by or on behalf of the Company or AGSI;
(iv) arise as a result of any failure by the Company or AGSI to provide
the services and furnish the materials required under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Company or AGSI in this Agreement or arise out
of or result from any other material breach of this Agreement by the
Company or AGSI, as limited by and in accordance with the provisions of
Sections 8.1(b) and 8.1(c) hereof.
16
<PAGE>
8.1(b). Neither the Company nor AGSI shall be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party as
such may arise from such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations or duties
under this Agreement.
8.1(c). Neither the Company nor AGSI shall be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Company or AGSI in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company or AGSI
of any such claim shall not relieve the Company or AGSI from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, the Company or AGSI shall be
entitled to participate, at its own expense, in the defense of such action. The
Company or AGSI also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
Company or AGSI to such Party of the Company's or AGSI's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses under
this Agreement for any legal or other expenses subsequently incurred by such
Party independently in connection with the defense thereof other than reasonable
costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company or AGSI
of the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund shares or the Contracts or the operation
of the Fund.
8.2. Indemnification by the Adviser
8.2(a). The Adviser agrees, with respect to each Portfolio, to indemnify
and hold harmless the Company and each of its directors and officers and each
person, if any, who controls the Company within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" and individually, "Indemnified
Party," for purposes of this Section 8.2) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Adviser) or expenses (including legal and other expenses) to
which the Indemnified Parties may become subject under any statute, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements, result from the gross
negligence, bad faith, willful misconduct of the Adviser or any director,
officer, employee or agent thereof, are related to the operation of the Adviser
or the Fund and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement or
prospectus or sales literature of the Fund (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this
17
<PAGE>
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished to the Adviser
or the Fund or the Underwriter by or on behalf of the Company for use in
the registration statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Portfolio shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration statement,
prospectus or sales literature for the Contracts not supplied by the
Adviser or persons under its control and other than statements or
representations authorized by the Company) or unlawful conduct of the
Adviser or persons under its control, with respect to the sale or
distribution of the Contracts or Portfolio shares; or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Contracts, or any amendment
thereof or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to the Company by
or on behalf of the Adviser; or
(iv) arise as a result of any failure by the Adviser to provide the
services and furnish the materials required under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Adviser in this Agreement or arise out of or
result from any other material breach of this Agreement by the Fund or the
Adviser; including without limitation any failure by the Fund or the
Adviser to comply with the conditions of Article VI hereof.
8.2(b). The Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement.
8.2(c). The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Adviser of any
such claim shall not relieve the Adviser from any liability which
18
<PAGE>
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, the Adviser will be entitled
to participate, at its own expense, in the defense thereof. The Adviser also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Adviser to such Party of
the Adviser's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Adviser will not be liable to such Party under this Agreement for any legal
or other expenses subsequently incurred by such Party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company and AGSI agree promptly to notify the Adviser of the
commencement of any litigation or proceedings against it or any of its officers,
trustees or directors in connection with this Agreement, the issuance or sale of
the Contracts with respect to the operation of each Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason upon six-months advance
written notice delivered to the other parties; or
(b) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio based upon the
Company's determination that shares of such Portfolio are not
reasonably available to meet the requirements of the Contracts.
Reasonable advance notice of election to terminate shall be
furnished by the Company, said termination to be effective ten
(10) days after receipt of notice unless the Fund makes available
a sufficient number of shares to reasonably meet the requirements
of the Account within said ten (10) day period; or
(c) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio in the event any of
the Portfolio's shares
19
<PAGE>
are not registered, issued or sold in accordance with applicable
state and/or federal law or such law precludes the use of such
shares as the underlying investment medium of the Contracts
issued or to be issued by the Company. The terminating party
shall give prompt notice to the other parties of its decision to
terminate; or
(d) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio in the event that
such Portfolio ceases to qualify as a Regulated Investment
Company under Subchapter M of the Code or under any successor or
similar provision, or if the Company or AGSI reasonably believes
that the Fund may fail to so qualify; or
(e) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio in the event that
such Portfolio fails to meet the diversification requirements
specified in Article VI hereof; or
(f) termination by either the Fund or the Adviser by written notice
to the Company if the Adviser or the Fund shall determine, in
its sole judgment exercised in good faith, that the Company, AGSI
and/or their affiliated companies has suffered a material adverse
change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject of
material adverse publicity, provided that the Fund or the Adviser
will give the Company sixty (60) days' advance written notice of
such determination of its intent to terminate this Agreement, and
provided further that after consideration of the actions taken by
the Company or AGSI and any other changes in circumstances since
the giving of such notice, the determination of the Fund or the
Adviser shall continue to apply on the 60th day since giving of
such notice, then such 60th day shall be the effective date of
termination; or
(g) termination by the Company or AGSI by written notice to the Fund
and the Adviser, if the Company or AGSI shall determine, in its
sole judgment exercised in good faith, that either the Fund or
the Adviser (with respect to the appropriate Portfolio) has
suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement
or is the subject of material adverse publicity; provided that
the Company will give the Fund or the Adviser sixty (60) days'
advance written notice of such determination of its intent to
terminate this Agreement, and provided further that after
consideration of the actions taken by the Company and any other
changes in circumstances since the giving of such notice, the
determination of the Company or AGSI shall continue to apply on
the 60th day since giving of such notice, then such 60th day
shall be the effective date of termination; or
20
<PAGE>
(h) termination by the Fund or the Adviser by written notice to the
Company, if the Company gives the Fund and the Adviser the
written notice specified in Section 2.4 hereof and at the time
such notice was given there was no notice of termination
outstanding under any other provision of this Agreement;
provided, however any termination under this Section 10.1(h)
shall be effective sixty (60) days after the notice specified in
Section 2.4 was given; or
(i) termination by any party upon the other party's breach of any
representation in Section 2 or any material provision of this
Agreement, which breach has not been cured to the satisfaction of
the terminating party within ten (10) days after written notice
of such breach is delivered to the Fund or the Company, as the
case may be; or
(j) termination by the Fund or the Adviser by written notice to the
Company in the event an Account or Contract is not registered or
sold in accordance with applicable federal or state law or
regulation, or the Company fails to provide pass-through voting
privileges as specified in Section 3.4.
10.2. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund shall at the option of the Company, continue to make
available additional shares of the Fund pursuant to the terms and conditions of
this Agreement, for all Contracts in effect on the effective date of termination
of this Agreement (hereinafter referred to as "Existing Contracts") unless such
further sale of Fund shares is proscribed by law, regulation or applicable
regulatory body, or unless the Fund determines that liquidation of the Fund
following termination of this Agreement is in the best interests of the Fund and
its shareholders. Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to direct reallocation of investments in the Fund,
redemption of investments in the Fund and/or investment in the Fund upon the
making of additional purchase payments under the Existing Contracts. The
parties agree that this Section 10.2 shall not apply to any terminations under
Article VII and the effect of such Article VII terminations shall be governed by
Article VII of this Agreement.
10.3. The Company shall not redeem Fund shares attributable to the
Contracts (as distinct from Fund shares attributable to the Company's assets
held in the Account) except (i) as necessary to implement Contract Owner
initiated or approved transactions, or (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act.
Upon request, the Company will promptly furnish to the Fund the opinion of
counsel for the Company (which counsel shall be reasonably satisfactory to the
Fund and the Adviser) to the effect that any redemption pursuant to clause (ii)
above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts, the
21
<PAGE>
Company shall not prevent Contract Owners from allocating payments to a
Portfolio that was otherwise available under the Contracts without first giving
the Fund or the appropriate Adviser 90 days prior written notice of its
intention to do so.
ARTICLE XI. 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: Hotchkis and Wiley Variable Trust
800 West Sixth Street, Fifth Floor
Los Angeles, CA 90017
Attention:___________________________;
IF TO ADVISER: Hotchkis and Wiley
725 South Figueroa Street
Suite 4000
Los Angeles, CA 90017
Attention: Turner Swan, Esq.;
IF TO THE COMPANY: The United States Life Insurance Company
In the City of New York
125 Maiden Lane
New York, NY 10038-4992
Attention: Jane Rushton, Esq.
IF TO AGSI: American General Securities Incorporated
2727 Allen Parkway
Houston, Texas 77019
Attention: F. Paul Kovach, Jr.
ARTICLE XII. FOREIGN TAX CREDITS
The Fund and the Adviser agree to consult with the Company concerning
whether any Portfolio of the Fund qualifies to provide a foreign tax credit
pursuant to Section 853 of the Code.
ARTICLE XIII. MISCELLANEOUS
13.1. All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders
22
<PAGE>
assume any personal liability for obligations entered into on behalf of the
Fund.
13.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
13.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
13.5. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
13.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
13.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Adviser may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Adviser, if such assignee is duly licensed and registered to
perform the obligations of the Adviser under this Agreement.
13.9 The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting
23
<PAGE>
principles ("GAAP"), if any), as soon as practical and in any
event within 90 days after the end of each fiscal year;
(b) the Company's June 30th quarterly statements (statutory) (and
GAAP, if any), as soon as practical and in any event within 45
days after the end of each semi-annual period:
(c) any financial statement, proxy statement, notice or report of the
Company sent to stockholders and/or policyholders, as soon as
practical after the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and financial
reports of the Company filed with the SEC or any state insurance
regulator, as soon as practical after the filing thereof; and
(e) any other public report submitted to the Company by independent
accountants in connection with any annual, interim or special
audit made by them of the books of the Company, as soon as
practical after the receipt thereof.
[Remander of Page Left Intentionally Blank.]
24
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed in its name and on its behalf by its duly authorized representative
hereto as of the date specified above.
THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK on
behalf of itself and each of its Accounts named in Schedule B hereto,
as amended from time to time.
By: /s/ LARRY M. ROBINSON
-----------------------------
Name: Larry M. Robinson
Title: Vice President
AMERICAN GENERAL SECURITIES INCORPORATED
By: /s/ F. PAUL KOVACH, JR.
-----------------------------
Name: F. Paul Kovach, Jr.
Title: President
HOTCHKIS AND WILEY VARIABLE TRUST
By: /s/ NANCY D. CELICK
-----------------------------
Name: Chief Admin. Off.
Title: 12/16/98
HOTCHKIS AND WILEY
By: /s/ NANCY D. CELICK
-----------------------------
Name: Chief Admin. Off.
Title: 12/16/98
25
<PAGE>
SCHEDULE A
PORTFOLIOS OF HOTCHKIS AND WILEY VARIABLE TRUST
AVAILABLE FOR PURCHASE BY
THE UNITED STATES LIFE INSURANCE COMPANY
IN THE CITY OF NEW YORK
UNDER THIS AGREEMENT
Equity Income VIP Portfolio
Low Duration VIP Portfolio
26
<PAGE>
SCHEDULE B
SEPARATE ACCOUNTS AND CONTRACTS
<TABLE>
<CAPTION>
NAME OF SEPARATE ACCOUNT AND FORM NUMBERS AND NAMES OF CONTRACT FUNDED BY
DATE ESTABLISHED BY BOARD OF DIRECTORS SEPARATE ACCOUNT
- - -------------------------------------------- ----------------------------------------------
<S> <C>
The United States Life Insurance Company Form No:
in the City of New York 98505N
Separate Account USL VA-R
Established: August 8, 1997 Name of Contract:
Select Reserve(SM) Flexible Payment Variable
and Fixed Individual Deferred Annuity
</TABLE>
27
<PAGE>
SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
1. The proxy proposals are given to the Company by the Fund as early as
possible before the date set by the Fund for the shareholder meeting to
enable the Company to consider and prepare for the solicitation of voting
instructions from owners of the Contracts and to facilitate the
establishment of tabulation procedures. At this time the Fund will inform
the Company of the Record, Mailing and Meeting dates. This will be done
verbally approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contract owner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in this Step #2. The Company will use its best efforts to call
in the number of Customers to the Fund , as soon as possible, but no later
than two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of a proxy statement
or other voting instructions and solicitation material. The Fund will
provide at least one copy of the last Annual Report to the Company pursuant
to the terms of Section 3.3 of the Agreement to which this Schedule
relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Fund or its
affiliate must approve the Card before it is printed. Allow approximately
2-4 business days for printing information on the Cards. Information
commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of
votes (already
28
<PAGE>
on Cards as printed by the Fund).
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, the Fund will develop, produce and pay for the Notice of
Proxy and the Proxy Statement (one document). Printed and folded notices
and statements will be sent to Company for insertion into envelopes
(envelopes and return envelopes are provided and paid for by the Company).
Contents of envelope sent to Customers by the Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the
Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small,
single sheet of paper that requests Customers to vote as quickly
as possible and that their vote is important. One copy will be
supplied by the Fund.)
e. cover letter - optional, supplied by Company and reviewed and
approved in advance by the Fund.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to the Fund.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the
Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but not
including,) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by the Fund in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
29
<PAGE>
Note: For example, if the account registration is under "John A. Smith,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter and a
new Card and return envelope. The mutilated or illegible Card is
disregarded and considered to be not received for purposes of vote
tabulation. Any Cards that have been "kicked out" (e.g. mutilated,
illegible) of the procedure are "hand verified," i.e., examined as to why
they did not complete the system. Any questions on those Cards are usually
remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated
in terms of a percentage and the number of shares.) The Fund must review
and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to the Fund on
the morning of the meeting not later than 10:00 a.m. Eastern time. The
Fund may request an earlier deadline if reasonable and if required to
calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
The Fund will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Fund will be
permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
30
<PAGE>
Exhibit 3(b)(iii)
<PAGE>
PARTICIPATION AGREEMENT
Among
THE UNITED STATES LIFE INSURANCE COMPANY
IN THE CITY OF NEW YORK,
AMERICAN GENERAL SECURITIES INCORPORATED,
LEVCO SERIES TRUST
AND
JOHN A. LEVIN & CO., INC.
DATED AS OF
December 1, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I. Fund Shares.......................... 4
ARTICLE II. Representations and Warranties....... 6
ARTICLE III. Prospectuses, Reports to Shareholders
and Proxy Statements, Voting......... 8
ARTICLE IV. Sales Material and Information....... 12
ARTICLE V. [Reserved]........................... 13
ARTICLE VI. Diversification...................... 13
ARTICLE VII. Potential Conflicts.................. 14
ARTICLE VIII. Indemnification...................... 16
ARTICLE IX. Applicable Law....................... 19
ARTICLE X. Termination.......................... 20
ARTICLE XI. Notices.............................. 22
ARTICLE XII. Foreign Tax Credits.................. 23
ARTICLE XIII. Miscellaneous........................ 23
SCHEDULE A Portfolios of LEVCO Equity Value
Fund................................. 25
Available for Purchase by The United
States Life Insurance Company in the
City of New York
SCHEDULE B Separate Accounts and Contracts...... 26
SCHEDULE C Proxy Voting Procedures.............. 27
</TABLE>
2
<PAGE>
THIS PARTICIPATION AGREEMENT, made and entered into as of the 1st day of
December, 1998 by and among THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY
OF NEW YORK (hereinafter the "Company"), a New York insurance company, on its
own behalf and on behalf of each separate account of the Company set forth on
Schedule B hereto as may be amended from time to time (each such account
hereinafter referred to as the "Account"); AMERICAN GENERAL SECURITIES
INCORPORATED ("AGSI"), a Texas corporation; LEVCO Series Trust (hereinafter the
"Fund"), a Delaware business trust; and John A. Levin & Co., Inc., a Delaware
corporation (the "Adviser").
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as (i) the investment vehicle for separate
accounts established by insurance companies for individual and group life
insurance policies and annuity contracts with variable accumulation and/or pay-
out provisions (hereinafter referred to individually and/or collectively as
"Variable Insurance Products") and (ii) the investment vehicle for certain
qualified pension and retirement plans (hereinafter "Qualified Plans"); and
WHEREAS, insurance companies desiring to utilize the Fund as an investment
vehicle under their Variable Insurance Products are required to enter into a
participation agreement with the Fund and the Adviser (the "Participating
Insurance Companies"); and
WHEREAS, the Fund intends to offer shares of the series set forth on Schedule A
(each such series hereinafter referred to as a "Portfolio"), as may be amended
from time to time by mutual agreement of the parties hereto, under this
Agreement to the Accounts of the Company; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated October 8, 1997 (File No. 812-10614), granting Participating
Insurance Companies and Variable Insurance Product separate accounts exemptions
from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment
Company Act of 1940, as amended (hereinafter the "1940 Act"), and Rules 6e-
2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares
of the Fund to be sold to and held by Variable Insurance Product separate
accounts of both affiliated and unaffiliated life insurance companies and
Qualified Plans (hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment company
under the 1940 Act and its shares are registered under the Securities Act of
1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
laws; and
WHEREAS, the Adviser manages the Portfolios of the Fund; and
3
<PAGE>
WHEREAS, LEVCO Securities, Inc. (the "Underwriter") is registered as a
broker/dealer under the Securities Exchange Act of 1934, as amended (hereinafter
the "1934 Act"), is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD") and serves as principal
underwriter of the shares of the Fund; and
WHEREAS, the Company has registered or will register certain Variable Insurance
Products under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated asset
account, established by resolution or under authority of the Board of Directors
of the Company, on the date shown for such Account on Schedule B hereto, to set
aside and invest assets attributable to the aforesaid Variable Insurance
Product; and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company intends to purchase shares in the Portfolios on behalf of each
Account to fund certain of the aforesaid Variable Insurance Products and the
Underwriter is authorized to sell such shares to each such Account at net asset
value; and
WHEREAS, AGSI serves as both the distributor and the principal underwriter of
the Variable Insurance Products that are set forth on Schedule B;
NOW, THEREFORE, in consideration of their mutual promises, the Company, AGSI,
the Fund and the Adviser agree as follows:
ARTICLE I. FUND SHARES
1.1. The Fund agrees to make available for purchase by the Company shares
of the Portfolios set forth on Schedule A and shall execute orders placed for
each Account on a daily basis at the net asset value next computed after receipt
by the Fund or its designee of such order. For purposes of this Section 1.1,
the Company shall be the designee of the Fund for receipt of such orders from
each Account and receipt by such designee shall constitute receipt by the Fund;
provided that (a) such orders are received by the Company in good order prior to
the time the net asset value of the Fund is priced in accordance with its
prospectus and (b) the Fund receives notice of such order as soon as reasonably
practical (normally by 10:00 a.m. Eastern Time) on the next following Business
Day. Notwithstanding the foregoing, the Company shall use its best efforts to
provide the Fund with notice of such orders by 10:15 a.m. Eastern Time on the
next following Business Day. "Business Day" shall mean any day on which the New
York Stock Exchange is open for trading and on which the Fund calculates the net
asset value pursuant to the rules of the SEC, as set forth in the Fund's
Prospectus and Statement of Additional Information. Notwithstanding the
foregoing, the Board of Trustees of the Fund (hereinafter the "Board") may
refuse to permit the Fund 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
4
<PAGE>
of the Board acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, necessary in the best interests of the
shareholders of such Portfolio.
1.2. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their Variable Insurance Products and to
certain Qualified Plans. No shares of any Portfolio will be sold to the general
public. The Company agrees that shares of the Fund will be used only for the
purpose of funding the Accounts and Contracts listed on Schedule B, as amended
from time to time.
1.3. The Fund will not make its shares available for purchase by any
insurance company or separate account unless an agreement containing provisions
substantially the same as Sections 2.4, 2.9, 3.4 and Article VII of this
Agreement is in effect to govern such sales.
1.4. The Fund agrees to redeem for cash, on the Company's request, any full
or fractional shares of the Fund held by the Company, executing such requests on
a daily basis at the net asset value next computed after receipt by the Fund or
its designee of the request for redemption. For purposes of this Section 1.4,
the Company shall be the designee of the Fund for receipt of requests for
redemption from each Account and receipt by such designee shall constitute
receipt by the Fund; provided that (a) such orders are received by the Company
in good order prior to the time the net asset value of the Fund is priced in
accordance with its prospectus and (b) the Fund receives notice of such request
for redemption on the next following Business Day in accordance with the timing
rules described in Section 1.1.
1.5. The Company agrees that purchases and redemptions of Portfolio shares
offered by the then current prospectus of the Fund shall be made in accordance
with the provisions of such prospectus. The Accounts of the Company, under
which amounts may be invested in the Fund, are listed on Schedule B attached
hereto and incorporated herein by reference, as such Schedule B may be amended
from time to time by mutual written agreement of all of the parties hereto. The
Company will give the Fund and the Adviser sixty (60) days written notice of its
intention to make available in the future, as a funding vehicle under the
Contracts, any other investment company.
1.6. The Company will place separate orders to purchase or redeem shares of
each Portfolio. Each order shall describe the net amount of shares and dollar
amount of each Portfolio to be purchased or redeemed. In the event of net
purchases, the Company shall pay for Portfolio shares on the next Business Day
after an order to purchase Portfolio shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted
by wire. In the event of net redemptions, the Portfolio shall pay the
redemption proceeds in federal funds transmitted by wire on the next Business
Day after an order to redeem a Portfolio's shares is made in accordance with the
provision of Section 1.4. Notwithstanding the foregoing, the payment of
redemption proceeds may be delayed, but not for a greater period than is
permitted by the 1940 Act or by rules or order of the SEC thereunder.
1.7. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Shares
ordered from the Fund will be recorded in an appropriate title for each Account
or the appropriate subaccount of each Account.
5
<PAGE>
1.8. The Fund shall make the dividends or capital gain distributions
payable on the Fund's shares available to the Company as soon as reasonably
practical after the dividends or capital gains are calculated (normally by 6:30
p.m. Eastern time) and shall use its reasonable best efforts to furnish same day
notice by 7:00 p.m. Eastern time (by wire or telephone, followed by written
confirmation) to the Company of any dividends or capital gain distributions
payable on the Fund's shares. The Company hereby elects to receive all such
dividends and capital gain distributions as are payable on the Portfolio shares
in additional shares of that Portfolio. The Company reserves the right to
revoke this election and to receive all such dividends and capital gain
distributions in cash on 30 days' written notice to the Fund. The Fund shall
notify the Company of the number of shares so issued as payment of such
dividends and distributions.
1.9. The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated (normally by 6:30 p.m. Eastern time)
and shall use its reasonable best efforts to make such net asset value per share
available by 7:00 p.m. Eastern time. In the event that the Fund is unable to
meet the 7:00 p.m. time stated immediately above, then the Fund shall provide
the Company with additional time to notify the Fund of purchase or redemption
orders pursuant to Sections 1.1 and 1.4, respectively, above. Such additional
time shall be equal to the additional time that the Fund takes to make the net
asset values available to the Company; provided, however, that notification must
be made by 10:15 a.m. Eastern time on the Business Day such order is to be
executed regardless of when the net asset value is made available.
1.10. If the Fund provides materially incorrect share net asset value
information through no fault of the Company, the Company shall be entitled to an
adjustment with respect to the Fund shares purchased or redeemed to reflect the
correct net asset value per share. The determination of the materiality of any
net asset value pricing error shall be based on the SEC's recommended guidelines
regarding such errors. The correction of any such errors shall be made at the
Company level and shall be made pursuant to the SEC's recommended guidelines.
Any material error in the calculation or reporting of net asset value per share,
dividend or capital gain information shall be reported promptly upon discovery
to the Company.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the interests of the Accounts
(the "Contracts") are or will be registered and will maintain the registration
under the 1933 Act and the regulations thereunder to the extent required by the
1933 Act; that the Contracts will be issued in compliance in all material
respects with all applicable federal and state laws and regulations; and that
the sale of the Contracts shall comply in all material respects with state
insurance suitability requirements. The Company further represents and warrants
that it is an insurance company duly organized and in good standing under
applicable law and that it has legally and validly established each Account
prior to any isssurance or sale thereof as a segregated asset account under the
insurance laws of the State of New York and the regulations thereunder and has
registered or, prior to any issuance or sale of the Contracts, will register and
will maintain the registration of each Account as a unit investment trust in
accordance with and to the extent required by the provisions of the 1940
6
<PAGE>
Act and the regulations thereunder to serve as a segregated investment account
for the Contracts. The Company shall amend its registration statement for its
contracts under the 1933 Act and the 1940 Act from time to time as required in
order to effect the continuous offering of its Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and the regulations
thereunder to the extent required by the 1933 Act, duly authorized for issuance
in accordance with the laws of the State of Delaware and sold in compliance with
all applicable federal and state securities laws and regulations and that the
Fund is and shall remain registered under the 1940 Act and the regulations
thereunder to the extent required by the 1940 Act. The Fund shall amend the
registration statement for its shares under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares. The Fund shall register and qualify the shares for sale in accordance
with the laws of the various states only if and to the extent deemed advisable
by the Fund.
2.3 The Fund and the Adviser represent that the Fund is currently
qualified as a Regulated Investment Company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), and that the Fund and the Adviser
(with respect to those Portfolios for which such Adviser acts as investment
adviser) will make every effort to maintain such qualification (under Subchapter
M or any successor or similar provision) and that the Fund or the appropriate
Adviser will notify the Company immediately upon having a reasonable basis for
believing that a Portfolio has ceased to so qualify or that a Portfolio might
not so qualify in the future.
2.4. The Company represents that each Account is and will continue to be a
"segregated account" under applicable provisions of the Code and that each
Contract is and will be treated as a "variable contract" under applicable
provisions of the Code and that it will make every effort to maintain such
treatments and that it will notify the Fund immediately upon having a reasonable
basis for believing that the Account or Contract has ceased to be so treated or
that they might not be so treated in the future.
2.5. The Fund represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Fund
undertakes to have a board of directors, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states.
2.7. The Fund represents that the Fund is lawfully organized and validly
existing under the laws of the State of Delaware and that the Fund does and will
comply in all material respects with the 1940 Act.
2.8. The Adviser and AGSI each represents and warrants that it is and shall
remain duly registered in all material respects under all applicable federal and
state securities laws and that it will
7
<PAGE>
perform its obligations for the Fund and the Company in compliance in all
material respects with the laws and regulations of its state of domicile and any
applicable state and federal securities laws and regulations.
2.9. The Company represents and warrants that all of its trustees,
officers, employees, investment adviser, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage, in an amount equal to the greater of $5 million or any
amount required by applicable federal or state law or regulation. The aforesaid
includes coverage for larceny and embezzlement is issued by a reputable bonding
company. The Company agrees to make all reasonable efforts to see that this
bond or another bond containing these provisions is always in effect, and agrees
to notify the Fund and the Underwriter in the event that such coverage no longer
applies.
ARTICLE III. PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS;
VOTING
3.1(a) The Fund or its designee shall provide the Company with as many
printed copies of the Fund's current prospectus, including the profile
prospectus, (the "Fund Prospectus") as the Company may reasonably request. If
requested by the Company, in lieu of providing printed copies of the Fund
Prospectus, the Fund shall provide camera-ready film or computer diskettes
containing the Fund Prospectus and such other assistance as is reasonably
necessary in order for the Company once each year (or more frequently if the
Fund Prospectus is amended during the year) to have the prospectus for the
Contracts (the "Contract Prospectus") and the Fund Prospectus printed together
in one document or separately. The Company may elect to print the Fund
Prospectus in combination with other fund companies' prospectuses. For purposes
hereof, any combined prospectus including the Fund Prospectus along with the
Contract Prospectus or prospectus of other fund companies shall be referred to
as a "Combined Prospectus." For purposes hereof, the term "Fund Portion of the
Combined Prospectus" shall refer to the percentage of the number of Fund
Prospectus pages in the Combined Prospectus in relation to the total number of
pages of the Combined Prospectus.
3.1(b) The Fund shall provide the Company with as many printed copies of
the Fund's current statement of additional information (the "Fund SAI") as the
Company may reasonably request. If requested by the Company in lieu of
providing printed copies of the Fund SAI, the Fund shall provide camera-ready
film or computer diskettes containing the Fund SAI, and such other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the Fund SAI is amended during the year) to have the statement of
additional information for the Contracts (the "Contract SAI") and the Fund SAI
printed together or separately. The Company may also elect to print the Fund
SAI in combination with other fund companies' statements of additional
information. For purposes hereof, any combined statement of additional
information including the Fund SAI along with the Contract SAI or statement of
additional information of other fund companies shall be referred to as a
"Combined SAI." For purposes hereof, the term "Fund Portion of the Combined
SAI" shall refer to the percentage of the number of Fund SAI pages in the
Combined SAI in relation to the total number of pages of the Combined SAI.
3.1(c) The Fund shall provide the Company with as many printed copies of
the Fund's annual report and semi-annual report (collectively, the "Fund
Reports") as the Company may reasonably request. If requested by the Company in
lieu of providing printed copies of the Fund
8
<PAGE>
Reports, the Fund shall provide camera-ready film or computer diskettes
containing the Fund's Reports, and such other assistance as is reasonably
necessary in order for the Company once each year to have the annual report and
semi-annual report for the Contracts (collectively, the "Contract Reports") and
the Fund Reports printed together or separately. The Company may also elect to
print the Fund Reports in combination with other fund companies' annual reports
and semi-annual reports. For purposes hereof, any combined annual reports and
semi-annual reports including the Fund Reports along with the Contract Reports
or annual reports and semi-annual reports of other fund companies shall be
referred to as "Combined Reports." For purposes hereof, the term "Fund Portion
of the Combined Reports" shall refer to the percentage of the number of Fund
Reports pages in the Combined Reports in relation to the total number or pages
of the Combined Reports.
3.2 Expenses
3.2(a) Expenses Borne by Company. Except as otherwise provided in this
Section 3.2., all expenses of preparing, setting in type and printing and
distributing (i) Contract Prospectuses, Fund Prospectuses, and Combined
Prospectuses; (ii) Fund SAIs, Contract SAIs, and Combined SAIs; (iii) Fund
Reports, Contract Reports, and Combined Reports, and (iv) Contract proxy
material that the Company may require in sufficient quantity to be sent to
Contract owners, annuitants, or participants under Contracts (collectively, the
"Participants"), shall be the expense of the Company.
3.2(b) Expenses Borne by Fund
Fund Prospectuses
With respect to existing Participants, the Fund shall pay the cost of
setting in type, printing and distributing Fund Prospectuses made available by
the Company to such existing Participants in order to update disclosure as
required by the 1933 Act and/or the 1940 Act. With respect to existing
Participants, in the event the Company elects to prepare a Combined Prospectus,
the Fund shall pay the cost of setting in type, printing and distributing the
Fund Portion of the Combined Prospectus made available by the Company to its
existing Participants in order to update disclosure as required by the 1933 Act
and/or the 1940 Act. In such event, the Fund shall bear the cost of typesetting
to provide the Fund Prospectus to the Company in the format in which the Fund is
accustomed to formatting prospectus. Notwithstanding the foregoing, in no event
shall the Fund pay for any such costs that exceed by more than five (5) percent
what the Fund would have paid to print such documents. The Fund shall not pay
any costs of typesetting, printing and distributing the Fund Prospectus (or
Combined Prospectus, if applicable) to prospective Participants.
Fund SAIs, Fund Reports and Proxy Material
With respect to existing Participants, the Fund shall pay the cost of
setting in type and printing Fund SAIs, Fund Reports and Fund proxy material
made available by the Company to its existing Participants. With respect to
existing Participants, in the event the Company elects to prepare a Combined SAI
or Combined Reports, the Fund shall pay the cost of setting in type and printing
the Fund Portion of the Combined SAI or Combined Reports, respectively, made
available
9
<PAGE>
by the Company to its existing Participants. In such event, the Fund shall bear
the cost of typesetting to provide the Fund SAI or Fund Reports to the Company
in the format in which the Fund is accustomed to formatting statements of
additional information and annual and semi-annual reports. Notwithstanding the
foregoing, in no event shall the Fund pay for any such costs that exceed by more
than five (5) percent what the Fund would have paid to print such documents. The
Fund shall pay one half the cost of distributing Fund SAIs, Fund Reports and
Fund proxy statements and proxy-related material to such existing Participants.
The Fund shall pay the cost of distributing the Fund Portion of the Combined
SAIs and the Fund Portion of the Combined Reports to existing Participants. The
Fund shall not pay any costs of setting type, printing and distributing Fund
SAIs, Combined SAIs, Fund Reports, Combined Reports or proxy statements or proxy
- - -related material to prospective Participants.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of typesetting, printing or distributing any of
the foregoing documents other than those actually distributed to existing
Participants.
The Fund shall pay no fee or other compensation to the Company under this
Agreement, except that if the Fund or any Portfolio adopts and implements a plan
pursuant to Rule 12b-1 to finance distribution expenses, then the Underwriter
may make payments to the Company or to AGSI if and in amounts agreed to by the
Underwriter in writing.
All expenses, including expenses to be borne by the Fund pursuant to
Section 3.2 hereof, incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed available by the Fund, in accordance with
applicable state laws prior to their sale. The Fund shall bear the expenses for
the cost of registration and qualification of the Fund's shares.
3.2(c) Expenses Borne by AGSI.
Fund Prospectuses
With respect to prospective Participants, AGSI shall pay one half of the
cost of setting in type, printing and distributing Fund Prospectuses made
available by the Company as sales literature to such prospective Participants.
With respect to prospective Participants, in the event the Company elects to
prepare a Combined Prospectus, AGSI shall pay one half of the cost of printing
and distributing the Combined Prospectus made available by the Company to its
prospective Participants as sales literature. In such event, AGSI shall bear
the cost of typesetting to provide the Fund Prospectus to the Company in the
format in which the Fund is accustomed to formatting prospectuses.
Notwithstanding the foregoing, in no event shall AGSI pay for any such costs
that exceed by more than five (5) percent what AGSI would have paid to print
such documents.
10
<PAGE>
Fund SAIs, Fund Reports and Proxy Material.
With respect to prospective Participants, AGSI shall pay one half of the
cost of setting in type and printing Fund SAIs, Fund Reports and Fund proxy
material made available by the Company to its prospective Participants as sales
literature. In the event the Company elects to prepare a Combined SAI or
Combined Reports, AGSI shall pay one half of the cost of printing the Combined
SAI or Combined Reports, respectively, made available by the Company to its
prospective Participants as sales literature. In such event, AGSI shall bear
the cost of typesetting to provide the Fund SAI and Fund Reports to the Company
in the format in which the Fund is accustomed to formatting statements of
additional information and annual and semi-annual reports. Notwithstanding the
foregoing, in no event shall AGSI pay for any such costs that exceed by more
than five (5) percent what AGSI would have paid to print such documents. AGSI
shall pay one half the cost of distributing Fund SAIs, Combined SAIs, Fund
Reports, Combined Reports, and Fund proxy material to such prospective
Participants as sales literature.
3.2(d) If the Company chooses to receive camera-ready film or computer
diskettes in lieu of receiving printed copies of the Fund Prospectus, Fund SAI
or Fund Reports, the Fund or its designee will be responsible for providing the
Fund Prospectus, Fund SAI or Fund Reports in the format in which it is
accustomed to formatting such documents, and, notwithstanding anything in
Sections 3.2(b) or 3.2(c), the Company shall bear the expense of adjusting or
changing the format to conform with any of its prospectuses or reports.
3.3. The Fund SAI shall be obtainable from the Fund, the Company or such
other person as the Fund may designate.
3.4. If and to the extent required by law the Company shall distribute all
proxy material furnished by the Fund to Participants to whom voting privileges
are required to be extended and shall:
(i) solicit voting instructions from Participants;
(ii) vote the Fund shares in accordance with instructions received
from Participants; and
(iii) vote Fund shares for which no instructions have been received in
the same proportion as Fund shares of such Portfolio for which
instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners. The
Company reserves the right to vote Fund shares held in any segregated asset
account in its own right, to the extent permitted by law. The Fund and the
Company shall follow the procedures, and shall have the corresponding
responsibilities, for the handling of proxy and voting instruction
solicitations, as set forth in Schedule C attached hereto and incorporated
herein by reference. Participating Insurance Companies shall be responsible for
11
<PAGE>
ensuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the standards set forth
on Schedule C, which standards will also be provided to the other Participating
Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings (except insofar as the Securities and Exchange Commission may
interpret Section 16 not to require such meetings) or comply with Section 16(c)
of the 1940 Act (although the Fund is not one of the trusts described in Section
16(c) of that Act) as well as with Sections 16(a) and, if and when applicable,
16(b). Further, the Fund will act in accordance with the Securities and
Exchange Commission's interpretation of the requirements of Section 16(a) with
respect to periodic elections of directors and with whatever rules the
Commission may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material
prepared by the Company, AGSI or any person contracting with the Company or AGSI
in which the Fund or the Adviser is named, at least ten Business Days prior to
its use. No such material shall be used if the Fund, the Adviser, or their
designee reasonably objects to such use within ten Business Days after receipt
of such material.
4.2. Neither the Company, AGSI nor any person contracting with the Company
or AGSI shall give any information or make any representations or statements on
behalf of the Fund or concerning the Fund in connection with the sale of the
Contracts other than the information or representations contained in the
registration statement or the Fund Prospectus, as such registration statement or
Fund Prospectus may be amended or supplemented from time to time, or in reports
or proxy statements for the Fund, or in sales literature or other promotional
material approved by the Fund or its designee, except with the permission of the
Fund.
4.3. The Fund or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material prepared by the Fund in which the Company or its
Account(s) are named at least ten Business Days prior to its use. No such
material shall be used if the Company or its designee reasonably objects to such
use within ten Business Days after receipt of such material.
4.4. Neither the Fund nor the Adviser shall give any information or make
any representations on behalf of the Company or concerning the Company, each
Account, or the Contracts, other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports or solicitations for voting instructions for
each Account which are in the public domain or approved by the Company for
distribution to Participants, or in sales literature or other promotional
material approved by the Company or its designee, except with the permission of
the Company.
12
<PAGE>
4.5. The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, statements of additional information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the SEC or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the investment
in an Account or Contract contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, any of the following:
advertisements (such as material published, or designed for use in, a newspaper,
magazine, or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, or other public media),
sales literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials.
ARTICLE V. [RESERVED]
ARTICLE VI. DIVERSIFICATION
6.1. The Adviser represents, as to the Portfolios for which it acts as
investment adviser, that it will use its best efforts at all times to comply
with Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event a Portfolio ceases to so qualify, the Adviser will
take all reasonable steps (a) to notify the Company of such breach and (b) to
adequately diversify the Portfolio so as to achieve compliance within the grace
period afforded by Regulation 817-5.
6.2. The Adviser agrees, with respect to each Portfolio that it manages, to
indemnify and hold harmless the Company and each of its directors, officers,
employees and agents and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" and individually, "Indemnified Party," for purposes of this Section
6.2) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Adviser) or litigation
(including legal and other expenses)
13
<PAGE>
to which the Indemnified Parties may become subject under any statute, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements, result from the
negligence, bad faith, or willful misconduct of the Adviser or any director,
officer, employee or agent thereof, and are related to the operation of the
Adviser or the Fund and arise out of or result from any material breach of any
representation and/or warranty made by the Adviser in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Adviser, including without limitation any failure by the Adviser to comply with
the conditions of Articles II, IV and VI hereof.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract owners and variable life
insurance contract owners; or (f) a decision by a Participating Insurance
Company to disregard the voting instructions of Contract owners. The Board
shall promptly inform the Company if it determines that an irreconcilable
material conflict exists and the implications thereof.
7.2. The Company will promptly report any potential or existing material
irreconcilable conflicts of which it is aware to the Board. The Company will
assist the Board in carrying out its responsibilities under the Shared Funding
Exemptive Order, by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is
not limited to, an obligation by the Company to inform the Board whenever
contract owner voting instructions are disregarded.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested directors, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested directors), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the Separate Accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance policy
owners, or variable Contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
Contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account. No charge
or penalty will be
14
<PAGE>
imposed as a result of such withdrawal. The Company agrees that it bears the
responsibility to take remedial action in the event of a Board determination of
an irreconcilable material conflict and the cost of such remedial action, and
these responsibilities will be carried out with a view only to the interests of
Contract owners.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
(at the Company's expense); provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. No charge or penalty will be imposed as a result of such
withdrawal. The Company agrees that it bears the responsibility to take remedial
action in the event of a Board determination of an irreconcilable material
conflict and the cost of such remedial action, and these responsibilities will
be carried out with a view only to the interests of Contract owners.
7.5. For purposes of Sections 7.3 and 7.4 of this Agreement, a majority of
the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 or 7.4 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict.
7.6. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable.
7.7 The Company shall at least annually submit to the Board of the Fund
such reports, materials or data as the Board may reasonably request so that the
Board may fully carry out the obligations imposed upon them by the provisions
hereof, and said reports, materials and data shall be submitted more frequently
if deemed appropriate by the Board. All reports received by the Board of
potential or existing conflicts, and all Board action with regard to determining
the existence of a conflict, notifying Participating Insurance Companies of a
conflict, and determining whether any proposed action adequately remedies a
conflict, shall be properly recorded in the minutes of the Board or other
appropriate records, and such minutes or other records shall be made available
to the SEC upon request.
15
<PAGE>
ARTICLE VIII. INDEMNIFICATION
8.1. Indemnification By The Company and AGSI
8.1(a) The Company and AGSI agree to indemnify and hold harmless the Fund
and each member of the Board, officer, employee and agent of the Fund and the
Adviser and each director, officer, employee and agent of the Adviser, and each
person, if any, who controls the Fund or the Adviser within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified Parties" and
individually, "Indemnified Party," for purposes of this Section 8.1) against any
and all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Company or AGSI) or litigation
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements:
(i) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the registration
statement or prospectus for the Contracts or contained in the
Contracts or sales literature for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with written information furnished to the
Company by or on behalf of the Fund for use in the registration
statement or prospectus for the Contracts or in the Contracts or sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in or accurately derived
from the registration statement, prospectus or sales literature
generated and approved by the Fund) or wrongful conduct of the Company
or AGSI or persons under its control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of or as a result of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, or sales literature of the Fund or any amendment thereof
or supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading if such a statement or
omission was made in reliance upon and in conformity with information
furnished to the Fund by or on behalf of the Company or AGSI;
(iv) arise as a result of any failure by the Company or AGSI to provide the
services and furnish the materials under the terms of this Agreement;
or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Company or AGSI in this Agreement or arise
out of or result from any
16
<PAGE>
other material breach of this Agreement by the Company or AGSI, as
limited by and in accordance with the provisions of Sections 8.1(b)
and 8.1(c) hereof.
8.1(b). Neither the Company nor AGSI shall be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party as
such may arise from such Indemnified Party's willful misfeasance, bad faith, or
negligence in the performance of such Indemnified Party's duties or by reason of
such Indemnified Party's reckless disregard of obligations or duties under this
Agreement.
8.1(c). Neither the Company nor AGSI shall be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Company or AGSI in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company or AGSI
of any such claim shall not relieve the Company or AGSI from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, the Company or AGSI shall be
entitled to participate, at its own expense, in the defense of such action. The
Company or AGSI also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
Company or AGSI to such Party of the Company's or AGSI's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses under
this Agreement for any legal or other expenses subsequently incurred by such
Party independently in connection with the defense thereof other than reasonable
costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company or AGSI
of the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund shares or the Contracts or the operation
of the Fund.
8.2. Indemnification by the Fund
8.2(a). The Fund agrees to indemnify and hold harmless the Company and
each of its directors, officers, employees and agents and each person, if any,
who controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" and individually, "Indemnified Party,"
for purposes of this Section 8.2) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Adviser) or litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements, result from the negligence, bad
faith, willful misconduct of the Fund or any director, officer, employee or
agent thereof, are related to the operation of the Fund and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement
or prospectus or sales literature of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a material
17
<PAGE>
fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with written information furnished to the
Adviser or the Fund or the Underwriter by or on behalf of the Company
for use in the registration statement or prospectus for the Fund or in
sales literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Portfolio shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration
statement, prospectus or sales literature for the Contracts not
supplied by the Fund or persons under its control and other than
statements or representations authorized by the Company) or unlawful
conduct of persons under its control, with respect to the sale or
distribution of the Contracts or Portfolio shares; or
(iii) arise out of or as a result of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Contracts, or any
amendment thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statement or statements therein not
misleading, if such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide the services
and furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Fund in this Agreement or arise out of or
result from any other material breach of this Agreement by the Fund;
including without limitation any failure by the Fund to comply with
the conditions of Article VI hereof.
8.2(b). The Fund shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party as may arise from such Indemnified
Party's willful misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement.
8.2(c). The Fund shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve the Fund from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the
18
<PAGE>
Fund will be entitled to participate, at its own expense, in the defense
thereof. The Fund also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
Fund to such Party of the Fund's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Fund will not be liable to such Party under this
Agreement for any legal or other expenses subsequently incurred by such Party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.2(d). The Company and AGSI agree promptly to notify the Fund of the
commencement of any litigation or proceedings against it or any of its officers,
trustees or directors in connection with this Agreement, the issuance or sale of
the Contracts with respect to the operation of each Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason upon six-months advance
written notice delivered to the other parties; or
(b) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio based upon the
Company's determination that shares of such Portfolio are not
reasonably available to meet the requirements of the Contracts.
Reasonable advance notice of election to terminate shall be
furnished by the Company, said termination to be effective ten
(10) days after receipt of notice unless the Fund makes available
a sufficient number of shares to reasonably meet the requirements
of the Account within said ten (10) day period; or
(c) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio in the event any of
the Portfolio's shares are not registered, issued or sold in
accordance with applicable state and/or federal law or such law
precludes the use of such shares as the underlying investment
medium of the Contracts issued or to be issued by the Company.
19
<PAGE>
The terminating party shall give prompt notice to the other
parties of its decision to terminate; or
(d) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio in the event that
such Portfolio ceases to qualify as a Regulated Investment
Company under Subchapter M of the Code or under any successor or
similar provision, or if the Company or AGSI reasonably believes
that the Fund may fail to so qualify; or
(e) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio in the event that
such Portfolio fails to meet the diversification requirements
specified in Article VI hereof; or
(f) termination by either the Fund or the Adviser by written notice
to the Company if the Adviser or the Fund shall determine, in
its sole judgment exercised in good faith, that the Company, AGSI
and/or their affiliated companies has suffered a material adverse
change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject of
material adverse publicity, provided that the Fund or the Advisor
will give the Company sixty (60) days' advance written notice of
such determination of its intent to terminate this Agreement, and
provided further that after consideration of the actions taken by
the Company or AGSI and any other changes in circumstances since
the giving of such notice, the determination of the Fund or the
Adviser shall continue to apply on the 60th day since giving of
such notice, then such 60th day shall be the effective date of
termination; or
(g) termination by the Company or AGSI by written notice to the Fund
and the Adviser, if the Company or AGSI shall determine, in its
sole judgment exercised in good faith, that either the Fund or
the Adviser (with respect to the appropriate Portfolio) has
suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement
or is the subject of material adverse publicity; provided that
the Company will give the Fund or the Adviser sixty (60) days'
advance written notice of such determination of its intent to
terminate this Agreement, and provided further that after
consideration of the actions taken by the Company and any other
changes in circumstances since the giving of such notice, the
determination of the Company or AGSI shall continue to apply on
the 60th day since giving of such notice, then such 60th day
shall be the effective date of termination; or
(h) termination by the Fund or the Adviser by written notice to the
Company, if the Company gives the Fund and the Adviser the
written notice specified in Section 2.4 hereof and at the time
such notice was given there was no notice of termination
outstanding under any other provision of this Agreement;
provided, however any termination under this Section 10.1(h)
shall be effective sixty (60) days after the notice specified in
Section 2.4 was given; or
(i) termination by any party upon the other party's breach of any
representation
20
<PAGE>
in Section 2 or any material provision of this Agreement, which
breach has not been cured to the satisfaction of the terminating
party within ten (10) days after written notice of such breach is
delivered to the Fund or the Company, as the case may be; or
(j) termination by the Fund or the Adviser by written notice to the
Company in the event an Account or Contract is not registered or
sold in accordance with applicable federal or state law or
regulation, or the Company fails to provide pass-through voting
privileges as specified in Section 3.4.
10.2. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund shall at the option of the Company, continue to make
available additional shares of the Fund subject to all to the terms and
conditions of this Agreement, for all Contracts in effect on the effective date
of termination of this Agreement (hereinafter referred to as "Existing
Contracts") unless such further sale of Fund shares is proscribed by law,
regulation or applicable regulatory body, or unless the Fund determines that
liquidation of the Fund following termination of this Agreement is in the best
interests of the Fund and its shareholders. Specifically, without limitation,
the owners of the Existing Contracts shall be permitted to direct reallocation
of investments in the Fund, redemption of investments in the Fund and/or
investment in the Fund upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 10.2 shall not apply to
any terminations under Article VII and the effect of such Article VII
terminations shall be governed by Article VII of this Agreement.
10.3. The Company shall not redeem Fund shares attributable to the
Contracts except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act.
Upon request, the Company will promptly furnish to the Fund the opinion of
counsel for the Company (which counsel shall be reasonably satisfactory to the
Fund and the Adviser) to the effect that any redemption pursuant to clause (ii)
above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts, the Company shall not prevent
Contract Owners from allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving the Fund or the appropriate
Adviser 90 days prior written notice of its intention to do so.
ARTICLE XI. 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.
21
<PAGE>
IF TO THE FUND:
Levco Series Trust
One Rockefeller Plaza - 25th Floor
New York, NY 10020
Attention: Norris Nissim
IF TO ADVISER:
John A. Levin & Co., Inc.
One Rockefeller - 25th Floor
New York, NY 10020
Attention: Glenn A. Aigen
IF TO THE COMPANY:
The United States Life Insurance Company
In the City of New York
125 Maiden Lane
New York, NY 10038-4992
Attention: Jane K. Rushton, Esq.
IF TO AGSI:
American General Securities Incorporated
2727 Allen Parkway
Houston, Texas 77019
Attention: F. Paul Kovach, Jr.
ARTICLE XII. FOREIGN TAX CREDITS
The Fund and the Adviser agree to consult with the Company concerning
whether any Portfolio of the Fund qualifies to provide a foreign tax credit
pursuant to Section 853 of the Code.
ARTICLE XIII. MISCELLANEOUS
13.1. All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
22
<PAGE>
13.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement or as required by law, shall not disclose, disseminate or utilize
such names and addresses and other confidential information until such time as
it may come into the public domain without the express written consent of the
affected party.
13.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
13.5. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
13.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
13.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Adviser may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Adviser, if such assignee is duly licensed and registered to
perform the obligations of the Adviser under this Agreement.
13.9 The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles ("GAAP"), if any), as
soon as practical and in any event within 90 days after the end
of each fiscal year;
(b) the Company's June 30th quarterly statements (statutory) (and
GAAP, if any), as soon as practical and in any event within 45
days after the end of each semi-annual period:
(c) any financial statement, proxy statement, notice or report of the
Company sent to stockholders and/or policyholders, as soon as
practical after the delivery thereof to stockholders;
23
<PAGE>
(d) any registration statement (without exhibits) and financial
reports of the Company filed with the SEC or any state insurance
regulator, as soon as practical after the filing thereof; and
(e) any other public report submitted to the Company by independent
accountants in connection with any annual, interim or special
audit made by them of the books of the Company, as soon as
practical after the receipt thereof.
[Remainder of Page Left Intentionally Blank.]
24
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed in its name and on its behalf by its duly authorized representative
hereto as of the date specified above.
THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK on
behalf of itself and each of its Accounts named in Schedule B hereto,
as amended from time to time.
By: /s/ LARRY M. ROBINSON
---------------------------------
Name: Larry M. Robinson
Title: Vice President
AMERICAN GENERAL SECURITIES INCORPORATED
By: /s/ F. PAUL KOVACH, JR.
---------------------------------
Name: F. Paul Kovach, Jr.
Title: President
LEVCO SERIES TRUST
By: /s/ NORRIS NISSIM
---------------------------------
Name: Norris Nissim
Title: Secretary
JOHN A. LEVIN & CO., INC.
By: /s/ GLENN A. AIGEN
---------------------------------
Name: Glenn A. Aigen
Title: Vice President
25
<PAGE>
SCHEDULE A
PORTFOLIOS OF LEVCO SERIES TRUST
AVAILABLE FOR
PURCHASE BY AMERICAN GENERAL LIFE
INSURANCE COMPANY UNDER THIS AGREEMENT
LEVCO Equity Value Fund
26
<PAGE>
SCHEDULE B
SEPARATE ACCOUNTS AND CONTRACTS
<TABLE>
<CAPTION>
NAME OF SEPARATE ACCOUNT AND FORM NUMBERS AND NAMES OF CONTRACT FUNDED BY
DATE ESTABLISHED BY BOARD OF DIRECTORS SEPARATE ACCOUNT
<S> <C>
The United States Life Insurance Company Form No:
in the City of New York 98505N
Separate Account USL VA-R
Established: August 8, 1997 Name of Contract:
Select Reserve(SM) Flexible Payment Variable and Fixed
Individual Deferred Annuity
</TABLE>
27
<PAGE>
SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
1. The proxy proposals are given to the Company by the Fund as early as
possible before the date set by the Fund for the shareholder meeting to
enable the Company to consider and prepare for the solicitation of voting
instructions from owners of the Contracts and to facilitate the
establishment of tabulation procedures. At this time the Fund will inform
the Company of the Record, Mailing and Meeting dates. This will be done
verbally approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contract owner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in this Step #2. The Company will use its best efforts to call
in the number of Customers to the Fund , as soon as possible, but no later
than two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of a proxy statement
or other voting instructions and solicitation material. The Fund will
provide at least one copy of the last Annual Report to the Company pursuant
to the terms of Section 3.3 of the Agreement to which this Schedule
relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Fund or its
affiliate must approve the Card before it is printed. Allow approximately
2-4 business days for printing information on the Cards. Information
commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund).
28
<PAGE>
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, the Fund will develop, produce and pay for the Notice of
Proxy and the Proxy Statement (one document). Printed and folded notices
and statements will be sent to Company for insertion into envelopes
(envelopes and return envelopes are provided and paid for by the Company).
Contents of envelope sent to Customers by the Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the Company
or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small, single
sheet of paper that requests Customers to vote as quickly as possible
and that their vote is important. One copy will be supplied by the
Fund.)
e. cover letter - optional, supplied by Company and reviewed and approved
in advance by the Fund.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to the Fund.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the Company
as the shareowner. (A 5-week period is recommended.) Solicitation time
is calculated as calendar days from (but not including,) the meeting,
counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by the Fund in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For example, if the account registration is under "John A. Smith,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter and a
new Card and return envelope. The mutilated or illegible Card is
disregarded and considered to be not received for purposes of vote
tabulation. Any Cards that have been "kicked out" (e.g. mutilated,
illegible) of the
29
<PAGE>
procedure are "hand verified," i.e., examined as to why they did not
complete the system. Any questions on those Cards are usually remedied
individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated
in terms of a percentage and the number of shares.) The Fund must review
and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to the Fund on
the morning of the meeting not later than 10:00 a.m. Eastern time. The
Fund may request an earlier deadline if reasonable and if required to
calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
The Fund will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Fund will be
permitted reasonable access to such Cards.
16. All approvals and "signing-off' may be done orally, but must always be
followed up in writing.
30
<PAGE>
Exhibit 3(b)(iv)
<PAGE>
PARTICIPATION AGREEMENT
Among
THE UNITED STATES LIFE INSURANCE COMPANY
IN THE CITY OF NEW YORK,
AMERICAN GENERAL SECURITIES INCORPORATED,
NAVELLIER VARIABLE INSURANCE SERIES FUND, INC.
AND
NAVELLIER & ASSOCIATES, INC.
DATED AS OF
DECEMBER 1, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I. Fund Shares......................................... 4
ARTICLE II. Representations and Warranties...................... 6
ARTICLE III. Prospectuses, Reports to Shareholders and Proxy..... 8
Statements; Voting
ARTICLE IV. Sales Material and Information...................... 12
ARTICLE V. Diversification..................................... 13
ARTICLE VI. Potential Conflicts................................. 14
ARTICLE VII. Indemnification..................................... 16
ARTICLE VIII. Applicable Law...................................... 19
ARTICLE IX. Termination......................................... 19
ARTICLE X. Notices............................................. 22
ARTICLE XI. Foreign Tax Credits................................. 22
ARTICLE XII. Miscellaneous....................................... 23
SCHEDULE A Portfolios of Navellier Variable Insurance Series
Fund, Inc.
Available for Purchase by the United States
Life Insurance Company in the City of New York
Under this Agreement................................ 26
SCHEDULE B Separate Accounts and Contracts..................... 27
SCHEDULE C Proxy Voting Procedures............................. 28
</TABLE>
2
<PAGE>
THIS PARTICIPATION AGREEMENT, made and entered into as of the 1st day of
December, 1998 by and among THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY
OF NEW YORK (hereinafter the "Company"), a New York insurance company, on its
own behalf and on behalf of each separate account of the Company set forth on
Schedule B hereto as may be amended from time to time (each such account
hereinafter referred to as the "Account"), AMERICAN GENERAL SECURITIES
INCORPORATED ("AGSI"), a Texas corporation, NAVELLIER VARIABLE INSURANCE SERIES
FUND, INC. (hereinafter the "Fund"), a Maryland corporation, and NAVELLIER &
ASSOCIATES, INC. (the "Adviser"), a Nevada corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as (i) the investment vehicle for separate
accounts established by insurance companies for individual and group life
insurance policies and annuity contracts with variable accumulation and/or pay-
out provisions (hereinafter referred to individually and/or collectively as
"Variable Insurance Products") and (ii) the investment vehicle for certain
qualified pension and retirement plans (hereinafter "Qualified Plans"); and
WHEREAS, insurance companies desiring to utilize the Fund as an investment
vehicle under their Variable Insurance Products are required to enter into a
participation agreement with the Fund and the Adviser (the "Participating
Insurance Companies"); and
WHEREAS, shares of the Fund are divided into several series of shares, each
representing the interest in a particular managed portfolio of securities and
other assets, any one or more of which may be made available for Variable
Insurance Products of Participating Insurance Companies; and
WHEREAS, the Fund intends to offer shares of the series set forth on Schedule A
----------
(each such series hereinafter referred to as a "Portfolio"), as may be amended
from time to time by mutual agreement of the parties hereto, under this
Agreement to the Accounts of the Company; and
WHEREAS, the Fund intends to apply for an order from the Securities and Exchange
Commission, granting Participating Insurance Companies and Variable Insurance
Product separate accounts exemptions from the provisions of Sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended
(hereinafter the "1940 Act"), and Rules 6e-2(b)(15) and 6e-3(T)(b)(15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by Variable Insurance Product separate accounts of both affiliated and
unaffiliated life insurance companies and Qualified Plans (hereinafter the
"Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment company
under the 1940 Act and its shares are registered under the Securities Act of
1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
laws; and
WHEREAS, the Adviser manages certain Portfolios of the Fund; and
3
<PAGE>
WHEREAS, Navellier Securities Corp. (the "Underwriter") is registered as a
broker/dealer under the Securities Exchange Act of 1934, as amended (hereinafter
the "1934 Act"), is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD") and serves as principal
underwriter of the shares of the Fund; and
WHEREAS, the Company has registered or will register certain Variable Insurance
Products under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated asset
account, established by resolution or under authority of the Board of Directors
of the Company, on the date shown for such Account on Schedule B hereto, to set
aside and invest assets attributable to the aforesaid Variable Insurance
Product; and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company intends to purchase shares in the Portfolios on behalf of each
Account to fund certain of the aforesaid Variable Insurance Products and the
Underwriter is authorized to sell such shares to each such Account at net asset
value; and
WHEREAS, AGSI serves as both the distributor and the principal underwriter of
the Variable Insurance Products that are set forth on Schedule B;
NOW, THEREFORE, in consideration of their mutual promises, the Company, AGSI,
the Fund, and the Adviser agree as follows:
ARTICLE I. FUND SHARES
1.1. The Fund agrees to make available for purchase by the Company shares
of the Portfolios set forth on Schedule A and shall execute orders placed for
each Account on a daily basis at the net asset value next computed after receipt
by the Fund or its designee of such order. For purposes of this Section 1.1,
the Company shall be the designee of the Fund for receipt of such orders from
each Account and receipt by such designee shall constitute receipt by the Fund;
provided that the Fund receives notice of such order by 10:15 a.m. Eastern time
on the next following Business Day. Notwithstanding the foregoing, the Company
shall use its best efforts to provide the Fund with notice of such orders by
10:00 a.m. Eastern time on the next following Business Day. "Business Day"
shall mean any day on which the New York Stock Exchange is open for trading and
on which the Fund calculates the net asset value pursuant to the rules of the
SEC, as set forth in the Fund's Prospectus and Statement of Additional
Information. Notwithstanding the foregoing, the Board of Directors of the Fund
(hereinafter the "Board") may refuse to permit the Fund to sell shares of any
Portfolio to any person, or suspend or terminate the offering of shares of any
Portfolio, if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board acting in good faith and
in light of their fiduciary duties under federal and any applicable state laws,
necessary in the best interests of the shareholders of such Portfolio.
4
<PAGE>
1.2. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their Variable Insurance Products and to
certain Qualified Plans all in accordance with the requirements of Section
817(h)(4) of the Internal Revenue Code of 1986, as amended ( the "Code") and
Treasury Regulation 1.817-5. No shares of any Portfolio will be sold to the
general public.
1.3. The Fund will not make its shares available for purchase by any
insurance company or separate account unless an agreement containing provisions
substantially the same as Sections 2.4, 2.9, 3.4 and Article VII of this
Agreement is in effect to govern such sales.
1.4. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.4, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day in accordance with the
timing rules described in Section 1.1.
1.5. The Company agrees that purchases and redemptions of Portfolio shares
offered by the then current prospectus of the Fund shall be made in accordance
with the provisions of such prospectus. The Accounts of the Company, under
which amounts may be invested in the Fund, are listed on Schedule B attached
hereto and incorporated herein by reference, as such Schedule B may be amended
from time to time by mutual written agreement of all of the parties hereto. The
Company will give the Fund and the Adviser sixty (60) days written notice of its
intention to make available in the future, as a funding vehicle under the
Contracts, any other investment company.
1.6. The Company will place separate orders to purchase or redeem shares
of each Portfolio. Each order shall describe the net amount of shares and
dollar amount of each Portfolio to be purchased or redeemed. In the event of
net purchases, the Company shall pay for Portfolio shares on the next Business
Day after an order to purchase Portfolio shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted
by wire. In the event of net redemptions, the Portfolio shall pay the redemption
proceeds in federal funds transmitted by wire on the next Business Day after an
order to redeem a Portfolio's shares is made in accordance with the provision of
Section 1.4 hereof. Notwithstanding the foregoing, if the payment of redemption
proceeds on the next Business Day would require the Portfolio to dispose of
securities or otherwise incur substantial additional costs, and if the Portfolio
has determined to settle redemption transactions for all shareholders on a
delayed basis, proceeds shall be wired to the Company within seven (7) days and
the Portfolio shall notify in writing the person designated by the Company as
the recipient for such notice of such delay by 3:00 p.m. Eastern time on the
same Business Day that the Company transmits the redemption order to the
Portfolio.
1.7. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
5
<PAGE>
1.8. The Fund shall make the dividends or capital gain distributions
payable on the Fund's shares available to the Company as soon as reasonably
practical after the dividends or capital gains are calculated (normally by 6:30
p.m. Eastern time) and shall use its best efforts to furnish same day notice by
7:00 p.m. Eastern time (by wire or telephone, followed by written confirmation)
to the Company of any dividends or capital gain distributions payable on the
Fund's shares. The Company hereby elects to receive all such dividends and
capital gain distributions as are payable on the Portfolio shares in additional
shares of that Portfolio. The Company reserves the right to revoke this
election and to receive all such dividends and capital gain distributions in
cash. The Fund shall notify the Company of the number of shares so issued as
payment of such dividends and distributions.
1.9. The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated (normally by 6:30 p.m. Eastern time)
and shall use its best efforts to make such net asset value per share available
by 7:00 p.m. Eastern time. In the event that the Fund is unable to meet the
7:00 p.m. time stated immediately above, then the Fund shall provide the Company
with additional time to notify the Fund of purchase or redemption orders
pursuant to Sections 1.1 and 1.4, respectively, above. Such additional time
shall be equal to the additional time that the Fund takes to make the net asset
values available to the Company; provided, however, that notification must be
made by 10:15 a.m. Eastern time on the Business Day such order is to be executed
regardless of when the net asset value is made available.
1.10. If the Fund provides materially incorrect share net asset value
information through no fault of the Company, the Company shall be entitled to an
adjustment with respect to the Fund shares purchased or redeemed to reflect the
correct net asset value per share. The determination of the materiality of any
net asset value pricing error shall be based on the SEC's recommended guidelines
regarding such errors. The correction of any such errors shall be made at the
Company level and shall be made pursuant to the SEC's recommended guidelines.
Any material error in the calculation or reporting of net asset value per share,
dividend or capital gain information shall be reported promptly upon discovery
to the Company.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the interests of the
Accounts (the "Contracts") are or will be registered and will maintain the
registration under the 1933 Act and the regulations thereunder to the extent
required by the 1933 Act; that the Contracts will be issued in compliance in all
material respects with all applicable federal and state laws and regulations.
The Company further represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it has legally and
validly established each Account prior to any issuance or sale thereof as a
segregated asset account under the insurance laws of the State of New York and
the regulations thereunder and has registered or, prior to any issuance or sale
of the Contracts, will register and will maintain the registration of each
Account as a unit investment trust in accordance with and to the extent required
by the provisions of the 1940 Act and the regulations thereunder to serve as a
segregated investment account for the Contracts. The Company shall amend its
registration statement for its contracts under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of its
Contracts.
6
<PAGE>
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and the regulations
thereunder to the extent required by the 1933 Act, duly authorized for issuance
in accordance with the laws of the State of Maryland and sold in compliance with
all applicable federal and state securities laws and regulations and that the
Fund is and shall remain registered under the 1940 Act and the regulations
thereunder to the extent required by the 1940 Act. The Fund shall amend the
registration statement for its shares under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares. The Fund shall register and qualify the shares for sale in accordance
with the laws of the various states only if and to the extent deemed advisable
by the Fund.
2.3 The Fund and the Adviser represent that the Fund is currently
qualified as a Regulated Investment Company under Subchapter M of the Code and
that the Fund and the Adviser (with respect to those Portfolios for which such
Adviser acts as investment adviser) will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that the Fund or the appropriate Adviser will notify the Company immediately
upon having a reasonable basis for believing that a Portfolio has ceased to so
qualify or that a Portfolio might not so qualify in the future.
2.4. The Company represents that each Account is and will continue to be a
"segregated account" under applicable provisions of the Code and that each
Contract is and will be treated as a "variable contract" under applicable
provisions of the Code and that it will make every effort to maintain such
treatments and that it will notify the Fund immediately upon having a reasonable
basis for believing that the Account or Contract has ceased to be so treated or
that they might not be so treated in the future.
2.5. The Fund represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Fund
undertakes to have a board of directors, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states.
2.7. The Fund and the Adviser represent that the Fund is lawfully
organized and validly existing under the laws of the State of Maryland and that
the Fund does and will comply in all material respects with the 1940 Act.
2.8. The Adviser and AGSI each represents and warrants that it is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and that it will perform its obligations for
the Fund and the Company in compliance in all material respects with the laws
and regulations of its state of domicile and any applicable state and federal
securities laws and regulations.
7
<PAGE>
2.9. The Company represents and warrants that all of its trustees,
officers, employees, investment Adviser, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage, in an amount equal to the greater of $5 million or any
amount required by applicable federal or state law or regulation. The aforesaid
includes coverage for larceny and embezzlement is issued by a reputable bonding
company. The Company agrees to make all reasonable efforts to see that this
bond or another bond containing these provisions is always in effect, and agrees
to notify the Fund and the Underwriter in the event that such coverage no longer
applies.
ARTICLE III. PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS; VOTING
3.1(a) The Fund or its designee shall provide the Company with as many
printed copies of the Fund's current prospectus, including the profile
prospectus, (the "Fund Prospectus") as the Company may reasonably request. If
requested by the Company, in lieu of providing printed copies of the Fund
Prospectus, the Fund shall provide camera-ready film or computer diskettes
containing the Fund Prospectus and such other assistance as is reasonably
necessary in order for the Company once each year (or more frequently if the
Fund Prospectus is amended during the year) to have the prospectus for the
Contracts (the "Contract Prospectus") and the Fund Prospectus printed together
in one document or separately. The Company may elect to print the Fund
Prospectus in combination with other fund companies' prospectuses. For purposes
hereof, any combined prospectus including the Fund Prospectus along with the
Contract Prospectus or prospectus of other fund companies shall be referred to
as a "Combined Prospectus." For purposes hereof, the term "Fund Portion of the
Combined Prospectus" shall refer to the percentage of the number of Fund
Prospectus pages in the Combined Prospectus in relation to the total number of
pages of the Combined Prospectus.
3.1(b) The Fund shall provide the Company with as many printed copies of
the Fund's current statement of additional information (the "Fund SAI") as the
Company may reasonably request. If requested by the Company in lieu of
providing printed copies of the Fund SAI, the Fund shall provide camera-ready
film or computer diskettes containing the Fund SAI, and such other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the Fund SAI is amended during the year) to have the statement of
additional information for the Contracts (the "Contract SAI") and the Fund SAI
printed together or separately. The Company may also elect to print the Fund
SAI in combination with other fund companies' statements of additional
information. For purposes hereof, any combined statement of additional
information including the Fund SAI along with the Contract SAI or statement of
additional information of other fund companies shall be referred to as a
"Combined SAI." For purposes hereof, the term "Fund Portion of the Combined
SAI" shall refer to the percentage of the number of Fund SAI pages in the
Combined SAI in relation to the total number of pages of the Combined SAI.
8
<PAGE>
3.1(c) The Fund shall provide the Company with as many printed copies of
the Fund's annual report and semi-annual report (collectively, the "Fund
Reports") as the Company may reasonably request. If requested by the Company in
lieu of providing printed copies of the Fund Reports, the Fund shall provide
camera-ready film or computer diskettes containing the Fund's Reports, and such
other assistance as is reasonably necessary in order for the Company once each
year to have the annual report and semi-annual report for the Contracts
(collectively, the "Contract Reports") and the Fund Reports printed together or
separately. The Company may also elect to print the Fund Reports in combination
with other fund companies' annual reports and semi-annual reports. For purposes
hereof, any combined annual reports and semi-annual reports including the Fund
Reports along with the Contract Reports or annual reports and semi-annual
reports of other fund companies shall be referred to as "Combined Reports." For
purposes hereof, the term "Fund Portion of the Combined Reports" shall refer to
the percentage of the number of Fund Reports pages in the Combined Reports in
relation to the total number or pages of the Combined Reports.
3.2 Expenses
3.2(a) Expenses Borne by Company. Except as otherwise provided in this
Section 3.2., all expenses of preparing, setting in type and printing and
distributing (i) Contract Prospectuses, Fund Prospectuses, and Combined
Prospectuses; (ii) Fund SAIs, Contract SAIs, and Combined SAIs; (iii) Fund
Reports, Contract Reports, and Combined Reports, and (iv) Contract proxy
material that the Company may require in sufficient quantity to be sent to
Contract owners, annuitants, or participants under Contracts (collectively, the
"Participants"), shall be the expense of the Company.
3.2(b) Expenses Borne by Fund
Fund Prospectuses
With respect to existing Participants, the Fund shall pay the cost of
setting in type, printing and distributing Fund Prospectuses made available by
the Company to such existing Participants in order to update disclosure as
required by the 1933 Act and/or the 1940 Act. With respect to existing
Participants, in the event the Company elects to prepare a Combined Prospectus,
the Fund shall pay the cost of setting in type, printing and distributing the
Fund Portion of the Combined Prospectus made available by the Company to its
existing Participants in order to update disclosure as required by the 1933 Act
and/or the 1940 Act. In such event, the Fund shall bear the cost of typesetting
to provide the Fund Prospectus to the Company in the format in which the Fund is
accustomed to formatting prospectus. Notwithstanding the foregoing, in no event
shall the Fund pay for any such costs that exceed by more than five (5) percent
what the Fund would have paid to print such documents. The Fund shall not pay
any costs of typesetting, printing and distributing the Fund Prospectus (or
Combined Prospectus, if applicable) to prospective Participants.
Fund SAIs, Fund Reports and Proxy Material
9
<PAGE>
With respect to existing Participants, the Fund shall pay the cost of
setting in type and printing Fund SAIs, Fund Reports and Fund proxy material
made available by the Company to its existing Participants. With respect to
existing Participants, in the event the Company elects to prepare a Combined SAI
or Combined Reports, the Fund shall pay the cost of setting in type and printing
the Fund Portion of the Combined SAI or Combined Reports, respectively, made
available by the Company to its existing Participants. In such event, the Fund
shall bear the cost of typesetting to provide the Fund SAI or Fund Reports to
the Company in the format in which the Fund is accustomed to formatting
statements of additional information and annual and semi-annual reports.
Notwithstanding the foregoing, in no event shall the Fund pay for any such costs
that exceed by more than five (5) percent what the Fund would have paid to print
such documents. The Fund shall pay one half the cost of distributing Fund SAIs,
Fund Reports and Fund proxy statements and proxy-related material to such
existing Participants. The Fund shall pay the cost of distributing the Fund
Portion of the Combined SAIs and the Fund Portion of the Combined Reports to
existing Participants. The Fund shall not pay any costs of distributing Fund
SAIs, Combined SAIs, Fund Reports, Combined Reports or proxy statements or
proxy-related material to prospective Participants.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of typesetting, printing or distributing any of
the foregoing documents other than those actually distributed to existing
Participants.
The Fund shall pay no fee or other compensation to the Company under this
Agreement, except that if the Fund or any Portfolio adopts and implements a plan
pursuant to Rule 12b-1 to finance distribution expenses, then the Underwriter
may make payments to the Company or to AGSI if and in amounts agreed to by the
Underwriter in writing.
All expenses, including expenses to be borne by the Fund pursuant to
Section 3.2 hereof, incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed available by the Fund, in accordance with
applicable state laws prior to their sale. The Fund shall bear the expenses for
the cost of registration and qualification of the Fund's shares.
3.2(c) Expenses Borne by AGSI.
Fund Prospectuses
With respect to prospective Participants, AGSI shall pay one half of the
cost of setting in type, printing and distributing Fund Prospectuses made
available by the Company as sales literature to such prospective Participants.
With respect to prospective Participants, in the event the Company elects to
prepare a Combined Prospectus, AGSI shall pay one half of the cost of printing
and distributing the Combined Prospectus made available by the Company to its
prospective Participants as sales literature. In such event, AGSI shall bear
the cost of typesetting to provide the Fund
10
<PAGE>
Prospectus to the Company in the format in which the Fund is accustomed to
formatting prospectuses. Notwithstanding the foregoing, in no event shall AGSI
pay for any such costs that exceed by more than five (5) percent what AGSI would
have paid to print such documents.
Fund SAIs, Fund Reports and Proxy Material.
With respect to prospective Participants, AGSI shall pay one half of the
cost of setting in type and printing Fund SAIs, Fund Reports and Fund proxy
material made available by the Company to its prospective Participants as sales
literature. In the event the Company elects to prepare a Combined SAI or
Combined Reports, AGSI shall pay one half of the cost of printing the Combined
SAI or Combined Reports, respectively, made available by the Company to its
prospective Participants as sales literature. In such event, AGSI shall bear
the cost of typesetting to provide the Fund SAI and Fund Reports to the Company
in the format in which the Fund is accustomed to formatting statements of
additional information and annual and semi-annual reports. Notwithstanding the
foregoing, in no event shall AGSI pay for any such costs that exceed by more
than five (5) percent what AGSI would have paid to print such documents. AGSI
shall pay one half the cost of distributing Fund SAIs, Combined SAIs, Fund
Reports, Combined Reports, and Fund proxy material to such prospective
Participants as sales literature.
3.2(d) If the Company chooses to receive camera-ready film or computer
diskettes in lieu of receiving printed copies of the Fund Prospectus, Fund SAI
or Fund Reports, the Fund or its designee will be responsible for providing the
Fund Prospectus, Fund SAI or Fund Reports in the format in which it is
accustomed to formatting such documents, and, notwithstanding anything in
Sections 3.2(b) or 3.2(c), the Company shall bear the expense of adjusting or
changing the format to conform with any of its prospectuses or reports.
3.3 The Fund SAI shall be obtainable from the Fund, the Company or such
other person as the Fund may designate.
3.4. If and to the extent required by law the Company shall distribute all
proxy material furnished by the Fund to Participants to whom voting privileges
are required to be extended and shall:
(i) solicit voting instructions from Participants;
(ii) vote the Fund shares in accordance with instructions received
from Participants; and
(iii) vote Fund shares for which no instructions have been received
in the same proportion as Fund shares of such Portfolio for which
instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners. The
Company reserves the right to vote Fund shares held in any segregated asset
account in its own right, to the extent permitted by law. The Fund and the
Company shall follow the procedures, and shall have the corresponding
responsibilities, for the
11
<PAGE>
handling of proxy and voting instruction solicitations, as set forth in Schedule
C attached hereto and incorporated herein by reference. Participating Insurance
Companies shall be responsible for ensuring that each of their separate accounts
participating in the Fund calculates voting privileges in a manner consistent
with the standards set forth on Schedule C, which standards will also be
provided to the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings (except insofar as the Securities and Exchange Commission may
interpret Section 16 not to require such meetings) or comply with Section 16(c)
of the 1940 Act (although the Fund is not one of the trusts described in Section
16(c) of that Act) as well as with Sections 16(a) and, if and when applicable,
16(b). Further, the Fund will act in accordance with the Securities and
Exchange Commission's interpretation of the requirements of Section 16(a) with
respect to periodic elections of directors and with whatever rules the
Commission may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material prepared by the Company, AGSI or any person contracting with the
Company or AGSI in which the Fund or the Adviser is named, at least ten Business
Days prior to its use. No such material shall be used if the Fund, the Adviser,
or their designee reasonably objects to such use within ten Business Days after
receipt of such material.
4.2. Neither the Company, AGSI nor any person contracting with the Company
or AGSI shall give any information or make any representations or statements on
behalf of the Fund or concerning the Fund in connection with the sale of the
Contracts other than the information or representations contained in the
registration statement or the Fund Prospectus, as such registration statement or
Fund Prospectus may be amended or supplemented from time to time, or in reports
or proxy statements for the Fund, or in sales literature or other promotional
material approved by the Fund or its designee, except with the permission of the
Fund.
4.3. The Fund or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material prepared by the Fund in which the Company or its
Account(s) are named at least ten Business Days prior to its use. No such
material shall be used if the Company or its designee reasonably objects to such
use within ten Business Days after receipt of such material.
4.4. Neither the Fund nor the Adviser shall give any information or make
any representations on behalf of the Company or concerning the Company, each
Account, or the Contracts, other than the information or representations
contained in a registration statement or prospectus for the
12
<PAGE>
Contracts, as such registration statement and prospectus may be amended or
supplemented from time to time, or in published reports or solicitations for
voting instructions for each Account which are in the public domain or approved
by the Company for distribution to Participants, or in sales literature or other
promotional material approved by the Company or its designee, except with the
permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the SEC or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the investment
in an Account or Contract contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following: advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, or other
public media), sales literature (i.e., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents or employees, and registration
statements, prospectuses, statements of additional information, shareholder
reports, and proxy materials.
ARTICLE V. Diversification
5.1. The Adviser represents, as to the Portfolios for which it acts as
investment adviser, that it will use its best efforts at all times to comply
with Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event a Portfolio ceases to so qualify, the Adviser will
take all reasonable steps (a) to notify the Company of such breach and (b) to
adequately diversify the Portfolio so as to achieve compliance within the grace
period afforded by Regulation 1.817-5.
13
<PAGE>
ARTICLE VI. POTENTIAL CONFLICTS
6.1. The parties acknowledge that the Fund intends to file an application
with the SEC to request an order granting relief from various provisions of the
1940 Act and the rules thereunder to the extent necessary to permit the Fund
shares to be sold to and held by variable contract separate accounts of both
affiliated and unaffiliated Participating Insurance Companies and Qualified
Plans. It is anticipated that the Exemptive Order, when and if issued, shall
require the Fund and each Participating Insurance Company to comply with
conditions and undertakings substantially as provided in this Article VI. If
the Exemptive Order imposes conditions materially different from those provided
for in this Article VI, the conditions and undertakings imposed by the Exemptive
Order shall govern this Agreement and the parties hereto agree to amend this
Agreement consistent with the Exemptive Order.
6.2. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract owners and variable life
insurance contract owners; (f) a decision by a Participating Insurance Company
to disregard the voting instructions of Contract owners or (g) if applicable, a
decision by a Qualified Plan to disregard the voting instructions of plan
participants. The Board shall promptly inform the Company if it determines that
an irreconcilable material conflict exists and the implications thereof.
6.3. The Company will report any potential or existing material
irreconcilable conflicts of which it is aware to the Board. The Company will
assist the Board in carrying out its responsibilities under the Shared Funding
Exemptive Order, by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is
not limited to, an obligation by the Company to inform the Board whenever
contract owner voting instructions are disregarded. These responsibilities of
the Company shall be carried out with a view only to the interests of the
Contract owners.
6.4. If a majority of the Board or majority of its disinterested Members,
determines that a material irreconcilable conflict exists affecting Company,
Company, at its expense and to the extent reasonably practicable (as determined
by a majority of the Board's disinterested Members), will take any steps
necessary to remedy or eliminate the irreconcilable material conflict,
including: (a) withdrawing the assets allocable to some or all of the Separate
Accounts from the Fund or any portfolio thereof and reinvesting those assets in
a different investment medium, which may include another Portfolio of the Fund,
or another investment company; (b) submitting the question as to whether such
segregation should be implemented to a vote of all affected Contract owners and
as appropriate, segregating the assets of any appropriate group (i.e. variable
annuity or variable life insurance Contract owners of one or more Participating
Insurance Companies) that votes in favor of such segregation, or offering to the
affected Contract owners the option of making such a change; and (c)
establishing a new registered management investment company (or series thereof)
or
14
<PAGE>
managed separate account. If a material irreconcilable conflict arises because
of Company's decision to disregard Contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote,
Company may be required, at the election of the Fund, to withdraw the Separate
Account's investment in the Fund and no charge or penalty will be imposed as a
result of such withdrawal. The responsibility to take such remedial action shall
be carried out with a view only to the interests of the Contract owners.
6.5. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
(at the Company's expense); provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. No charge or penalty will be imposed as a result of such
withdrawal. The Company agrees that it bears the responsibility to take
remedial action in the event of a Board determination of an irreconcilable
material conflict and the cost of such remedial action, and these
responsibilities will be carried out with a view only to the interests of
Contract owners.
6.6. For purposes of Sections 6.4 and 6.5 of this Agreement, a majority of
the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 6.4 or 6.5 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict.
6.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable.
6.8 The Company and the Adviser shall at least annually submit to the
Board of the Fund such reports, materials or data as the Board may reasonably
request so that the Board may fully carry out the obligations imposed upon them
by the provisions hereof, and said reports, materials and data shall be
submitted more frequently if deemed appropriate by the Board. All reports
received by the Board of potential or existing conflicts, and all Board action
with regard to determining the existence of a conflict, notifying Participating
Insurance Companies of a conflict, and determining whether any proposed action
adequately remedies a conflict, shall be properly recorded in the minutes of the
Board or other appropriate records, and such minutes or other records shall be
made available to the SEC upon request.
15
<PAGE>
ARTICLE VII. INDEMNIFICATION
7.1. Indemnification By The Company and AGSI
7.1(a) The Company and AGSI agree to indemnify and hold harmless the Fund
and each member of the Board and officers, and the Adviser and each director and
officer of the Adviser, and each person, if any, who controls the Fund or the
Adviser within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" and individually, "Indemnified Party," for purposes of
this Section 7.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Company or
AGSI) or litigation (including legal and other expenses), to which the
Indemnified Parties may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the sale
or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the registration statement or
prospectus for the Contracts or contained in the Contracts or sales
literature for the Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished to the Company
by or on behalf of the Fund for use in the registration statement or
prospectus for the Contracts or in the Contracts or sales literature (or
any amendment or supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration statement,
prospectus or sales literature of the Fund not supplied by the Company or
AGSI, or persons under its control and other than statements or
representations authorized by the Fund or the Adviser) or wrongful conduct
of the Company or AGSI or persons under its control, with respect to the
sale or distribution of the Contracts or Fund shares; or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature of the Fund or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission was made
in reliance upon and in conformity with information furnished to the Fund
by or on behalf of the Company or AGSI; or
(iv) arise as a result of any failure by the Company or AGSI to provide
the services and furnish the materials under the terms of this Agreement;
or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Company or AGSI in this Agreement or arise out
of or result from any other
16
<PAGE>
material breach of this Agreement by the Company or AGSI, as limited by and
in accordance with the provisions of Sections 7.1(b) and 7.1(c) hereof.
7.1(b). Neither the Company nor AGSI shall be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party as
such may arise from such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations or duties
under this Agreement.
7.1(c). Neither the Company nor AGSI shall be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Company or AGSI in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company or AGSI
of any such claim shall not relieve the Company or AGSI from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, the Company or AGSI shall be
entitled to participate, at its own expense, in the defense of such action. The
Company or AGSI also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
Company or AGSI to such Party of the Company's or AGSI's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses under
this Agreement for any legal or other expenses subsequently incurred by such
Party independently in connection with the defense thereof other than reasonable
costs of investigation.
7.1(d). The Indemnified Parties will promptly notify the Company or AGSI
of the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund shares or the Contracts or the operation
of the Fund.
7.2. Indemnification by the Adviser
7.2(a). The Adviser agrees, with respect to each Portfolio that it manages,
to indemnify and hold harmless the Company and each of its directors and
officers and each person, if any, who controls the Company within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified Parties" and
individually, "Indemnified Party," for purposes of this Section 7.2) against any
and all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Adviser) or litigation (including
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements,
result from the gross negligence, bad faith, willful misconduct of the Adviser
or any director, officer, employee or agent thereof, or are related to the
operation of the Adviser or the Fund and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement or
prospectus or sales literature of the
17
<PAGE>
Fund (or any amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this agreement to
indemnify shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Adviser or the Fund or
the Underwriter by or on behalf of the Company for use in the registration
statement or prospectus for the Fund or in sales literature (or any
amendment or supplement) or otherwise for use in connection with the sale
of the Contracts or Portfolio shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration statement,
prospectus or sales literature for the Contracts not supplied by the
Adviser or persons under its control and other than statements or
representations authorized by the Company) or unlawful conduct of the
Adviser or persons under its control, with respect to the sale or
distribution of the Contracts or Portfolio shares; or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Contracts, or any amendment
thereof or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to the Company by
or on behalf of the Adviser; or
(iv) arise as a result of any failure by the Adviser to provide the
services and furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Adviser in this Agreement or arise out of or
result from any other material breach of this Agreement by the Fund or the
Adviser; including without limitation any failure by the Fund or the
Adviser to comply with the conditions of Article V hereof.
7.2(b).The Adviser shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party as may arise from such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement.
7.2(c). The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Adviser of any
such claim shall not relieve the Adviser from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties,
18
<PAGE>
the Adviser will be entitled to participate, at its own expense, in the defense
thereof. The Adviser also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
Adviser to such Party of the Adviser's election to assume the defense thereof,
the Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Adviser will not be liable to such Party under this
Agreement for any legal or other expenses subsequently incurred by such Party
independently in connection with the defense thereof other than reasonable costs
of investigation.
7.2(d). The Company and AGSI agree promptly to notify the Adviser of the
commencement of any litigation or proceedings against it or any of its officers,
trustees or directors in connection with this Agreement, the issuance or sale of
the Contracts with respect to the operation of each Account, or the sale or
acquisition of shares of the Fund.
ARTICLE VIII. APPLICABLE LAW
8.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Maryland.
8.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE IX. TERMINATION
9.1. This Agreement shall continue in full force and effect until the first
to occur of:
(a) termination by any party for any reason upon 180 days advance written
notice delivered to the other parties; or
(b) termination by the Company or AGSI by written notice to the Fund and
the Adviser with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio are not reasonably
available to meet the requirements of the Contracts. Reasonable
advance notice of election to terminate shall be furnished by the
Company, said termination to be effective ten (10) days after receipt
of notice unless the Fund makes available a sufficient number of
shares to reasonably meet the requirements of the Account within said
ten (10) day period; or
(c) termination by the Company or AGSI by written notice to the Fund and
the Adviser with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in accordance
with applicable state and/or federal law or such law precludes the use
of such shares as the underlying investment medium of the Contracts
issued or to be issued by the Company. The terminating party shall
give prompt notice to the other parties of its decision to terminate;
or
19
<PAGE>
(d) termination by the Company or AGSI by written notice to the Fund and
the Adviser with respect to any Portfolio in the event that such
Portfolio ceases to qualify as a Regulated Investment Company under
Subchapter M of the Code or under any successor or similar provision,
or if the Company or AGSI reasonably believes that the Fund may fail
to so qualify; or
(e) termination by the Company or AGSI by written notice to the Fund and
the Adviser with respect to any Portfolio in the event that such
Portfolio fails to meet the diversification requirements specified in
Article V hereof; or
(f) termination by either the Fund or the Adviser by written notice to the
Company if the Adviser or the Fund shall determine, in its sole
judgment exercised in good faith, that the Company, AGSI and/or their
affiliated companies has suffered a material adverse change in its
business, operations, financial condition or prospects since the date
of this Agreement or is the subject of material adverse publicity,
provided that the Fund or the Adviser will give the Company sixty (60)
days' advance written notice of such determination of its intent to
terminate this Agreement, and provided further that after
consideration of the actions taken by the Company or AGSI and any
other changes in circumstances since the giving of such notice, the
determination of the Fund or the Adviser shall continue to apply on
the 60th day since giving of such notice, then such 60th day shall be
the effective date of termination; or
(g) termination by the Company or AGSI by written notice to the Fund and
the Adviser, if the Company or AGSI shall determine, in its sole
judgment exercised in good faith, that either the Fund or the Adviser
(with respect to the appropriate Portfolio) has suffered a material
adverse change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject of
material adverse publicity; provided that the Company will give the
Fund or the Adviser sixty (60) days' advance written notice of such
determination of its intent to terminate this Agreement, and provided
further that after consideration of the actions taken by the Company
and any other changes in circumstances since the giving of such
notice, the determination of the Company or AGSI shall continue to
apply on the 60th day since giving of such notice, then such 60th day
shall be the effective date of termination; or
(h) termination by the Fund or the Adviser by written notice to the
Company, if the Company gives the Fund and the Adviser the written
notice specified in Section 2.4 hereof and at the time such notice was
given there was no notice of termination outstanding under any other
provision of this Agreement; provided, however any termination under
this Section 9.1(h) shall be effective sixty (60) days after the
notice specified in Section 2.4 was given; or
20
<PAGE>
(i) termination by any party upon the other party's breach of any
representation in Article II or any material provision of this
Agreement, which breach has not been cured to the satisfaction of the
terminating party within ten (10) days after written notice of such
breach is delivered to the Fund or the Company, as the case may be; or
(j) termination by the Fund or the Adviser by written notice to the
Company in the event an Account or Contract is not registered or sold
in accordance with applicable federal or state law or regulation, or
the Company fails to provide pass-through voting privileges as
specified in Section 3.4.
9.2. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund shall at the option of the Company, continue to make
available additional shares of the Fund pursuant to the terms and conditions of
this Agreement, for all Contracts in effect on the effective date of termination
of this Agreement (hereinafter referred to as "Existing Contracts") unless such
further sale of Fund shares is proscribed by law, regulation or applicable
regulatory body, or unless the Fund determines that liquidation of the Fund
following termination of this Agreement is in the best interests of the Fund and
its shareholders. Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to direct reallocation of investments in the Fund,
redemption of investments in the Fund and/or investment in the Fund upon the
making of additional purchase payments under the Existing Contracts. The
Company agrees however: (i) to immediately terminate the availability of shares
of the Fund to Contracts other than Existing Contracts and (ii) as soon as
reasonably practicable to request and diligently pursue approval from the SEC to
replace shares of the Fund with other investments for Contracts and, if and when
granted such approval, thereafter to so replace the shares of the Fund as soon
as reasonably practicable. Furthermore, the parties agree that this Section 9.2
shall not apply to any terminations under Article VI and the effect of such
Article VI terminations shall be governed by Article VI of this Agreement.
9.3. The Company shall not redeem Fund shares attributable to the
Contracts (as distinct from Fund shares attributable to the Company's assets
held in the Account) except (i) as necessary to implement Contract Owner
initiated or approved transactions, or (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act.
Upon request, the Company will promptly furnish to the Fund the opinion of
counsel for the Company (which counsel shall be reasonably satisfactory to the
Fund and the Adviser) to the effect that any redemption pursuant to clause (ii)
above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts, the Company shall not prevent
Contract Owners from allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving the Fund or the appropriate
Adviser 90 days prior written notice of its intention to do so.
21
<PAGE>
ARTICLE X. 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:
Navellier Variable Insurance Series Fund, Inc.
One East Liberty, Third Floor
Reno, Nevada, 89501
Attention: Dennis A. Holtorf
IF TO ADVISER:
Navellier & Associates, Inc.
One East Liberty, Third Floor
Reno, Nevada 89501
Attention: ______________________________
IF TO THE COMPANY:
The United States Life Insurance Company
In the City of New York
125 Maiden Lane
New York, NY 10038-4992
Attention: Jane K. Rushton, Esq.
IF TO AGSI:
American General Securities Incorporated
2727 Allen Parkway
Houston, Texas 77019
Attention: F. Paul Kovach, Jr.
ARTICLE XI. FOREIGN TAX CREDITS
The Fund and the Adviser agree to consult with the Company concerning
whether any Portfolio of the Fund qualifies to provide a foreign tax credit
pursuant to Section 853 of the Code.
22
<PAGE>
ARTICLE XII. MISCELLANEOUS
12.1. All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
12.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
12.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Adviser may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Adviser, if such assignee is duly licensed and registered to
perform the obligations of the Adviser under this Agreement.
12.9 The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports upon request from the Fund:
(a) the Company's annual statement (prepared under statutory accounting
principles) and annual report (prepared under generally accepted
accounting principles ("GAAP"), if any), as soon as practical and in
any event within 90 days after the end of each fiscal year;
23
<PAGE>
(b) the Company's June 30th quarterly statements (statutory) (and GAAP, if
any), as soon as practical and in any event within 45 days after the
end of each semi-annual period:
(c) any financial statement, proxy statement, notice or report of the
Company sent to stockholders and/or policyholders, as soon as
practical after the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and financial reports of
the Company filed with the SEC or any state insurance regulator, as
soon as practical after the filing thereof;
(e) any other public report submitted to the Company by independent
accountants in connection with any annual, interim or special audit
made by them of the books of the Company, as soon as practical after
the receipt thereof.
12.10. It is agreed by the parties hereto that Article VII and Sections
12.1, 12.6 and 12.7 shall survive any termination of this Agreement.
[Remainder of Page Left Blank.]
24
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed in its name and on its behalf by its duly authorized representative
hereto as of the date specified above.
THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK on
behalf of itself and each of its Accounts named in Schedule B hereto,
as amended from time to time.
By: /s/ LARRY M. ROBINSON
------------------------------------
Name: Larry M. Robinson
Title: Vice President
AMERICAN GENERAL SECURITIES INCORPORATED
By: /s/ F. PAUL KOVACH, JR.
-----------------------
Name: F. Paul Kovach, Jr.
Title: President
NAVELLIER VARIABLE INSURANCE SERIES FUND, INC.
By: /s/ LOUIS NAVELLIER
-------------------------------------
Name: Louis Navellier
Title: President
NAVELLIER & ASSOCIATES, INC.
By: /s/ LOUIS NAVELLIER
-------------------------------------
Name: Louis Navellier
Title: President
25
<PAGE>
SCHEDULE A
----------
PORTFOLIOS OF
NAVELLIER VARIABLE INSURANCE SERIES FUND, INC.
AVAILABLE FOR PURCHASE BY
THE UNITED STATES LIFE INSURANCE COMPANY
IN THE CITY OF NEW YORK
UNDER THIS AGREEMENT
1. Navellier Growth Portfolio
26
<PAGE>
SCHEDULE B
----------
SEPARATE ACCOUNTS AND CONTRACTS
-------------------------------
<TABLE>
<CAPTION>
NAME OF SEPARATE ACCOUNT AND FORM NUMBERS AND NAMES OF CONTRACT FUNDED BY
DATE ESTABLISHED BY BOARD OF DIRECTORS SEPARATE ACCOUNT
- - ---------------------------------------------- ---------------------------------------------
<S> <C>
The United States Life Insurance Company Form No:
in the City of New York 98505N
Separate Account USL VA-R
Established: August 8, 1997 Name of Contract:
-------------------------------------------------------
Select Reserve(SM) Flexible Payment Variable and Fixed
Individual Deferred Annuity
</TABLE>
27
<PAGE>
SCHEDULE C
----------
PROXY VOTING PROCEDURES
-----------------------
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
1. The proxy proposals are given to the Company by the Fund as early as
possible before the date set by the Fund for the shareholder meeting to
enable the Company to consider and prepare for the solicitation of voting
instructions from owners of the Contracts and to facilitate the
establishment of tabulation procedures. At this time the Fund will inform
the Company of the Record, Mailing and Meeting dates. This will be done
verbally approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contract owner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in this Step #2. The Company will use its best efforts to call
in the number of Customers to the Fund , as soon as possible, but no later
than two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of a proxy statement
or other voting instructions and solicitation material. The Fund will
provide at least one copy of the last Annual Report to the Company pursuant
to the terms of Section 3.3 of the Agreement to which this Schedule
relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Fund or its
affiliate must approve the Card before it is printed. Allow approximately
2-4 business days for printing information on the Cards. Information
commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund).
28
<PAGE>
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, the Fund will develop, produce and pay for the Notice of
Proxy and the Proxy Statement (one document). Printed and folded notices
and statements will be sent to Company for insertion into envelopes
(envelopes and return envelopes are provided and paid for by the Company).
Contents of envelope sent to Customers by the Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the Company
or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small, single
sheet of paper that requests Customers to vote as quickly as possible
and that their vote is important. One copy will be supplied by the
Fund.)
e. cover letter - optional, supplied by Company and reviewed and approved
in advance by the Fund.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to the Fund.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the Company
as the shareowner. (A 5-week period is recommended.) Solicitation
time is calculated as calendar days from (but not including,) the
meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by the Fund in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For example, if the account registration is under "John A. Smith,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter and a
new Card and return envelope. The mutilated or illegible Card is
disregarded and considered to be not received for purposes of
29
<PAGE>
vote tabulation. Any Cards that have been "kicked out" (e.g. mutilated,
illegible) of the procedure are "hand verified," i.e., examined as to why
they did not complete the system. Any questions on those Cards are usually
remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated
in terms of a percentage and the number of shares.) The Fund must review
and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to the Fund on
the morning of the meeting not later than 10:00 a.m. Eastern time. The
Fund may request an earlier deadline if reasonable and if required to
calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
The Fund will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Fund will be
permitted reasonable access to such Cards.
16. All approvals and "signing-off' may be done orally, but must always be
followed up in writing.
30
<PAGE>
Exhibit 3(b)(v)
<PAGE>
PARTICIPATION AGREEMENT
AMONG
THE UNITED STATES LIFE INSURANCE COMPANY
IN THE CITY OF NEW YORK
AMERICAN GENERAL SECURITIES INCORPORATED
THE OFFITBANK VARIABLE INSURANCE FUND, INC.
OFFITBANK
AND
OFFIT FUNDS DISTRIBUTOR, INC.
DATED AS OF
DECEMBER 1, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I. Fund Shares................................... 4
ARTICLE II Representations and Warranties................ 6
ARTICLE III Prospectuses, Reports to Shareholders
and Proxy Statements, Voting.................. 8
ARTICLE IV. Sales Material and Information................ 12
ARTICLE V [Reserved].................................... 13
ARTICLE VI. Diversification............................... 13
ARTICLE VII. Potential Conflicts........................... 13
ARTICLE VIII. Indemnification............................... 15
ARTICLE IX. Applicable Law................................ 20
ARTICLE X. Termination................................... 20
ARTICLE XI. Notices....................................... 22
ARTICLE XII. Foreign Tax Credits........................... 23
ARTICLE XIII. Miscellaneous................................. 23
SCHEDULE A Portfolios of The OFFITBANK Variable
Insurance Fund, Inc. Available for Purchase by
The United States Life Insurance Company
in the City of New York....................... 26
SCHEDULE B Separate Accounts and Contracts............... 27
SCHEDULE C Proxy Voting Procedures....................... 28
</TABLE>
2
<PAGE>
THIS PARTICIPATION AGREEMENT, made and entered into as of the 1st day of
December, 1998 by and among THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY
OF NEW YORK (hereinafter the "Company"), a New York insurance company, on its
own behalf and on behalf of each separate account of the Company set forth on
Schedule B hereto as may be amended from time to time (each such account
hereinafter referred to as the "Account"); AMERICAN GENERAL SECURITIES
INCORPORATED (hereinafter "AGSI"), a Texas corporation; THE OFFITBANK VARIABLE
INSURANCE FUND, INC. (hereinafter the "Fund"), a Maryland corporation; OFFITBANK
(hereinafter the "Adviser") a New York chartered trust company; and OFFIT FUNDS
DISTRIBUTOR, INC. (hereinafter "OFDI"), a Delaware Corporation .
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as (i) the investment vehicle for separate
accounts established by insurance companies for individual and group life
insurance policies and annuity contracts with variable accumulation and/or pay-
out provisions (hereinafter referred to individually and/or collectively as
"Variable Insurance Products") and (ii) the investment vehicle for certain
qualified pension and retirement plans (hereinafter "Qualified Plans"); and
WHEREAS, insurance companies desiring to utilize the Fund as an investment
vehicle under their Variable Insurance Products are required to enter into a
participation agreement with the Fund and the Adviser (the "Participating
Insurance Companies"); and
WHEREAS, shares of the Fund are divided into several series of shares, each
representing the interest in a particular managed portfolio of securities and
other assets, any one or more of which may be made available for Variable
Insurance Products of Participating Insurance Companies; and
WHEREAS, the Fund intends to offer shares of the series set forth on Schedule A
(each such series hereinafter referred to as a "Portfolio"), as may be amended
from time to time by mutual agreement of the parties hereto, under this
Agreement to the Accounts of the Company; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated February 15, 1995, (File No. 812-9306), granting Participating
Insurance Companies and Variable Insurance Product separate accounts exemptions
from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment
Company Act of 1940, as amended (hereinafter the "1940 Act"), and Rules
6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit
shares of the Fund to be sold to and held by Variable Insurance Product separate
accounts of both affiliated and unaffiliated life insurance companies and
Qualified Plans (hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment company
under the 1940 Act and its shares are registered under the Securities Act of
1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers
3
<PAGE>
Act of 1940, as amended, and any applicable state securities laws; and
WHEREAS, the Adviser manages certain Portfolios of the Fund; and
WHEREAS, OFDI is registered as a broker/dealer under the Securities Exchange Act
of 1934, as amended (hereinafter the "1934 Act"), is a member in good standing
of the National Association of Securities Dealers, Inc. (hereinafter "NASD") and
serves as principal underwriter of the shares of the Fund; and
WHEREAS, the Company has registered or will register certain Variable Insurance
Products under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated asset
account, established by resolution or under authority of the Board of Directors
of the Company, on the date shown for such Account on Schedule B hereto, to set
aside and invest assets attributable to the aforesaid Variable Insurance
Product; and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company intends to purchase shares in the Portfolios on behalf of each
Account to fund certain of the aforesaid Variable Insurance Products and OFDI is
authorized to sell such shares to each such Account at net asset value; and
WHEREAS, AGSI serves as both the distributor and the principal underwriter of
the Variable Insurance Products that are set forth on Schedule B;
NOW, THEREFORE, in consideration of their mutual promises, the Company, AGSI,
the Fund, the Adviser and OFDI agree as follows:
ARTICLE I. FUND SHARES
1.1. The Fund agrees to make available for purchase by the Company shares
of the Portfolios set forth on Schedule A and shall execute orders placed for
each Account on a daily basis at the net asset value next computed after receipt
by the Fund or its designee of such order. For purposes of this Section 1.1,
the Company shall be the designee of the Fund for receipt of such orders from
each Account and receipt by such designee shall constitute receipt by the Fund;
provided that the Fund receives notice of such order as soon as reasonably
practical (normally by 10:00 a.m. Eastern time) on the next following Business
Day. Notwithstanding the foregoing, the Company shall use its best efforts to
provide the Fund with notice of such orders by 10:15 a.m. Eastern time on the
next following Business Day. "Business Day" shall mean any day on which the New
York Stock Exchange is open for trading and on which the Fund calculates the net
asset value pursuant to the
4
<PAGE>
rules of the SEC, as set forth in the Fund's Prospectus and Statement of
Additional Information. Notwithstanding the foregoing, the Board of Directors of
the Fund (hereinafter the "Board") may refuse to permit the Fund to sell shares
of any Portfolio to any person, or suspend or terminate the offering of shares
of any Portfolio, if such action is required by law or by regulatory authorities
having jurisdiction or is, in the sole discretion of the Board acting in good
faith and in light of their fiduciary duties under federal and any applicable
state laws, necessary in the best interests of the shareholders of such
Portfolio.
1.2. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their Variable Insurance Products and to
certain Qualified Plans. No shares of any Portfolio will be sold to the general
public.
1.3. The Fund will not make its shares available for purchase by any
insurance company or separate account unless an agreement containing provisions
substantially the same as Sections 2.4, 2.9, 3.4 and Article VII of this
Agreement is in effect to govern such sales.
1.4. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.4, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day in accordance with the
timing rules described in Section 1.1.
1.5. The Company agrees that purchases and redemptions of Portfolio shares
offered by the then current prospectus of the Fund shall be made in accordance
with the provisions of such prospectus. The Accounts of the Company, under
which amounts may be invested in the Fund, are listed on Schedule B attached
hereto and incorporated herein by reference, as such Schedule B may be amended
from time to time by mutual written agreement of all of the parties hereto. The
Company will give the Fund and the Adviser sixty (60) days written notice of its
intention to make available in the future, as a funding vehicle under the
Contracts, any other investment company.
1.6. The Company will place separate orders to purchase or redeem shares
of each Portfolio. Each order shall describe the net amount of shares and
dollar amount of each Portfolio to be purchased or redeemed. In the event of net
purchases, the Company shall pay for Portfolio shares on the next Business Day
after an order to purchase Portfolio shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted
by wire. In the event of net redemptions, the Portfolio shall pay the redemption
proceeds in federal funds transmitted by wire on the next Business Day after an
order to redeem a Portfolio's shares is made in accordance with the provision of
Section 1.4 hereof. Notwithstanding the foregoing, if the payment of redemption
proceeds on the next Business Day would require the Portfolio to dispose of
securities or otherwise incur substantial additional costs, and if the Portfolio
has determined to settle redemption transactions for all shareholders on a
delayed basis, proceeds shall be wired to the Company within seven (7) days and
the Portfolio shall notify in writing the person designated by the Company as
the recipient for such notice of such delay by 3:00 p.m. Eastern time on the
same
5
<PAGE>
Business Day that the Company transmits the redemption order to the
Portfolio.
1.7. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.8. The Fund shall make the dividends or capital gain distributions
payable on the Fund's shares available to the Company as soon as reasonably
practical after the dividends or capital gains are calculated (normally by 6:30
p.m. Eastern time) and shall use its best efforts to furnish same day notice by
7:00 p.m. Eastern time (by wire or telephone, followed by written confirmation)
to the Company of any dividends or capital gain distributions payable on the
Fund's shares. The Company hereby elects to receive all such dividends and
capital gain distributions as are payable on the Portfolio shares in additional
shares of that Portfolio. The Company reserves the right to revoke this
election and to receive all such dividends and capital gain distributions in
cash. The Fund shall notify the Company of the number of shares so issued as
payment of such dividends and distributions.
1.9. The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated (normally by 6:30 p.m. Eastern time)
and shall use its best efforts to make such net asset value per share available
by 7:00 p.m. Eastern time. In the event that the Fund is unable to meet the
7:00 p.m. time stated immediately above, then the Fund shall provide the Company
with additional time to notify the Fund of purchase or redemption orders
pursuant to Sections 1.1 and 1.4, respectively, above. Such additional time
shall be equal to the additional time that the Fund takes to make the net asset
values available to the Company; provided, however, that notification must be
made by 10:15 a.m. Eastern time on the Business Day such order is to be executed
regardless of when the net asset value is made available.
1.10. If the Fund provides materially incorrect share net asset value
information through no fault of the Company, the Company shall be entitled to an
adjustment with respect to the Fund shares purchased or redeemed to reflect the
correct net asset value per share. The determination of the materiality of any
net asset value pricing error shall be based on the SEC's recommended guidelines
regarding such errors. The correction of any such errors shall be made at the
Company level and shall be made pursuant to the SEC's recommended guidelines.
Any material error in the calculation or reporting of net asset value per share,
dividend or capital gain information shall be reported promptly upon discovery
to the Company.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the interests of the
Accounts (the "Contracts") are or will be registered and will maintain the
registration under the 1933 Act and the regulations thereunder to the extent
required by the 1933 Act; that the Contracts will be issued in compliance in all
material respects with all applicable federal and state laws and regulations.
The Company further represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it has legally and
validly established each Account prior to
6
<PAGE>
any issuance or sale thereof as a segregated asset account under the insurance
laws of the State of New York and the regulations thereunder and has registered
or, prior to any issuance or sale of the Contracts, will register and will
maintain the registration of each Account as a unit investment trust in
accordance with and to the extent required by the provisions of the 1940 Act and
the regulations thereunder to serve as a segregated investment account for the
Contracts. The Company shall amend its registration statement for its contracts
under the 1933 Act and the 1940 Act from time to time as required in order to
effect the continuous offering of its Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and the regulations
thereunder to the extent required by the 1933 Act, duly authorized for issuance
in accordance with the laws of the State of Maryland and sold in compliance with
all applicable federal and state securities laws and regulations and that the
Fund is and shall remain registered under the 1940 Act and the regulations
thereunder to the extent required by the 1940 Act. The Fund shall amend the
registration statement for its shares under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares. The Fund shall register and qualify the shares for sale in accordance
with the laws of the various states only if and to the extent deemed advisable
by the Fund.
2.3 The Fund and the Adviser represent that the Fund is currently
qualified as a Regulated Investment Company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), and that the Fund and the Adviser
(with respect to those Portfolios for which such Adviser acts as investment
adviser) will make every effort to maintain such qualification (under Subchapter
M or any successor or similar provision) and that the Fund or the appropriate
Adviser will notify the Company immediately upon having a reasonable basis for
believing that a Portfolio has ceased to so qualify or that a Portfolio might
not so qualify in the future.
2.4. The Company represents that each Account is and will continue to be a
"segregated account" under applicable provisions of the Code and that each
Contract is and will be treated as a "variable contract" under applicable
provisions of the Code and that it will make every effort to maintain such
treatments and that it will notify the Fund immediately upon having a reasonable
basis for believing that the Account or Contract has ceased to be so treated or
that they might not be so treated in the future.
2.5.. The Fund represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Fund
undertakes to have a board of directors, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states.
2.7. The Fund and the Adviser represent that the Fund is lawfully
organized and validly existing under the laws of the State of Maryland and that
the Fund does and will comply in all material respects with the 1940 Act.
7
<PAGE>
2.8. The Adviser and AGSI each represents and warrants that it is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and that it will perform its obligations for
the Fund and the Company in compliance in all material respects with the laws
and regulations of its state of domicile and any applicable state and federal
securities laws and regulations.
2.9. The Company represents and warrants that all of its trustees,
officers, employees, investment Adviser, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage, in an amount equal to the greater of $5 million or any
amount required by applicable federal or state law or regulation. The aforesaid
includes coverage for larceny and embezzlement is issued by a reputable bonding
company. The Company agrees to make all reasonable efforts to see that this
bond or another bond containing these provisions is always in effect, and agrees
to notify the Fund and OFDI in the event that such coverage no longer applies.
ARTICLE III. PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS, VOTING
3.1(a) The Fund or its designee shall provide the Company with as many
printed copies of the Fund's current prospectus, including the profile
prospectus, (the "Fund Prospectus") as the Company may reasonably request. If
requested by the Company, in lieu of providing printed copies of the Fund
Prospectus, the Fund shall provide camera-ready film or computer diskettes
containing the Fund Prospectus and such other assistance as is reasonably
necessary in order for the Company once each year (or more frequently if the
Fund Prospectus is amended during the year) to have the prospectus for the
Contracts (the "Contract Prospectus") and the Fund Prospectus printed together
in one document or separately. The Company may elect to print the Fund
Prospectus in combination with other fund companies' prospectuses. For purposes
hereof, any combined prospectus including the Fund Prospectus along with the
Contract Prospectus or prospectus of other fund companies shall be referred to
as a "Combined Prospectus." For purposes hereof, the term "Fund Portion of the
Combined Prospectus" shall refer to the percentage of the number of Fund
Prospectus pages in the Combined Prospectus in relation to the total number of
pages of the Combined Prospectus.
3.1(b) The Fund shall provide the Company with as many printed copies of
the Fund's current statement of additional information (the "Fund SAI") as the
Company may reasonably request. If requested by the Company in lieu of
providing printed copies of the Fund SAI, the Fund shall provide camera-ready
film or computer diskettes containing the Fund SAI, and such other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the Fund SAI is amended during the year) to have the statement of
additional information for the Contracts (the "Contract SAI") and the Fund SAI
printed together or separately. The Company may also elect to print the Fund
SAI in combination with other fund companies' statements of additional
information. For purposes hereof, any combined statement of additional
information including the Fund SAI along with the Contract SAI or statement of
additional information of other fund companies shall be referred to as a
"Combined SAI." For purposes hereof, the term "Fund Portion of the Combined
SAI" shall refer to the percentage of the number of Fund SAI pages in the
Combined SAI in relation to the total number of pages of the Combined SAI.
3.1(c) The Fund shall provide the Company with as many printed copies of
the Fund's
8
<PAGE>
annual report and semi-annual report (collectively, the "Fund Reports") as the
Company may reasonably request. If requested by the Company in lieu of providing
printed copies of the Fund Reports, the Fund shall provide camera-ready film or
computer diskettes containing the Fund's Reports, and such other assistance as
is reasonably necessary in order for the Company once each year to have the
annual report and semi-annual report for the Contracts (collectively, the
"Contract Reports") and the Fund Reports printed together or separately. The
Company may also elect to print the Fund Reports in combination with other fund
companies' annual reports and semi-annual reports. For purposes hereof, any
combined annual reports and semi-annual reports including the Fund Reports along
with the Contract Reports or annual reports and semi-annual reports of other
fund companies shall be referred to as "Combined Reports." For purposes hereof,
the term "Fund Portion of the Combined Reports" shall refer to the percentage of
the number of Fund Reports pages in the Combined Reports in relation to the
total number or pages of the Combined Reports.
3.2 Expenses
3.2(a) Expenses Borne by Company. Except as otherwise provided in this
Section 3.2., all expenses of preparing, setting in type and printing and
distributing (i) Contract Prospectuses, Fund Prospectuses, and Combined
Prospectuses; (ii) Fund SAIs, Contract SAIs, and Combined SAIs; (iii) Fund
Reports, Contract Reports, and Combined Reports, and (iv) Contract proxy
material that the Company may require in sufficient quantity to be sent to
Contract owners, annuitants, or participants under Contracts (collectively, the
"Participants"), shall be the expense of the Company.
3.2(b) Expenses Borne by Fund
(i) Fund Prospectuses. With respect to existing Participants, the
Fund shall pay the cost of setting in type, printing and distributing Fund
Prospectuses made available by the Company to such existing Participants in
order to update disclosure as required by the 1933 Act and/or the 1940 Act.
With respect to existing Participants, in the event the Company elects to
prepare a Combined Prospectus, the Fund shall pay the cost of setting in
type, printing and distributing the Fund Portion of the Combined Prospectus
made available by the Company to its existing Participants in order to
update disclosure as required by the 1933 Act and/or the 1940 Act. In such
event, the Fund shall bear the cost of typesetting to provide the Fund
Prospectus to the Company in the format in which the Fund is accustomed to
formatting prospectus. Notwithstanding the foregoing, in no event shall
the Fund pay for any such costs that exceed by more than five (5) percent
what the Fund would have paid to print such documents. The Fund shall not
pay any costs of typesetting, printing and distributing the Fund Prospectus
(or Combined Prospectus, if applicable) to prospective Participants.
(ii) Fund SAIs, Fund Reports and Proxy Material With respect to
existing Participants, the Fund shall pay the cost of setting in type and
printing Fund SAIs, Fund Reports and Fund proxy material made available by
the Company to its existing Participants. With respect to existing
Participants, in the event the Company elects to prepare a Combined SAI or
Combined Reports, the Fund shall pay the cost of setting in type and
printing the Fund Portion of the Combined SAI or Combined Reports,
respectively, made available by the Company to its existing Participants.
In such event, the Fund shall bear the cost of
9
<PAGE>
typesetting to provide the Fund SAI or Fund Reports to the Company in the
format in which the Fund is accustomed to formatting statements of
additional information and annual and semi-annual reports. Notwithstanding
the foregoing, in no event shall the Fund pay for any such costs that
exceed by more than five (5) percent what the Fund would have paid to print
such documents. The Fund shall pay one half the cost of distributing Fund
SAIs, Fund Reports and Fund proxy statements and proxy-related material to
such existing Participants. The Fund shall pay the cost of distributing the
Fund Portion of the Combined SAIs and the Fund Portion of the Combined
Reports to existing Participants. The Fund shall not pay any costs of
distributing Fund SAIs, Combined SAIs, Fund Reports, Combined Reports or
proxy statements or proxy-related material to prospective Participants.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the
Fund's expenses do not include the cost of typesetting, printing or
distributing any of the foregoing documents other than those actually
distributed to existing Participants.
The Fund shall pay no fee or other compensation to the Company under this
Agreement, except that if the Fund or any Portfolio adopts and implements a
plan pursuant to Rule 12b-1 to finance distribution expenses, then OFDI may
make payments to the Company or toAGSI if and in amounts agreed to by OFDI
in writing.
All expenses, including expenses to be borne by the Fund pursuant to
Section 3.2 hereof, incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with
applicable federal law and, if and to the extent deemed available by the
Fund, in accordance with applicable state laws prior to their sale. The
Fund shall bear the expenses for the cost of registration and qualification
of the Fund's shares.
3.2(c) Expenses Borne by AGSI.
(i) Fund Prospectuses With respect to prospective Participants, AGSI
shall pay one half of the cost of setting in type, printing and
distributing Fund Prospectuses made available by the Company as sales
literature to such prospective Participants. With respect to prospective
Participants, in the event the Company elects to prepare a Combined
Prospectus, AGSI shall pay one half of the cost of printing and
distributing the Combined Prospectus made available by the Company to its
prospective Participants as sales literature. In such event, AGSI shall
bear the cost of typesetting to provide the Fund Prospectus to the Company
in the format in which the Fund is accustomed to formatting prospectuses.
Notwithstanding the foregoing, in no event shall AGSI pay for any such
costs that exceed by more than five (5) percent what AGSI would have paid
to print such documents.
(ii) Fund SAIs, Fund Reports and Proxy Material. With respect to
prospective Participants, AGSI shall pay one half of the cost of setting in
type and printing Fund SAIs, Fund Reports and Fund proxy material made
available by the Company to its prospective Participants as sales
literature. In the event the Company elects to prepare a Combined SAI or
Combined Reports, AGSI shall pay one half of the cost of printing the
Combined SAI or Combined Reports, respectively, made available by the
Company to its prospective Participants as sales literature. In such
event, AGSI shall bear the cost of typesetting to provide the Fund SAI and
Fund Reports to the Company in the format in which the Fund is
10
<PAGE>
accustomed to formatting statements of additional information and annual
and semi-annual reports. Notwithstanding the foregoing, in no event shall
AGSI pay for any such costs that exceed by more than five (5) percent what
AGSI would have paid to print such documents. AGSI shall pay one half the
cost of distributing Fund SAIs, Combined SAIs, Fund Reports, Combined
Reports, and Fund proxy material to such prospective Participants as sales
literature.
3.2(d) If the Company chooses to receive camera-ready film or computer
diskettes in lieu of receiving printed copies of the Fund Prospectus, Fund SAI
or Fund Reports, the Fund or its designee will be responsible for providing the
Fund Prospectus, Fund SAI or Fund Reports in the format in which it is
accustomed to formatting such documents, and, notwithstanding anything in
Sections 3.2(b) or 3.2(c), the Company shall bear the expense of adjusting or
changing the format to conform with any of its prospectuses or reports.
3.3. The Fund SAI shall be obtainable from the Fund, the Company or such
other person as the Fund may designate.
3.4. If and to the extent required by law the Company shall distribute all
proxy material furnished by the Fund to Participants to whom voting privileges
are required to be extended and shall:
(i) solicit voting instructions from Participants;
(ii) vote the Fund shares in accordance with instructions received
from Participants; and
(iii) vote Fund shares for which no instructions have been received in
the same proportion as Fund shares of such Portfolio for which
instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners. The
Company reserves the right to vote Fund shares held in any segregated asset
account in its own right, to the extent permitted by law. The Fund and the
Company shall follow the procedures, and shall have the corresponding
responsibilities, for the handling of proxy and voting instruction
solicitations, as set forth in Schedule C attached hereto and incorporated
herein by reference. Participating Insurance Companies shall be responsible for
ensuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the standards set forth
on Schedule C, which standards will also be provided to the other Participating
Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings (except insofar as the Securities and Exchange Commission may
interpret Section 16 not to require such meetings) or comply with Section 16(c)
of the 1940 Act (although the Fund is not one of the trusts described in Section
16(c) of that Act) as well as with Sections 16(a) and, if and when applicable,
16(b). Further, the Fund will act in accordance with the Securities and
Exchange Commission's interpretation of the requirements of Section 16(a) with
respect to periodic elections of directors and with whatever rules the
Commission may promulgate with respect thereto.
11
<PAGE>
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material prepared by the Company, AGSI or any person contracting with the
Company or AGSI in which the Fund or the Adviser is named, at least ten Business
Days prior to its use. No such material shall be used if the Fund, the Adviser,
or their designee reasonably objects to such use within ten Business Days after
receipt of such material.
4.2. Neither the Company, AGSI nor any person contracting with the Company
or AGSI shall give any information or make any representations or statements on
behalf of the Fund or concerning the Fund in connection with the sale of the
Contracts other than the information or representations contained in the
registration statement or the Fund Prospectus, as such registration statement or
Fund Prospectus may be amended or supplemented from time to time, or in reports
or proxy statements for the Fund, or in sales literature or other promotional
material approved by the Fund or its designee, except with the permission of the
Fund.
4.3. The Fund or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material prepared by the Fund in which the Company or its
Account(s) are named at least ten Business Days prior to its use. No such
material shall be used if the Company or its designee reasonably objects to such
use within ten Business Days after receipt of such material.
4.4. Neither the Fund nor the Adviser shall give any information or make
any representations on behalf of the Company or concerning the Company, each
Account, or the Contracts, other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports or solicitations for voting instructions for
each Account which are in the public domain or approved by the Company for
distribution to Participants, or in sales literature or other promotional
material approved by the Company or its designee, except with the permission of
the Company.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the SEC or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the investment
in an Account or Contract contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following: advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television,
12
<PAGE>
telephone or tape recording, videotape display, signs or billboards, motion
pictures, or other public media), sales literature (i.e., any written
communication distributed or made generally available to customers or the
public, including brochures, circulars, research reports, market letters, form
letters, seminar texts, reprints or excerpts of any other advertisement, sales
literature, or published article), educational or training materials or other
communications distributed or made generally available to some or all agents or
employees, and registration statements, prospectuses, statements of additional
information, shareholder reports, and proxy materials.
ARTICLE V. [Reserved]
ARTICLE VI. DIVERSIFICATION
6.1. The Adviser represents, as to the Portfolios for which it acts as
investment adviser, that it will use its best efforts at all times to comply
with Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event a Portfolio ceases to so qualify, the Adviser will
take all reasonable steps (a) to notify the Company of such breach and (b) to
adequately diversify the Portfolio so as to achieve compliance within the grace
period afforded by Regulation 817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract owners and variable life
insurance contract owners; or (f) a decision by a Participating Insurance
Company to disregard the voting instructions of Contract owners. The Board
shall promptly inform the Company if it determines that an irreconcilable
material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing material
irreconcilable conflicts of which it is aware to the Board. The Company will
assist the Board in carrying out its responsibilities under the Shared Funding
Exemptive Order, by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is
not limited to, an obligation by the Company to inform the Board whenever
contract owner voting instructions are disregarded.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested directors, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested directors), take whatever steps are necessary to remedy or
eliminate the
13
<PAGE>
irreconcilable material conflict, up to and including: (1) withdrawing the
assets allocable to some or all of the Separate Accounts from the Fund or any
Portfolio and reinvesting such assets in a different investment medium,
including (but not limited to) another Portfolio of the Fund, or submitting the
question whether such segregation should be implemented to a vote of all
affected Contract owners and, as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners, life insurance policy owners,
or variable Contract owners of one or more Participating Insurance Companies)
that votes in favor of such segregation, or offering to the affected Contract
owners the option of making such a change; and (2) establishing a new registered
management investment company or managed separate account. No charge or penalty
will be imposed as a result of such withdrawal. The Company agrees that it bears
the responsibility to take remedial action in the event of a Board determination
of an irreconcilable material conflict and the cost of such remedial action, and
these responsibilities will be carried out with a view only to the interests of
Contract owners.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
(at the Company's expense); provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. No charge or penalty will be imposed as a result of such
withdrawal. The Company agrees that it bears the responsibility to take
remedial action in the event of a Board determination of an irreconcilable
material conflict and the cost of such remedial action, and these
responsibilities will be carried out with a view only to the interests of
Contract owners.
7.5. For purposes of Sections 7.3 and 7.4 of this Agreement, a majority of
the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 or 7.4 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict.
7.6. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable.
7.7 The Company and the Adviser shall at least annually submit to the
Board of the Fund such reports, materials or data as the Board may reasonably
request so that the Board may fully carry out the obligations imposed upon them
by the provisions hereof, and said reports, materials and data shall be
submitted more frequently if deemed appropriate by the Board. All reports
received by the
14
<PAGE>
Board of potential or existing conflicts, and all Board action with regard to
determining the existence of a conflict, notifying Participating Insurance
Companies of a conflict, and determining whether any proposed action adequately
remedies a conflict, shall be properly recorded in the minutes of the Board or
other appropriate records, and such minutes or other records shall be made
available to the SEC upon request.
ARTICLE VIII. INDEMNIFICATION
8.1. Indemnification By The Company and AGSI
8.1(a). The Company and AGSI agree to indemnify and hold harmless the Fund
and each member of the Board and officers, the Adviser and OFDI and each
director and officer of the Adviser and OFDI, and each person, if any, who
controls the Fund, Adviser or OFDI within the meaning of Section 15 of the 1933
Act (collectively, the "Indemnified Parties" and individually, "Indemnified
Party," for purposes of this Section 8.1) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Company or AGSI) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any statute
or regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the Contracts
and:
(i) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the registration statement or
prospectus for the Contracts or contained in the Contracts or sales
literature for the Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished to the Company
by or on behalf of the Fund for use in the registration statement or
prospectus for the Contracts or in the Contracts or sales literature (or
any amendment or supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration statement,
prospectus or sales literature of the Fund not supplied by the Company or
AGSI, or persons under its control and other than statements or
representations authorized by the Fund or the Adviser) or unlawful conduct
of the Company or AGSI or persons under its control, with respect to the
sale or distribution of the Contracts or Fund shares; or
(iii) arise out of or as a result of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, or sales literature of the Fund or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission was made
in reliance upon and in conformity with information furnished to the Fund
by or on behalf of the Company or AGSI;
15
<PAGE>
(iv) arise as a result of any failure by the Company or AGSI to provide
the services and furnish the materials under the terms of this Agreement;
or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Company or AGSI in this Agreement or arise out
of or result from any other material breach of this Agreement by the
Company or AGSI, as limited by and in accordance with the provisions of
Sections 8.1(b) and 8.1(c) hereof.
8.1(b). Neither the Company nor AGSI shall be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party as
such may arise from such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations or duties
under this Agreement.
8.1(c). Neither the Company nor AGSI shall be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Company or AGSI in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company or AGSI
of any such claim shall not relieve the Company or AGSI from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, the Company or AGSI shall be
entitled to participate, at its own expense, in the defense of such action. The
Company or AGSI also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
Company or AGSI to such Party of the Company's or AGSI's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses under
this Agreement for any legal or other expenses subsequently incurred by such
Party independently in connection with the defense thereof other than reasonable
costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company or AGSI
of the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund shares or the Contracts or the operation
of the Fund.
8.2. Indemnification by the Adviser
8.2(a). The Adviser agrees, with respect to each Portfolio that it manages,
to indemnify and hold harmless the Company and each of its directors and
officers and each person, if any, who controls the Company within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified Parties" and
individually, "Indemnified Party," for purposes of this Section 8.2) against any
and all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Adviser) or litigation (including
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements,
result from the
16
<PAGE>
gross negligence, bad faith, willful misconduct of the Adviser or any director,
officer, employee or agent thereof, are related to the operation of the Adviser
or the Fund and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement or
prospectus or sales literature of the Fund (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with information
furnished to the Adviser or the Fund or OFDI by or on behalf of the Company
for use in the registration statement or prospectus for the Fund or in
sales literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Portfolio shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration statement,
prospectus or sales literature for the Contracts not supplied by the
Adviser or persons under its control and other than statements or
representations authorized by the Company) or unlawful conduct of the
Adviser or persons under its control, with respect to the sale or
distribution of the Contracts or Portfolio shares; or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Contracts, or any amendment
thereof or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, if such statement or
omission was made in reliance upon and in conformity with information
furnished to the Company by or on behalf of the Adviser; or
(iv) arise as a result of any failure by the Adviser to provide the
services and furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Adviser in this Agreement or arise out of or
result from any other material breach of this Agreement by the Fund or the
Adviser; including without limitation any failure by the Fund or the
Adviser to comply with the conditions of Article VI hereof.
8.2(b). The Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement.
8.2(c). The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
17
<PAGE>
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Adviser of any
such claim shall not relieve the Adviser from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Adviser will be entitled to participate, at
its own expense, in the defense thereof. The Adviser also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Adviser to such Party of the Adviser's election
to assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Adviser will not be
liable to such Party under this Agreement for any legal or other expenses
subsequently incurred by such Party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.2(d). The Company and AGSI agree promptly to notify the Adviser of the
commencement of any litigation or proceedings against it or any of its officers,
trustees or directors in connection with this Agreement, the issuance or sale of
the Contracts with respect to the operation of each Account, or the sale or
acquisition of shares of the Fund.
8.3. Indemnification by OFDI
8.3(a). OFDI agrees to indemnify and hold harmless the Company and each of
its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" and individually, "Indemnified Party," for purposes of this Section
8.3) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of OFDI) or litigation (including
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements,
result from the gross negligence, bad faith, willful misconduct of OFDI or any
director, officer, employee or agent thereof, are related to the operation of
OFDI or the Fund and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement or
prospectus or sales literature of the Fund (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with information
furnished to the Fund or OFDI by or on behalf of the Company for use in the
registration statement or prospectus for the Fund or in sales literature
(or any amendment or supplement) or otherwise for use in connection with
the sale of the Contracts or Portfolio shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration statement,
prospectus or sales literature for the Contracts not supplied by OFDI or
persons under its control and other than statements or representations
authorized by the Company) or unlawful conduct of OFDI or persons under
18
<PAGE>
its control, with respect to the sale or distribution of the Contracts or
Portfolio shares; or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Contracts, or any amendment
thereof or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, if such statement or
omission was made in reliance upon and in conformity with information
furnished to the Company by or on behalf of OFDI; or
(iv) arise as a result of any failure by OFDI to provide the services and
furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any representation
and/or warranty made by OFDI in this Agreement or arise out of or result
from any other material breach of this Agreement by the Adviser.
8.3(b). OFDI shall not be liable under this indemnification provision with
respect to any losses, claims, damages, liabilities or litigation incurred or
assessed against an Indemnified Party as may arise from such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement.
8.3(c). OFDI shall not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless such Indemnified
Party shall have notified OFDI in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify OFDI of any such claim shall not relieve OFDI from
any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification provision.
In case any such action is brought against the Indemnified Parties, OFDI will be
entitled to participate, at its own expense, in the defense thereof. OFDI also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from OFDI to such Party of OFDI's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and OFDI will not be
liable to such Party under this Agreement for any legal or other expenses
subsequently incurred by such Party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.3(d). The Company and AGSI agree promptly to notify OFDI of the
commencement of any litigation or proceedings against it or any of its officers,
trustees or directors in connection with this Agreement, the issuance or sale of
the Contracts with respect to the operation of each Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in
19
<PAGE>
accordance with the laws of the State of New York.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason upon six-months advance
written notice delivered to the other parties; or
(b) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio based upon the
Company's determination that shares of such Portfolio are not
reasonably available to meet the requirements of the Contracts.
Reasonable advance notice of election to terminate shall be
furnished by the Company, said termination to be effective ten
(10) days after receipt of notice unless the Fund makes available
a sufficient number of shares to reasonably meet the requirements
of the Account within said ten (10) day period; or
(c) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio in the event any of
the Portfolio's shares are not registered, issued or sold in
accordance with applicable state and/or federal law or such law
precludes the use of such shares as the underlying investment
medium of the Contracts issued or to be issued by the Company.
The terminating party shall give prompt notice to the other
parties of its decision to terminate; or
(d) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio in the event that
such Portfolio ceases to qualify as a Regulated Investment
Company under Subchapter M of the Code or under any successor or
similar provision, or if the Company or AGSI reasonably believes
that the Fund may fail to so qualify; or
(e) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio in the event that
such Portfolio fails to meet the diversification requirements
specified in Article VI hereof; or
(f) termination by either the Fund or the Adviser by written notice
to the Company if the Adviser or the Fund shall determine, in
its sole judgment exercised in good faith, that the Company, AGSI
and/or their affiliated companies has suffered a material adverse
change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject of
material adverse publicity, provided that the Fund or the Adviser
20
<PAGE>
will give the Company sixty (60) days' advance written notice of
such determination of its intent to terminate this Agreement, and
provided further that after consideration of the actions taken by
the Company or AGSI and any other changes in circumstances since
the giving of such notice, the determination of the Fund or the
Adviser shall continue to apply on the 60th day since giving of
such notice, then such 60th day shall be the effective date of
termination; or
(g) termination by the Company or AGSI by written notice to the Fund
and the Adviser, if the Company or AGSI shall determine, in its
sole judgment exercised in good faith, that either the Fund or
the Adviser (with respect to the appropriate Portfolio) has
suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement
or is the subject of material adverse publicity; provided that
the Company will give the Fund or the Adviser sixty (60) days'
advance written notice of such determination of its intent to
terminate this Agreement, and provided further that after
consideration of the actions taken by the Company and any other
changes in circumstances since the giving of such notice, the
determination of the Company or AGSI shall continue to apply on
the 60th day since giving of such notice, then such 60th day
shall be the effective date of termination; or
(h) termination by the Fund or the Adviser by written notice to the
Company, if the Company gives the Fund and the Adviser the
written notice specified in Section 2.4 hereof and at the time
such notice was given there was no notice of termination
outstanding under any other provision of this Agreement;
provided, however any termination under this Section 10.1(h)
shall be effective sixty (60) days after the notice specified in
Section 2.4 was given; or
(i) termination by any party upon the other party's breach of any
representation in Section 2 or any material provision of this
Agreement, which breach has not been cured to the satisfaction of
the terminating party within ten (10) days after written notice
of such breach is delivered to the Fund or the Company, as the
case may be;
(j) termination by the Fund or the Adviser by written notice to the
Company in the event an Account or Contract is not registered or
sold in accordance with applicable federal or state law or
regulation, or the Company fails to provide pass-through voting
privileges as specified in Section 3.4; or
(k) termination by OFDI by written notice delivered to the other
parties in the event OFDI is terminated as distributor to the
Fund.
10.2. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund shall at the option of the Company, continue to make
available additional shares of the Fund pursuant to the terms and conditions of
this Agreement, for all Contracts in effect on the effective date of termination
of this Agreement (hereinafter referred to as "Existing Contracts") unless such
21
<PAGE>
further sale of Fund shares is proscribed by law, regulation or applicable
regulatory body, or unless the Fund determines that liquidation of the Fund
following termination of this Agreement is in the best interests of the Fund and
its shareholders. Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to direct reallocation of investments in the Fund,
redemption of investments in the Fund and/or investment in the Fund upon the
making of additional purchase payments under the Existing Contracts. The
parties agree that this Section 10.2 shall not apply to any terminations under
Article VII and the effect of such Article VII terminations shall be governed by
Article VII of this Agreement.
10.3. The Company shall not redeem Fund shares attributable to the
Contracts (as distinct from Fund shares attributable to the Company's assets
held in the Account) except (i) as necessary to implement Contract Owner
initiated or approved transactions, or (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act.
Upon request, the Company will promptly furnish to the Fund the opinion of
counsel for the Company (which counsel shall be reasonably satisfactory to the
Fund and the Adviser) to the effect that any redemption pursuant to clause (ii)
above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts, the Company shall not prevent
Contract Owners from allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving the Fund or the appropriate
Adviser 90 days prior written notice of its intention to do so.
ARTICLE XI. 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: The OFFITBANK Variable Insurance Fund, Inc.
c/o Bisys Fund Services, Inc.
3435 Steltzer Road
Columbus, Ohio 43219
Attention:
IF TO ADVISER: OFFITBANK
520 Madison Avenue
New York, NY 10022-4213
Attention: Stephen B. Wells
IF TO OFDI: OFFIT Funds Distributor, Inc.
3435 Stelzer Road
Columbus, OH 43219
Attention: George O. Martinez
IF TO THE COMPANY: The United States Life Insurance Company
in the City of New York
125 Maiden Lane
22
<PAGE>
New York, NY 10038-4992
Attention: Jane K. Rushton, Esq.
IF TO AGSI: American General Securities Incorporated
2727 Allen Parkway
Houston, Texas 77019
Attention: F. Paul Kovach, Jr.
ARTICLE XII. FOREIGN TAX CREDITS
The Fund and the Adviser agree to consult with the Company concerning
whether any Portfolio of the Fund qualifies to provide a foreign tax credit
pursuant to Section 853 of the Code.
ARTICLE XIII. MISCELLANEOUS
13.1. All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
13.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
13.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
13.5. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
13.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
13.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by
23
<PAGE>
any party without the prior written consent of all parties hereto; provided,
however, that the Adviser may assign this Agreement or any rights or obligations
hereunder to any affiliate of or company under common control with the Adviser,
if such assignee is duly licensed and registered to perform the obligations of
the Adviser under this Agreement.
13.9 The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles ("GAAP"), if any), as
soon as practical and in any event within 90 days after the end
of each fiscal year;
(b) the Company's June 30th quarterly statements (statutory) (and
GAAP, if any), as soon as practical and in any event within 45
days after the end of each semi-annual period:
(c) any financial statement, proxy statement, notice or report of the
Company sent to stockholders and/or policyholders, as soon as
practical after the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and financial
reports of the Company filed with the SEC or any state insurance
regulator, as soon as practical after the filing thereof; and
24
<PAGE>
(e) any other public report submitted to the Company by independent
accountants in connection with any annual, interim or special
audit made by them of the books of the Company, as soon as
practical after the receipt thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed in its name and on its behalf by its duly authorized representative
hereto as of the date specified above.
THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK on
behalf of itself and each of its Accounts named in Schedule B hereto,
as amended from time to time.
By: /s/ LARRY M. ROBINSON
---------------------------
Name: Larry M. Robinson
Title: Vice President
AMERICAN GENERAL SECURITIES INCORPORATED
By: /s/ F. PAUL KOVACH, JR.
----------------------------
Name: F. Paul Kovach, Jr.
Title: President
THE OFFITBANK VARIABLE INSURANCE FUND, INC.
By: /S/ STEPHEN B. WELLS
-----------------------------
Name: Stephen Brent Wells
Title: Assistant Treasurer
OFFITBANK
By: /S/ STEPHEN B. WELLS
-----------------------------
Name: Stephen Brent Wells
Title: Managing Director
OFFIT FUNDS DISTRIBUTOR, INC.
By: /s/ MONROE HAEGELE
-----------------------------
Name: Monroe Haegele
Title: CEO
25
<PAGE>
SCHEDULE A
PORTFOLIOS OF
THE OFFITBANK VARIABLE INSURANCE FUND, INC.
AVAILABLE FOR PURCHASE BY
THE UNITED STATES LIFE INSURANCE COMPANY
IN THE CITY OF NEW YORK
UNDER THIS AGREEMENT
OFFITBANK VIF-Emerging Markets Fund
OFFITBANK VIF-High Yield Fund
OFFITBANK VIF-Total Return Fund
OFFITBANK VIF-U.S. Government Securities
26
<PAGE>
SCHEDULE B
SEPARATE ACCOUNTS AND CONTRACTS
<TABLE>
<CAPTION>
NAME OF SEPARATE ACCOUNT AND FORM NUMBERS AND NAMES OF CONTRACT FUNDED BY
DATE ESTABLISHED BY BOARD OF DIRECTORS SEPARATE ACCOUNT
- - -------------------------------------- ---------------------------------------------
<S> <C>
The United States Life Insurance Company Form No:
in the City of New York 98505N
Separate Account USL VA-R
Established: August 8, 1997 Name of Contract:
Select Reserve(SM) Flexible Payment Variable and Fixed
Individual Deferred Annuity
</TABLE>
27
<PAGE>
SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
1. The proxy proposals are given to the Company by the Fund as early as
possible before the date set by the Fund for the shareholder meeting to
enable the Company to consider and prepare for the solicitation of voting
instructions from owners of the Contracts and to facilitate the
establishment of tabulation procedures. At this time the Fund will inform
the Company of the Record, Mailing and Meeting dates. This will be done
verbally approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contract owner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in this Step #2. The Company will use its best efforts to call
in the number of Customers to the Fund, as soon as possible, but no later
than two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of a proxy statement
or other voting instructions and solicitation material. The Fund will
provide at least one copy of the last Annual Report to the Company pursuant
to the terms of Section 3.3 of the Agreement to which this Schedule
relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Fund or its
affiliate must approve the Card before it is printed. Allow approximately
2-4 business days for printing information on the Cards. Information
commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund).
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, the Fund will develop, produce and pay for the Notice of
Proxy and the Proxy Statement (one document). Printed and folded notices
and statements will be sent to Company for insertion into envelopes
(envelopes and return envelopes are provided and paid for by the Company).
Contents of envelope sent to Customers by the Company will include:
28
<PAGE>
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the Company
or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small, single
sheet of paper that requests Customers to vote as quickly as possible
and that their vote is important. One copy will be supplied by the
Fund.)
e. cover letter - optional, supplied by Company and reviewed and approved
in advance by the Fund.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to the Fund.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the Company
as the shareowner. (A 5-week period is recommended.) Solicitation
time is calculated as calendar days from (but not including,) the
meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by the Fund in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For example, if the account registration is under "John A. Smith,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter and a
new Card and return envelope. The mutilated or illegible Card is
disregarded and considered to be not received for purposes of vote
tabulation. Any Cards that have been "kicked out" (e.g. mutilated,
illegible) of the procedure are "hand verified," i.e., examined as to why
they did not complete the system. Any questions on those Cards are usually
remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated
in terms of a percentage and the number of shares.) The Fund must review
and approve tabulation format.
29
<PAGE>
13. Final tabulation in shares is verbally given by the Company to the Fund on
the morning of the meeting not later than 10:00 a.m. Eastern time. The
Fund may request an earlier deadline if reasonable and if required to
calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
The Fund will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Fund will be
permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
30
<PAGE>
Exhibit 3(b)(vi)
<PAGE>
PARTICIPATION AGREEMENT
AMONG
THE UNITED STATES LIFE INSURANCE COMPANY
IN THE CITY OF NEW YORK,
AMERICAN GENERAL SECURITIES INCORPORATED,
ROYCE CAPITAL FUND
AND
ROYCE & ASSOCIATES, INC.
DATED AS OF
DECEMBER 1, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I. Fund Shares 4
ARTICLE II Representations and Warranties 7
ARTICLE III. Prospectuses, Reports to Shareholders
and Proxy Statements, Voting 8
ARTICLE IV. Sales Material and Information 12
ARTICLE V [Reserved] 14
ARTICLE VI. Diversification 14
ARTICLE VII. Potential Conflicts 14
ARTICLE VIII. Indemnification 16
ARTICLE IX. Applicable Law 19
ARTICLE X. Termination 20
ARTICLE XI. Notices 22
ARTICLE XII. Foreign Tax Credits 23
ARTICLE XIII. Miscellaneous 23
SCHEDULE A Portfolios of Royce Capital Fund 26
Available for Purchase by
The United States Life Insurance Company
in the City of New York
SCHEDULE B Separate Accounts and Contracts 27
SCHEDULE C Proxy Voting Procedures 28
</TABLE>
<PAGE>
THIS PARTICIPATION AGREEMENT, made and entered into as of the 1st day of
December, 1998 by and among THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY
OF NEW YORK (hereinafter the "Company"), a New York insurance company, on its
own behalf and on behalf of each separate account of the Company set forth on
Schedule B hereto as may be amended from time to time (each such account
hereinafter referred to as the "Account"), AMERICAN GENERAL SECURITIES
INCORPORATED ("AGSI"), a Texas corporation, ROYCE CAPITAL FUND (hereinafter the
"Fund"), a Delaware business trust, and ROYCE & ASSOCIATES, INC., a New York
corporation (the "Adviser").
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as (i) the investment vehicle for separate
accounts established by insurance companies for individual and group life
insurance policies and annuity contracts with variable accumulation and/or pay-
out provisions (hereinafter referred to individually and/or collectively as
"Variable Insurance Products") and (ii) the investment vehicle for certain
qualified pension and retirement plans (hereinafter "Qualified Plans"); and
WHEREAS, insurance companies desiring to utilize the Fund as an investment
vehicle under their Variable Insurance Products are required to enter into a
participation agreement with the Fund and the Adviser (the "Participating
Insurance Companies"); and
WHEREAS, shares of the Fund are divided into several series of shares, each
representing the interest in a particular managed portfolio of securities and
other assets, any one or more of which may be made available for Variable
Insurance Products of Participating Insurance Companies; and
WHEREAS, the Fund intends to offer shares of the series set forth on Schedule A
(each such series hereinafter referred to as a "Portfolio"), as may be amended
from time to time by mutual agreement of the parties hereto, under this
Agreement to the Accounts of the Company; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated July 24, 1996 (File No. 812-9988), granting Participating
Insurance Companies and Variable Insurance Product separate accounts exemptions
from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment
Company Act of 1940, as amended (hereinafter the "1940 Act"), and Rules 6e-
2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares
of the Fund to be sold to and held by Variable Insurance Product separate
accounts of both affiliated and unaffiliated life insurance companies and
Qualified Plans (hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment company
under the 1940 Act and its shares are registered under the Securities Act of
1933, as amended (hereinafter the "1933 Act"); and
3
<PAGE>
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
laws; and
WHEREAS, the Adviser manages certain Portfolios of the Fund; and
WHEREAS, the Company has registered or will register certain Variable Insurance
Products under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated asset
account, established by resolution or under authority of the Board of Directors
of the Company, on the date shown for such Account on Schedule B hereto, to set
aside and invest assets attributable to the aforesaid Variable Insurance
Product; and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company intends to purchase shares in the Portfolios on behalf of each
Account to fund certain of the aforesaid Variable Insurance Products and the
Underwriter is authorized to sell such shares to each such Account at net asset
value; and
WHEREAS, AGSI serves as both the distributor and the principal underwriter of
the Variable Insurance Products that are set forth on Schedule B;
NOW, THEREFORE, in consideration of their mutual promises, the Company, AGSI,
the Fund and the Adviser agree as follows:
ARTICLE I. FUND SHARES
1.1. The Fund agrees to make available for purchase by the Company shares
of the Portfolios set forth on Schedule A and shall execute orders placed for
each Account on a daily basis at the net asset value next computed after receipt
by the Fund or its designee of such order. For purposes of this Section 1.1,
the Company shall be the designee of the Fund for receipt of such orders from
each Account and receipt by such designee of orders prior to the close of
regular trading on the New York Stock Exchange (generally 4:00 p.m. Eastern
time) shall constitute receipt by the Fund; provided that the Fund receives
notice of such order as soon as is reasonably practical (normally by 10:00 a.m.
Eastern time) on the next following Business Day. Notwithstanding the
foregoing, the Company shall use its best efforts to provide the Fund with
notice of such orders by 10:15 a.m. Eastern time on the next following Business
Day. "Business Day" shall mean any day on which the New York Stock Exchange is
open for trading and on which the Fund calculates the net asset value pursuant
to the rules of the SEC, as set forth in the Fund's Prospectus and Statement of
Additional Information. Notwithstanding the foregoing, the Board of Trustees of
the Fund
4
<PAGE>
(hereinafter the "Board") may refuse to permit the Fund to sell shares of any
Portfolio to any person, or suspend or terminate the offering of shares of any
Portfolio, if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board acting in good faith and
in light of their fiduciary duties under federal and any applicable state laws,
necessary in the best interests of the shareholders of such Portfolio.
1.2. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their Variable Insurance Products and to
certain Qualified Plans. No shares of any Portfolio will be sold to the general
public.
1.3. The Fund will not make its shares available for purchase by any
insurance company or separate account unless an agreement containing provisions
substantially the same as Sections 2.4, 2.9, 3.4 and Article VII of this
Agreement is in effect to govern such sales.
1.4. The Fund agrees to redeem for cash, on the Company's request, any full
or fractional shares of the Fund held by the Company, executing such requests on
a daily basis at the net asset value next computed after receipt by the Fund or
its designee of the request for redemption. For purposes of this Section 1.4,
the Company shall be the designee of the Fund for receipt of requests for
redemption from each Account and receipt by such designee shall constitute
receipt by the Fund; provided that the Fund receives notice of such request for
redemption on the next following Business Day in accordance with the timing
rules described in Section 1.1.
1.5. The Company agrees that purchases and redemptions of Portfolio shares
offered by the then current prospectus of the Fund shall be made in accordance
with the provisions of such prospectus. The Accounts of the Company, under
which amounts may be invested in the Fund, are listed on Schedule B attached
hereto and incorporated herein by reference, as such Schedule B may be amended
from time to time by mutual written agreement of all of the parties hereto. The
Company will give the Fund and the Adviser sixty (60) days written notice of its
intention to make available in the future, as a funding vehicle under the
Contracts, any other investment company.
1.6. The Company will place separate orders to purchase or redeem shares of
each Portfolio. Each order shall describe the net amount of shares and dollar
amount of each Portfolio to be purchased or redeemed. In the event of net
purchases, the Company shall pay for Portfolio shares on the next Business Day
after an order to purchase Portfolio shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted
by wire. In the event of net redemptions, the Portfolio shall use its best
efforts to pay the redemption proceeds in federal funds transmitted by wire on
the next Business Day, in any event redemption proceeds shall be wired to the
Company within three Business Days or such longer period permitted by the 1940
Act, after an order to redeem a Portfolio's shares is made in accordance with
the provision of Section 1.4 hereof. Notwithstanding the foregoing, if the
payment of redemption proceeds on the next Business Day would require the
Portfolio to dispose of securities or otherwise incur substantial additional
costs, and if the Portfolio has determined to settle redemption transactions for
all shareholders on a delayed basis, it reserves the right to suspend the right
of redemption or postpone
5
<PAGE>
the date of payment or satisfaction upon redemption consistent with Section
22(e) of the 1940 Act and the Portfolio shall notify in writing the person
designated by the Company as the recipient for such notice of such delay
promptly.
1.7. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Shares
ordered from the Fund will be recorded in an appropriate title for each Account
or the appropriate subaccount of each Account.
1.8. The Fund shall make the dividends or capital gain distributions per
share payable on the Fund's shares available to the Company as soon as
reasonably practical after the dividends or capital gains are declared (normally
by 6:30 p.m. Eastern time) and shall use its best efforts to furnish same day
notice by 7:00 p.m. Eastern time (by wire or telephone, followed by written
confirmation) to the Company of any dividends or capital gain distributions per
share payable on the Fund's shares. The Company hereby elects to receive all
such dividends and capital gain distributions as are payable on the Portfolio
shares in additional shares of that Portfolio. The Company reserves the right
to revoke this election and to receive all such dividends and capital gain
distributions in cash. The Fund shall notify the Company of the number of
shares so issued as payment of such dividends and distributions.
1.9. The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated (normally by 6:30 p.m. Eastern time)
and shall use its best efforts to make such net asset value per share available
by 7:00 p.m. Eastern time. In the event that the Fund is unable to meet the
7:00 p.m. time stated immediately above, then the Fund shall provide the Company
with additional time to notify the Fund of purchase or redemption orders
pursuant to Sections 1.1 and 1.4, respectively, above. Such additional time
shall be equal to the additional time that the Fund takes to make the net asset
values available to the Company; provided, however, that notification must be
made by 10:15 a.m. Eastern time on the Business Day such order is to be executed
regardless of when the net asset value is made available.
1.10. If the Fund provides materially incorrect share net asset value
information through no fault of the Company, the Company, on behalf of the
Accounts, shall be entitled to an adjustment with respect to the Fund shares
purchased or redeemed to reflect the correct net asset value per share. The
determination of the materiality of any net asset value pricing error shall be
based on the SEC's recommended guidelines regarding such errors. The correction
of any such errors shall be made at the Company level and shall be made pursuant
to the SEC's recommended guidelines. Any material error in the calculation or
reporting of net asset value per share, dividend or capital gain information
shall be reported promptly upon discovery to the Company.
6
<PAGE>
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the interests of the Accounts
(the "Contracts") are or will be registered and will maintain the registration
under the 1933 Act and the regulations thereunder to the extent required by the
1933 Act; that the Contracts will be issued in compliance in all material
respects with all applicable federal and state laws and regulations. The
Company further represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it has legally and
validly established each Account prior to any issuance or sale thereof as a
segregated asset account under the insurance laws of the State of New York and
the regulations thereunder and has registered or, prior to any issuance or sale
of the Contracts, will register and will maintain the registration of each
Account as a unit investment trust in accordance with and to the extent required
by the provisions of the 1940 Act and the regulations thereunder to serve as a
segregated investment account for the Contracts. The Company shall amend its
registration statement for its contracts under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of its
Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and the regulations
thereunder to the extent required by the 1933 Act, duly authorized for issuance
in accordance with the laws of the State of Delaware and sold in compliance with
all applicable federal and state securities laws and regulations and that the
Fund is and shall remain registered under the 1940 Act and the regulations
thereunder to the extent required by the 1940 Act. The Fund shall amend the
registration statement for its shares under the 1933 Act and the 1940 Act from
time to time as required in order to effect the continuous offering of its
shares. The Fund shall register and qualify the shares for sale in accordance
with the laws of the various states only if and to the extent deemed advisable
by the Fund.
2.3 The Fund and the Adviser represent that the Fund is currently
qualified as a Regulated Investment Company under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), and that the Fund and the Adviser
(with respect to those Portfolios for which such Adviser acts as investment
adviser) will make every effort to maintain such qualification (under Subchapter
M or any successor or similar provision) and that the Fund or the appropriate
Adviser will notify the Company immediately upon having a reasonable basis for
believing that a Portfolio has ceased to so qualify or that a Portfolio might
not so qualify in the future.
2.4. The Company represents that each Account is and will continue to be a
"segregated account" under applicable provisions of the Code and that each
Contract is and will be treated as a "variable contract" under applicable
provisions of the Code and that it will make every effort to maintain such
treatments and that it will notify the Fund immediately upon having a reasonable
basis for believing that the Account or Contract has ceased to be so treated or
that they might not be so treated in the future.
7
<PAGE>
2.5. The Fund represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Fund
undertakes to have a board of directors, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states.
2.7. The Fund and the Adviser represent that the Fund is lawfully organized
and validly existing under the laws of Delaware and that the Fund does and will
comply in all material respects with the 1940 Act.
2.8. The Adviser and AGSI each represents and warrants that it is and shall
remain duly registered in all material respects under all applicable federal and
state securities laws and that it will perform its obligations for the Fund and
the Company in compliance in all material respects with the laws and regulations
of its state of domicile and any applicable state and federal securities laws
and regulations.
2.9. The Company represents and warrants that all of its trustees,
officers, employees, investment Adviser, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage, in an amount equal to the greater of $5 million or any
amount required by applicable federal or state law or regulation. The aforesaid
includes coverage for larceny and embezzlement is issued by a reputable bonding
company. The Company agrees to make all reasonable efforts to see that this
bond or another bond containing these provisions is always in effect, and agrees
to notify the Fund and the Underwriter in the event that such coverage no longer
applies.
ARTICLE III. PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS;
VOTING
3.1(a) The Fund or its designee shall provide the Company with as many
printed copies of the Fund's current prospectus, including the profile
prospectus, (the "Fund Prospectus") as the Company may reasonably request. If
requested by the Company, in lieu of providing printed copies of the Fund
Prospectus, the Fund shall provide camera-ready film or computer diskettes
containing the Fund Prospectus and such other assistance as is reasonably
necessary in order for the Company once each year (or more frequently if the
Fund Prospectus is amended during the year) to have the prospectus for the
Contracts (the "Contract Prospectus") and the Fund Prospectus printed together
in one document or separately. The Company may elect to print the Fund
Prospectus in combination with other fund companies' prospectuses. For purposes
hereof, any combined prospectus including the Fund Prospectus along with the
Contract Prospectus or prospectus of other fund companies shall be referred to
as a "Combined Prospectus." For purposes hereof, the term "Fund Portion of the
Combined Prospectus" shall refer to the percentage of the number of Fund
Prospectus pages in the Combined Prospectus in relation to the total number of
pages of the Combined Prospectus.
8
<PAGE>
3.1(b) The Fund shall provide the Company with as many printed copies of
the Fund's current statement of additional information (the "Fund SAI") as the
Company may reasonably request. If requested by the Company in lieu of
providing printed copies of the Fund SAI, the Fund shall provide camera-ready
film or computer diskettes containing the Fund SAI, and such other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the Fund SAI is amended during the year) to have the statement of
additional information for the Contracts (the "Contract SAI") and the Fund SAI
printed together or separately. The Company may also elect to print the Fund
SAI in combination with other fund companies' statements of additional
information. For purposes hereof, any combined statement of additional
information including the Fund SAI along with the Contract SAI or statement of
additional information of other fund companies shall be referred to as a
"Combined SAI." For purposes hereof, the term "Fund Portion of the Combined
SAI" shall refer to the percentage of the number of Fund SAI pages in the
Combined SAI in relation to the total number of pages of the Combined SAI.
3.1(c) The Fund shall provide the Company with as many printed copies of
the Fund's annual report and semi-annual report (collectively, the "Fund
Reports") as the Company may reasonably request. If requested by the Company in
lieu of providing printed copies of the Fund Reports, the Fund shall provide
camera-ready film or computer diskettes containing the Fund's Reports, and such
other assistance as is reasonably necessary in order for the Company once each
year to have the annual report and semi-annual report for the Contracts
(collectively, the "Contract Reports") and the Fund Reports printed together or
separately. The Company may also elect to print the Fund Reports in combination
with other fund companies' annual reports and semi-annual reports. For purposes
hereof, any combined annual reports and semi-annual reports including the Fund
Reports along with the Contract Reports or annual reports and semi-annual
reports of other fund companies shall be referred to as "Combined Reports."
For purposes hereof, the term "Fund Portion of the Combined Reports" shall refer
to the percentage of the number of Fund Reports pages in the Combined Reports in
relation to the total number or pages of the Combined Reports.
3.2 Expenses
3.2(a) Expenses Borne by Company. Except as otherwise provided in this
Section 3.2., all expenses of preparing, setting in type and printing and
distributing (i) Contract Prospectuses, Fund Prospectuses, and Combined
Prospectuses; (ii) Fund SAIs, Contract SAIs, and Combined SAIs; (iii) Fund
Reports, Contract Reports, and Combined Reports, and (iv) Contract proxy
material that the Company may require in sufficient quantity to be sent to
Contract owners, annuitants, or participants under Contracts (collectively, the
"Participants"), shall be the expense of the Company.
3.2(b) Expenses Borne by Fund
Fund Prospectuses
With respect to existing Participants, the Fund shall pay the cost of
setting in type, printing and distributing Fund Prospectuses made available by
the Company to such existing Participants in order to update disclosure as
required by the 1933 Act and/or the 1940 Act. With respect to existing
Participants, in the event the Company elects to prepare a Combined Prospectus,
the Fund shall pay the cost of setting in type, printing and distributing the
Fund Portion of the Combined Prospectus
9
<PAGE>
made available by the Company to its existing Participants in order to update
disclosure as required by the 1933 Act and/or the 1940 Act. In such event, the
Fund shall bear the cost of typesetting to provide the Fund Prospectus to the
Company in the format in which the Fund is accustomed to formatting prospectus.
Notwithstanding the foregoing, in no event shall the Fund pay for any such costs
that exceed by more than five (5) percent what the Fund would have paid to print
such documents. The Fund shall not pay any costs of typesetting, printing and
distributing the Fund Prospectus (or Combined Prospectus, if applicable) to
prospective Participants.
Fund SAIs, Fund Reports and Proxy Material
With respect to existing Participants, the Fund shall pay the cost of
setting in type and printing Fund SAIs, Fund Reports and Fund proxy material
made available by the Company to its existing Participants. With respect to
existing Participants, in the event the Company elects to prepare a Combined SAI
or Combined Reports, the Fund shall pay the cost of setting in type and printing
the Fund Portion of the Combined SAI or Combined Reports, respectively, made
available by the Company to its existing Participants. In such event, the Fund
shall bear the cost of typesetting to provide the Fund SAI or Fund Reports to
the Company in the format in which the Fund is accustomed to formatting
statements of additional information and annual and semi-annual reports.
Notwithstanding the foregoing, in no event shall the Fund pay for any such costs
that exceed by more than five (5) percent what the Fund would have paid to print
such documents. The Fund shall pay one half the cost of distributing Fund SAIs,
Fund Reports and Fund proxy statements and proxy-related material to such
existing Participants. The Fund shall pay the cost of distributing the Fund
Portion of the Combined SAIs and the Fund Portion of the Combined Reports to
existing Participants. The Fund shall not pay any costs of distributing Fund
SAIs, Combined SAIs, Fund Reports, Combined Reports or proxy statements or
proxy-related material to prospective Participants.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of typesetting, printing or distributing any of
the foregoing documents other than those actually distributed to existing
Participants.
The Fund shall pay no fee or other compensation to the Company under this
Agreement, except that if the Fund or any Portfolio adopts and implements a plan
pursuant to Rule 12b-1 to finance distribution expenses, then the Underwriter
may make payments to the Company or to AGSI if and in amounts agreed to by the
Underwriter in writing.
All expenses, including expenses to be borne by the Fund pursuant to
Section 3.2 hereof, incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed available by the Fund, in accordance with
applicable state laws prior to their sale. The Fund shall bear the expenses for
the cost of registration and qualification of the Fund's shares.
3.2(c) Expenses Borne by AGSI.
10
<PAGE>
Fund Prospectuses
With respect to prospective Participants, AGSI shall pay one half of the
cost of setting in type, printing and distributing Fund Prospectuses made
available by the Company as sales literature to such prospective Participants.
With respect to prospective Participants, in the event the Company elects to
prepare a Combined Prospectus, AGSI shall pay one half of the cost of printing
and distributing the Combined Prospectus made available by the Company to its
prospective Participants as sales literature. In such event, AGSI shall bear
the cost of typesetting to provide the Fund Prospectus to the Company in the
format in which the Fund is accustomed to formatting prospectuses.
Notwithstanding the foregoing, in no event shall AGSI pay for any such costs
that exceed by more than five (5) percent what AGSI would have paid to print
such documents.
Fund SAIs, Fund Reports and Proxy Material.
With respect to prospective Participants, AGSI shall pay one half of the
cost of setting in type and printing Fund SAIs, Fund Reports and Fund proxy
material made available by the Company to its prospective Participants as sales
literature. In the event the Company elects to prepare a Combined SAI or
Combined Reports, AGSI shall pay one half of the cost of printing the Combined
SAI or Combined Reports, respectively, made available by the Company to its
prospective Participants as sales literature. In such event, AGSI shall bear
the cost of typesetting to provide the Fund SAI and Fund Reports to the Company
in the format in which the Fund is accustomed to formatting statements of
additional information and annual and semi-annual reports. Notwithstanding the
foregoing, in no event shall AGSI pay for any such costs that exceed by more
than five (5) percent what AGSI would have paid to print such documents. AGSI
shall pay one half the cost of distributing Fund SAIs, Combined SAIs, Fund
Reports, Combined Reports, and Fund proxy material to such prospective
Participants as sales literature.
3.2(d) If the Company chooses to receive camera-ready film or computer
diskettes in lieu of receiving printed copies of the Fund Prospectus, Fund SAI
or Fund Reports, the Fund or its designee will be responsible for providing the
Fund Prospectus, Fund SAI or Fund Reports in the format in which it is
accustomed to formatting such documents, and, notwithstanding anything in
Sections 3.2(b) or 3.2(c), the Company shall bear the expense of adjusting or
changing the format to conform with any of its prospectuses or reports.
3.3. The Fund SAI shall be obtainable from the Fund, the Company or such
other person as the Fund may designate.
3.4. If and to the extent required by law the Company shall distribute all
proxy material furnished by the Fund to Participants to whom voting privileges
are required to be extended and shall:
(i) solicit voting instructions from Participants;
(ii) vote the Fund shares in accordance with instructions received from
Participants; and
(iii) vote Fund shares for which no instructions have been received in the
same proportion
11
<PAGE>
as Fund shares of such Portfolio for which instructions have been
received, so long as and to the extent that the SEC continues to
interpret the 1940 Act to require pass-through voting privileges for
variable contract owners. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the
extent permitted by law. The Fund and the Company shall follow the
procedures, and shall have the corresponding responsibilities, for the
handling of proxy and voting instruction solicitations, as set forth
in Schedule C attached hereto and incorporated herein by reference.
Participating Insurance Companies shall be responsible for ensuring
that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the standards
set forth on Schedule C, which standards will also be provided to the
other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings (except insofar as the Securities and Exchange Commission may
interpret Section 16 not to require such meetings) or comply with Section 16(c)
of the 1940 Act (although the Fund is not one of the trusts described in Section
16(c) of that Act) as well as with Sections 16(a) and, if and when applicable,
16(b). Further, the Fund will act in accordance with the Securities and
Exchange Commission's interpretation of the requirements of Section 16(a) with
respect to periodic elections of directors and with whatever rules the
Commission may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material
prepared by the Company, AGSI or any person contracting with the Company or AGSI
in which the Fund or the Adviser is named, at least ten Business Days prior to
its use. No such material shall be used if the Fund, the Adviser, or their
designee reasonably objects to such use within ten Business Days after receipt
of such material.
4.2. Neither the Company, AGSI nor any person contracting with the Company
or AGSI shall give any information or make any representations or statements on
behalf of the Fund or concerning the Fund in connection with the sale of the
Contracts other than the information or representations contained in the
registration statement or the Fund Prospectus, as such registration statement or
Fund Prospectus may be amended or supplemented from time to time, or in reports
or proxy statements for the Fund, or in sales literature or other promotional
material approved by the Fund or its designee, except with the permission of the
Fund.
4.3. The Fund or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material prepared by the Fund in which the Company or its
Account(s) are named at least ten Business Days prior to its use. No such
material shall be used if the Company or its designee reasonably objects to such
use within ten
12
<PAGE>
Business Days after receipt of such material.
4.4. Neither the Fund nor the Adviser shall give any information or make
any representations on behalf of the Company or concerning the Company, each
Account, or the Contracts, other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports or solicitations for voting instructions for
each Account which are in the public domain or approved by the Company for
distribution to Participants, or in sales literature or other promotional
material approved by the Company or its designee, except with the permission of
the Company.
4.5. The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, statements of additional information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the SEC or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the investment
in an Account or Contract contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, any of the following:
advertisements (such as material published, or designed for use in, a newspaper,
magazine, or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures, or other public media),
sales literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or employees, and registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials.
ARTICLE V. [RESERVED]
13
<PAGE>
ARTICLE VI. DIVERSIFICATION
6.1. The Adviser represents, as to the Portfolios for which it acts as
investment adviser, that it will use its best efforts at all times to comply
with Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event a Portfolio ceases to so qualify, the Adviser will
take all reasonable steps (a) to notify the Company of such breach and (b) to
adequately diversify the Portfolio so as to achieve compliance within the grace
period afforded by Regulation 817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract owners and variable life
insurance contract owners; or (f) a decision by a Participating Insurance
Company to disregard the voting instructions of Contract owners. The Board
shall promptly inform the Company if it determines that an irreconcilable
material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing material
irreconcilable conflicts of which it is aware to the Board. The Company will
assist the Board in carrying out its responsibilities under the Shared Funding
Exemptive Order, by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is
not limited to, an obligation by the Company to inform the Board whenever
contract owner voting instructions are disregarded.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested directors, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the Separate Accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance policy
owners, or variable Contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
Contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account. No charge
or penalty will be
14
<PAGE>
imposed as a result of such withdrawal. The Company agrees that it bears the
responsibility to take remedial action in the event of a Board determination of
an irreconcilable material conflict and the cost of such remedial action, and
these responsibilities will be carried out with a view only to the interests of
Contract owners.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
(at the Company's expense); provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. No charge or penalty will be imposed as a result of such
withdrawal. The Company agrees that it bears the responsibility to take remedial
action in the event of a Board determination of an irreconcilable material
conflict and the cost of such remedial action, and these responsibilities will
be carried out with a view only to the interests of Contract owners.
7.5. For purposes of Sections 7.3 and 7.4 of this Agreement, a majority of
the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 or 7.4 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict.
7.6. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable.
7.7 The Company and the Adviser shall at least annually submit to the
Board of the Fund such reports, materials or data as the Board may reasonably
request so that the Board may fully carry out the obligations imposed upon them
by the provisions hereof, and said reports, materials and data shall be
submitted more frequently if deemed appropriate by the Board. All reports
received by the Board of potential or existing conflicts, and all Board action
with regard to determining the existence of a conflict, notifying Participating
Insurance Companies of a conflict, and determining whether any proposed action
adequately remedies a conflict, shall be properly recorded in the minutes of the
Board or other appropriate records, and such minutes or other records shall be
made available to the SEC upon request.
15
<PAGE>
ARTICLE VIII. INDEMNIFICATION
8.1. Indemnification By The Company and AGSI
8.1(a) The Company and AGSI agree to indemnify and hold harmless the Fund
and each member of the Board and officers, and the Adviser and each director and
officer of the Adviser, and each person, if any, who controls the Fund or the
Adviser within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" and individually, "Indemnified Party," for purposes of
this Section 8.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Company or
AGSI) or litigation (including legal and other expenses), to which the
Indemnified Parties may become subject under any statute or regulation, at
common law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the sale
or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the registration
statement or prospectus for the Contracts or contained in the
Contracts or sales literature for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Company by or
on behalf of the Fund for use in the registration statement or
prospectus for the Contracts or in the Contracts or sales literature
(or any amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of any statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature of the Fund not
supplied by the Company or AGSI, or persons under its control and
other than statements or representations authorized by the Fund or the
Adviser) or unlawful conduct of the Company or AGSI or persons under
its control, with respect to the sale or distribution of the Contracts
or Fund shares; or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration
statement, prospectus, or sales literature of the Fund or any
amendment thereof or supplement thereto or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading if
such a statement or omission was made in reliance upon and in
conformity with information furnished to the Fund by or on behalf of
the Company or AGSI; or
16
<PAGE>
(iv) arise as a result of any failure by the Company or AGSI to provide the
services and furnish the materials under the terms of this Agreement;
or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Company or AGSI in this Agreement or arise
out of or result from any other material breach of this Agreement by
the Company or AGSI, as limited by and in accordance with the
provisions of Sections 8.1(b) and 8.1(c) hereof.
8.1(b). Neither the Company nor AGSI shall be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party as
such may arise from such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations or duties
under this Agreement.
8.1(c). Neither the Company nor AGSI shall be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Company or AGSI in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company or AGSI
of any such claim shall not relieve the Company or AGSI from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, the Company or AGSI shall be
entitled to participate, at its own expense, in the defense of such action. The
Company or AGSI also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from the
Company or AGSI to such Party of the Company's or AGSI's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses under
this Agreement for any legal or other expenses subsequently incurred by such
Party independently in connection with the defense thereof other than reasonable
costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company or AGSI
of the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund shares or the Contracts or the operation
of the Fund.
8.2 Indemnification by the Adviser
8.2(a). The Adviser agrees, with respect to each Portfolio that it
manages, to indemnify and hold harmless the Company and each of its directors
and officers and each person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties"
and individually, "Indemnified Party," for purposes of this Section 8.2) against
any and all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Adviser) or litigation (including
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as such losses,
17
<PAGE>
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements, result from the gross negligence, bad faith, willful misconduct of
the Adviser or any director, officer, employee or agent thereof, are related to
the operation of the Adviser or the Fund and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement
or prospectus or sales literature of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Adviser or
the Fund or the Underwriter by or on behalf of the Company for use in
the registration statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Portfolio shares; or
(ii) arise out of or as a result of any statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature for the
Contracts not supplied by the Adviser or persons under its control and
other than statements or representations authorized by the Company) or
unlawful conduct of the Adviser or persons under its control, with
respect to the sale or distribution of the Contracts or Portfolio
shares; or
(iii) arise out of or as a result of any untrue statement or alleged untrue
statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Contracts, or any
amendment thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statement or statements therein not
misleading, if such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the Adviser;
or
(iv) arise as a result of any failure by the Adviser to provide the
services and furnish the materials under the terms of this Agreement;
or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Adviser in this Agreement or arise out of
or result from any other material breach of this Agreement by the Fund
or the Adviser; including without limitation any failure by the Fund
or the Adviser to comply with the conditions of Article VI hereof.
8.2(b). The Adviser shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
18
<PAGE>
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement.
8.2(c). The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Adviser of any
such claim shall not relieve the Adviser from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Adviser will be entitled to participate, at
its own expense, in the defense thereof. The Adviser also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Adviser to such Party of the Adviser's election
to assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Adviser will not be
liable to such Party under this Agreement for any legal or other expenses
subsequently incurred by such Party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.2(d). The Company and AGSI agree promptly to notify the Adviser of the
commencement of any litigation or proceedings against it or any of its officers,
trustees or directors in connection with this Agreement, the issuance or sale of
the Contracts with respect to the operation of each Account, or the sale or
acquisition of shares of the Fund.
8.2(e). It is understood that these indemnities shall have no effect on
any other agreement or arrangement between the Fund and/or its series and the
Adviser.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
19
<PAGE>
(a) termination by any party for any reason upon six-months advance
written notice delivered to the other parties; or
(b) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio based upon the
Company's determination that shares of such Portfolio are not
reasonably available to meet the requirements of the Contracts.
Reasonable advance notice of election to terminate shall be
furnished by the Company, said termination to be effective ten
(10) days after receipt of notice unless the Fund makes available
a sufficient number of shares to reasonably meet the requirements
of the Account within said ten (10) day period; or
(c) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio in the event any of
the Portfolio's shares are not registered, issued or sold in
accordance with applicable state and/or federal law or such law
precludes the use of such shares as the underlying investment
medium of the Contracts issued or to be issued by the Company.
The terminating party shall give prompt notice to the other
parties of its decision to terminate; or
(d) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio in the event that
such Portfolio ceases to qualify as a Regulated Investment
Company under Subchapter M of the Code or under any successor or
similar provision, or if the Company or AGSI reasonably believes
that the Fund may fail to so qualify; or
(e) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio in the event that
such Portfolio fails to meet the diversification requirements
specified in Article VI hereof; or
(f) termination by either the Fund or the Adviser by written notice
to the Company if the Adviser or the Fund shall determine, in
its sole judgment exercised in good faith, that the Company, AGSI
and/or their affiliated companies has suffered a material adverse
change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject of
material adverse publicity, provided that the Fund or the Adviser
will give the Company sixty (60) days' advance written notice of
such determination of its intent to terminate this Agreement, and
provided further that after consideration of the actions taken by
the Company or AGSI and any other changes in circumstances since
the giving of such notice, the determination of the Fund or the
Adviser shall continue to apply on the 60th day since giving of
such notice, then such 60th day shall be the effective date of
termination; or
20
<PAGE>
(g) termination by the Company or AGSI by written notice to the Fund
and the Adviser, if the Company or AGSI shall determine, in its
sole judgment exercised in good faith, that either the Fund or
the Adviser (with respect to the appropriate Portfolio) has
suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement
or is the subject of material adverse publicity; provided that
the Company will give the Fund or the Adviser sixty (60) days'
advance written notice of such determination of its intent to
terminate this Agreement, and provided further that after
consideration of the actions taken by the Company and any other
changes in circumstances since the giving of such notice, the
determination of the Company or AGSI shall continue to apply on
the 60th day since giving of such notice, then such 60th day
shall be the effective date of termination; or
(h) termination by the Fund or the Adviser by written notice to the
Company, if the Company gives the Fund and the Adviser the
written notice specified in Section 2.4 hereof and at the time
such notice was given there was no notice of termination
outstanding under any other provision of this Agreement;
provided, however any termination under this Section 10.1(h)
shall be effective sixty (60) days after the notice specified in
Section 2.4 was given; or
(i) termination by any party upon the other party's breach of any
representation in Section 2 or any material provision of this
Agreement, which breach has not been cured to the satisfaction of
the terminating party within ten (10) days after written notice
of such breach is delivered to the Fund or the Company, as the
case may be; or
(j) termination by the Fund or the Adviser by written notice to the
Company in the event an Account or Contract is not registered or
sold in accordance with applicable federal or state law or
regulation, or the Company fails to provide pass-through voting
privileges as specified in Section 3.4.
10.2. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund shall at the option of the Company, continue to make
available additional shares of the Fund pursuant to the terms and conditions of
this Agreement, for all Contracts in effect on the effective date of termination
of this Agreement (hereinafter referred to as "Existing Contracts") unless such
further sale of Fund shares is proscribed by law, regulation or applicable
regulatory body, or unless the Fund determines that liquidation of the Fund
following termination of this Agreement is in the best interests of the Fund and
its shareholders. Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to direct reallocation of investments in the Fund,
redemption of investments in the Fund and/or investment in the Fund upon the
making of additional purchase payments under the Existing Contracts. The
parties agree that this Section 10.2 shall not apply to any terminations under
Article VII and the effect of such Article VII terminations shall be governed
21
<PAGE>
by Article VII of this Agreement.
10.3. The Company shall not redeem Fund shares attributable to the
Contracts (as distinct from Fund shares attributable to the Company's assets
held in the Account) except (i) as necessary to implement Contract Owner
initiated or approved transactions, or (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act.
Upon request, the Company will promptly furnish to the Fund the opinion of
counsel for the Company (which counsel shall be reasonably satisfactory to the
Fund and the Adviser) to the effect that any redemption pursuant to clause (ii)
above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts, the Company shall not prevent
Contract Owners from allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving the Fund or the appropriate
Adviser 90 days prior written notice of its intention to do so.
10.4. Notwithstanding any termination of this Agreement pursuant to
Article X hereof, all rights and obligations arising under Article VIII of this
Agreement shall survive.
ARTICLE XI. 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:
Royce Capital Fund
1414 Avenue of the Americas
New York, New York 10019
Attention: John E. Denneen
22
<PAGE>
IF TO ADVISER:
Royce & Associates, Inc,.
1414 Avenue of the Americas
New York, New York 10019
Attention: Howard J. Kashner, Esq.
IF TO THE COMPANY:
The United States Life Insurance Company
in the City of New York
125 Maiden Lane
New York, NY 10038-4992
Attention: Jane K. Rushton, Esq.
IF TO AGSI:
American General Securities Incorporated
2727 Allen Parkway
Houston, Texas 77019
Attention: F. Paul Kovach, Jr.
ARTICLE XII. FOREIGN TAX CREDITS
The Fund and the Adviser agree to consult with the Company concerning
whether any Portfolio of the Fund qualifies to provide a foreign tax credit
pursuant to Section 853 of the Code.
ARTICLE XIII. MISCELLANEOUS
13.1. All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
13.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
23
<PAGE>
13.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
13.5. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
13.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
13.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Adviser may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Adviser, if such assignee is duly licensed and registered to
perform the obligations of the Adviser under this Agreement.
13.9 The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles ("GAAP"), if any), as
soon as practical and in any event within 90 days after the end
of each fiscal year;
(b) the Company's June 30th quarterly statements (statutory) (and
GAAP, if any), as soon as practical and in any event within 45
days after the end of each semi-annual period:
(c) any financial statement, proxy statement, notice or report of the
Company sent to stockholders and/or policyholders, as soon as
practical after the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and financial
reports of the Company filed with the SEC or any state insurance
regulator, as soon as practical after the filing thereof;
24
<PAGE>
(e) any other public report submitted to the Company by independent
accountants in connection with any annual, interim or special
audit made by them of the books of the Company, as soon as
practical after the receipt thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed in its name and on its behalf by its duly authorized representative
hereto as of the date specified above.
THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK on behalf
of itself and each of its Accounts named in Schedule B hereto, as amended
from time to time.
By: /s/ LARRY M. ROBINSON
------------------------------
Name: Larry M. Robinson
Title: Vice President
AMERICAN GENERAL SECURITIES INCORPORATED
By: /s/ F. PAUL KOVACH, JR.
------------------------------
Name: F. Paul Kovach, Jr.
Title: President
ROYCE CAPITAL FUND
By: /s/ JOHN DIEDERICH
------------------------------
Name: John Diederich
Title: Vice President
ROYCE & ASSOCIATES, INC.
By: /s/ DAN O'BYRNE
------------------------------
Name:
Title:
25
<PAGE>
SCHEDULE A
PORTFOLIOS OF ROYCE CAPITAL FUND
AVAILABLE FOR PURCHASE BY
THE UNITED STATES LIFE INSURANCE COMPANY
IN THE CITY OF NEW YORK
UNDER THIS AGREEMENT
Royce Premier Portfolio
Royce Total Return Portfolio
26
<PAGE>
SCHEDULE B
SEPARATE ACCOUNTS AND CONTRACTS
<TABLE>
<CAPTION>
NAME OF SEPARATE ACCOUNT AND FORM NUMBERS AND NAMES OF CONTRACT FUNDED BY
DATE ESTABLISHED BY BOARD OF DIRECTORS SEPARATE ACCOUNT
<S> <C>
The United States Life Insurance Company Form No:
in the City of New York 98505N
Separate Account USL VA-R
Established: August 8, 1997 Name of Contract:
Select Reserve(SM) Flexible Payment Variable and Fixed
Individual Deferred Annuity
</TABLE>
27
<PAGE>
SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
1. The proxy proposals are given to the Company by the Fund as early as
possible before the date set by the Fund for the shareholder meeting to
enable the Company to consider and prepare for the solicitation of voting
instructions from owners of the Contracts and to facilitate the
establishment of tabulation procedures. At this time the Fund will inform
the Company of the Record, Mailing and Meeting dates. This will be done
verbally approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contract owner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in this Step #2. The Company will use its best efforts to call
in the number of Customers to the Fund , as soon as possible, but no later
than two weeks after the Record Date.
3. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Fund or its
affiliate must approve the Card before it is printed. Allow approximately
2-4 business days for printing information on the Cards. Information
commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund).
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
28
<PAGE>
4. During this time, the Fund will develop, produce and pay for the Notice of
Proxy and the Proxy Statement (one document). Printed and folded notices
and statements will be sent to Company for insertion into envelopes
(envelopes and return envelopes are provided and paid for by the Company).
Contents of envelope sent to Customers by the Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the Company
or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small, single
sheet of paper that requests Customers to vote as quickly as possible
and that their vote is important. One copy will be supplied by the
Fund.)
e. cover letter - optional, supplied by Company and reviewed and approved
in advance by the Fund.
5. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to the Fund.
6. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the Company
as the shareowner. (A 5-week period is recommended.) Solicitation
time is calculated as calendar days from (but not including,) the
meeting, counting backwards.
7. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by the Fund in the past.
8. Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For example, if the account registration is under "John A. Smith,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
29
<PAGE>
9. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter and a
new Card and return envelope. The mutilated or illegible Card is
disregarded and considered to be not received for purposes of vote
tabulation. Any Cards that have been "kicked out" (e.g. mutilated,
illegible) of the procedure are "hand verified," i.e., examined as to why
they did not complete the system. Any questions on those Cards are usually
remedied individually.
10. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
11. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated
in terms of a percentage and the number of shares.) The Fund must review
and approve tabulation format.
12. Final tabulation in shares is verbally given by the Company to the Fund on
the morning of the meeting not later than 10:00 a.m. Eastern time. The
Fund may request an earlier deadline if reasonable and if required to
calculate the vote in time for the meeting.
13. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
The Fund will provide a standard form for each Certification.
14. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Fund will be
permitted reasonable access to such Cards.
15. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
30
<PAGE>
Exhibit 3(b)(vii)
<PAGE>
PARTICIPATION AGREEMENT
AMONG
THE UNITED STATES LIFE INSURANCE COMPANY
IN THE CITY OF NEW YORK
AMERICAN GENERAL SECURITIES INCORPORATED
WRIGHT MANAGED BLUE CHIP SERIES TRUST
AND
WRIGHT INVESTORS' SERVICE, INC.
DATED AS OF
DECEMBER 1, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I. Fund Shares 4
ARTICLE II Representations and Warranties 7
ARTICLE III. Prospectuses, Reports to Shareholders
and Proxy Statements, Voting 8
ARTICLE IV. Sales Material and Information 13
ARTICLE V [Reserved] 14
ARTICLE VI. Diversification 14
ARTICLE VII. Potential Conflicts 14
ARTICLE VIII. Indemnification 16
ARTICLE IX. Applicable Law 19
ARTICLE X. Termination 20
ARTICLE XI. Notices 22
ARTICLE XII. Foreign Tax Credits 23
ARTICLE XIII. Miscellaneous 23
SCHEDULE A Portfolios of Wright Managed Blue Chip Series Trust 26
Available for Purchase by The United States
Life Insurance Company in the City of New York
SCHEDULE B Separate Accounts and Contracts 27
SCHEDULE C Proxy Voting Procedures 28
</TABLE>
<PAGE>
THIS PARTICIPATION AGREEMENT (the "Agreement"), made and entered into as of the
1st day of December, 1998, by and among THE UNITED STATES LIFE INSURANCE COMPANY
IN THE CITY OF NEW YORK (hereinafter the "Company"), a New York insurance
company, on its own behalf and on behalf of each separate account of the Company
set forth on Schedule B hereto as may be amended from time to time (each such
account hereinafter referred to as the "Account"); AMERICAN GENERAL SECURITIES
INCORPORATED ("AGSI"), a Texas corporation; WRIGHT MANAGED BLUE CHIP SERIES
TRUST (hereinafter the "Fund"), a Massachusetts business trust; and WRIGHT
INVESTORS' SERVICE, INC., a Connecticut corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as (i) the investment vehicle for separate
accounts established by insurance companies for individual and group life
insurance policies and annuity contracts with variable accumulation and/or pay-
out provisions (hereinafter referred to individually and/or collectively as
"Variable Insurance Products") and (ii) the investment vehicle for certain
qualified pension and retirement plans (hereinafter "Qualified Plans"); and
WHEREAS, insurance companies desiring to utilize the Fund as an investment
vehicle under their Variable Insurance Products are required to enter into a
participation agreement with the Fund and the Adviser (the "Participating
Insurance Companies"); and
WHEREAS, shares of the Fund are divided into several series of shares, each
representing the interest in a particular managed portfolio of securities and
other assets, any one or more of which may be made available for Variable
Insurance Products of Participating Insurance Companies; and
WHEREAS, the Fund intends to offer shares of the series set forth on Schedule A
(each such series hereinafter referred to as a "Portfolio"), as may be amended
from time to time by mutual agreement of the parties hereto, under this
Agreement to the Accounts of the Company; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated August 10, 1993, (File No. 811-7654), granting Participating
Insurance Companies and Variable Insurance Product separate accounts exemptions
from the provisions of Sections 9(a), 13(a), 15(a), and 15(b) of the Investment
Company Act of 1940, as amended (hereinafter the "1940 Act"), and Rules 6e-
2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to permit shares
of the Fund to be sold to and held by Variable Insurance Product separate
accounts of both affiliated and unaffiliated life insurance companies and
Qualified Plans (hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment company
under the 1940 Act and its shares are registered under the Securities Act of
1933, as amended (hereinafter the "1933 Act"); and
3
<PAGE>
WHEREAS, WRIGHT INVESTORS' SERVICE, INC., ("Wright") acts as the Fund's
investment adviser pursuant to an investment advisory contract, (the "Adviser"),
and furnishes the Fund with investment advice and management services; and
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state securities
laws; and
WHEREAS, the Adviser manages certain Portfolios of the Fund; and
WHEREAS, WRIGHT INVESTORS SERVICES DISTRIBUTORS, INC. (the "Underwriter") is
registered as a broker/dealer under the Securities Exchange Act of 1934, as
amended (hereinafter the "1934 Act"), is a member in good standing of the
National Association of Securities Dealers, Inc. (hereinafter "NASD") and serves
as principal underwriter of the shares of the Fund; and
WHEREAS, the Company has registered or will register certain Variable Insurance
Products under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated asset
account, established by resolution or under authority of the Board of Directors
of the Company, on the date shown for such Account on Schedule B hereto, to set
aside and invest assets attributable to the aforesaid Variable Insurance
Product; and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company intends to purchase shares in the Portfolios on behalf of each
Account to fund certain of the aforesaid Variable Insurance Products and the
Underwriter is authorized to sell such shares to each such Account at net asset
value; and
WHEREAS, AGSI serves as both the distributor and the principal underwriter of
the Variable Insurance Products that are set forth on Schedule B;
NOW, THEREFORE, in consideration of their mutual promises, the Company, AGSI,
the Fund and the Adviser agree as follows:
ARTICLE I. FUND SHARES
1.1. The Fund agrees to make available for purchase by the Company shares
of the Portfolios set forth on Schedule A and shall execute orders placed for
each Account on a daily basis at the net asset value next computed after receipt
by the Fund or its designee of such order. For purposes of this Section 1.1,
the Company shall be the designee of the Fund for receipt of such orders from
each Account and receipt by such designee shall constitute receipt by the Fund;
provided that the Fund
4
<PAGE>
receives notice of such order as soon as reasonably practical (normally by 10:00
a.m. Eastern time) on the next following Business Day. Notwithstanding the
foregoing, the Company shall use its best efforts to provide the Fund with
notice of such orders by 10:15 a.m. Eastern time on the next following Business
Day. "Business Day" shall mean any day on which the New York Stock Exchange is
open for trading and on which the Fund calculates the net asset value pursuant
to the rules of the SEC, as set forth in the Fund's Prospectus and Statement of
Additional Information. Notwithstanding the foregoing, the Board of Trustees of
the Fund (hereinafter the "Board") may refuse to permit the Fund to sell shares
of any Portfolio to any person, or suspend or terminate the offering of shares
of any Portfolio, if such action is required by law or by regulatory authorities
having jurisdiction or is, in the sole discretion of the Board acting in good
faith and in light of their fiduciary duties under federal and any applicable
state laws, necessary in the best interests of the shareholders of such
Portfolio.
1.2. The Fund agrees that shares of the Fund will be sold only to
Participating Insurance Companies and their Variable Insurance Products and to
certain Qualified Plans. No shares of any Portfolio will be sold to the general
public.
1.3. The Fund will not make its shares available for purchase by any
insurance company or separate account unless an agreement containing provisions
substantially the same as Sections 2.4, 2.9, 3.4 and Article VII of this
Agreement is in effect to govern such sales.
1.4. The Fund agrees to redeem for cash, on the Company's request, any
full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.4, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day in accordance with the
timing rules described in Section 1.1.
1.5. The Company agrees that purchases and redemptions of Portfolio shares
offered by the then current prospectus of the Fund shall be made in accordance
with the provisions of such prospectus. The Accounts of the Company, under
which amounts may be invested in the Fund, are listed on Schedule B attached
hereto and incorporated herein by reference, as such Schedule B may be amended
from time to time by mutual written agreement of all of the parties hereto. The
Company will give the Fund and the Adviser ninety (90) days written notice of
its intention to make available in the future, as a funding vehicle under the
Contracts, any other investment company.
1.6. The Company will place separate orders to purchase or redeem shares
of each Portfolio. Each order shall describe the net amount of shares and
dollar amount of each Portfolio to be purchased or redeemed. In the event of
net purchases, the Company shall pay for Portfolio shares on the next Business
Day after an order to purchase Portfolio shares is made in accordance with the
provisions of Section 1.1 hereof. Payment shall be in federal funds transmitted
by wire. In the event of net redemptions, the Portfolio shall pay the redemption
proceeds in federal funds transmitted by wire on the next Business Day after an
order to redeem a Portfolio's shares is made in accordance with the provision of
Section 1.4 hereof. Notwithstanding the foregoing, if the payment of
5
<PAGE>
redemption proceeds on the next Business Day would require the Portfolio to
dispose of securities or otherwise incur substantial additional costs, and if
the Portfolio has determined to settle redemption transactions for all
shareholders on a delayed basis, proceeds shall be wired to the Company within
seven (7) days and the Portfolio shall notify in writing the person designated
by the Company as the recipient for such notice of such delay by 3:00 p.m.
Eastern time on the same Business Day that the Company transmits the redemption
order to the Portfolio.
1.7. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.8. The Fund shall make the dividends or capital gain distributions
payable on the Fund's shares available to the Company as soon as reasonably
practical after the dividends or capital gains are calculated (normally by 6:30
p.m. Eastern time) and shall use its best efforts to furnish same day notice by
7:00 p.m. Eastern time (by wire or telephone, followed by written confirmation)
to the Company of any dividends or capital gain distributions payable on the
Fund's shares. The Company hereby elects to receive all such dividends and
capital gain distributions as are payable on the Portfolio shares in additional
shares of that Portfolio. The Company reserves the right to revoke this
election and to receive all such dividends and capital gain distributions in
cash. The Fund shall notify the Company of the number of shares so issued as
payment of such dividends and distributions.
1.9. The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated (normally by 6:30 p.m. Eastern time)
and shall use its best efforts to make such net asset value per share available
by 7:00 p.m. Eastern time. In the event that the Fund is unable to meet the
7:00 p.m. time stated immediately above, then the Fund shall provide the Company
with additional time to notify the Fund of purchase or redemption orders
pursuant to Sections 1.1 and 1.4, respectively, above. Such additional time
shall be equal to the additional time that the Fund takes to make the net asset
values available to the Company; provided, however, that notification must be
made by 10:15 a.m. Eastern time on the Business Day such order is to be executed
regardless of when the net asset value is made available.
1.10. If the Fund provides materially incorrect share net asset value
information through no fault of the Company, the Company shall be entitled to an
adjustment with respect to the Fund shares purchased or redeemed to reflect the
correct net asset value per share. The determination of the materiality of any
net asset value pricing error shall be based on the SEC's recommended guidelines
regarding such errors. The correction of any such errors shall be made at the
Company level and shall be made pursuant to the SEC's recommended guidelines.
Any material error in the calculation or reporting of net asset value per share,
dividend or capital gain information shall be reported promptly upon discovery
to the Company.
6
<PAGE>
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants that the interests of the
Accounts (the "Contracts") are or will be registered and will maintain the
registration under the 1933 Act and the regulations thereunder to the extent
required by the 1933 Act; that the Contracts will be issued in compliance in all
material respects with all applicable federal and state laws and regulations.
The Company further represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it has legally and
validly established each Account prior to any issuance or sale thereof as a
segregated asset account under the insurance laws of the State of New York and
the regulations thereunder and has registered or, prior to any issuance or sale
of the Contracts, will register and will maintain the registration of each
Account as a unit investment trust in accordance with and to the extent required
by the provisions of the 1940 Act and the regulations thereunder to serve as a
segregated investment account for the Contracts. The Company shall amend its
registration statement for its contracts under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of its
Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act and the regulations
thereunder to the extent required by the 1933 Act, duly authorized for issuance
in accordance with the laws of the Commonwealth of Massachusetts and sold in
compliance with all applicable federal and state securities laws and regulations
and that the Fund is and shall remain registered under the 1940 Act and the
regulations thereunder to the extent required by the 1940 Act. The Fund shall
amend the registration statement for its shares under the 1933 Act and the 1940
Act from time to time as required in order to effect the continuous offering of
its shares. The Fund shall register and qualify the shares for sale in
accordance with the laws of the various states only if and to the extent deemed
advisable by the Fund.
2.3. The Fund and the Adviser represent that each Portfolio of the Fund is
currently qualified as a Regulated Investment Company under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), and that the Fund and
the Adviser (with respect to those Portfolios for which such Adviser acts as
investment adviser) will make every effort to maintain such qualification (under
Subchapter M or any successor or similar provision) and that the Fund or the
appropriate Adviser will notify the Company immediately upon having a reasonable
basis for believing that a Portfolio has ceased to so qualify or that a
Portfolio might not so qualify in the future.
2.4. The Company represents that each Account is and will continue to be a
"segregated account" under applicable provisions of the Code and that each
Contract is and will be treated as a "variable contract" under applicable
provisions of the Code and that it will make every effort to maintain such
treatments and that it will notify the Fund immediately upon having a reasonable
basis for believing that the Account or Contract has ceased to be so treated or
that they might not be so treated in the future.
2.5. The Fund represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Fund
undertakes to have a board of trustees, a
7
<PAGE>
majority of whom are not interested persons of the Fund, formulate and approve
any plan under Rule 12b-1 to finance distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states.
2.7. The Fund and the Adviser represent that the Fund is lawfully
organized and validly existing under the laws of the Commonwealth of
Massachusetts and that the Fund does and will comply in all material respects
with the 1940 Act.
2.8. The Adviser and AGSI each represents and warrants that it is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and that it will perform its respective
obligations for the Fund and the Company in compliance in all material respects
with the laws and regulations of its state of domicile and any applicable state
and federal securities laws and regulations.
2.9. The Company represents and warrants that all of its trustees,
officers, employees, investment Adviser, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage, in an amount equal to the greater of $5 million or any
amount required by applicable federal or state law or regulation. The aforesaid
includes coverage for larceny and embezzlement is issued by a reputable bonding
company. The Company agrees to make all reasonable efforts to see that this
bond or another bond containing these provisions is always in effect, and agrees
to notify the Fund and the Underwriter in the event that such coverage no longer
applies.
ARTICLE III. PROSPECTUSES, REPORTS TO SHAREHOLDERS AND PROXY STATEMENTS, VOTING
3.1(a) The Fund or its designee shall provide the Company with as many
printed copies of the Fund's current prospectus, including the profile
prospectus, (the "Fund Prospectus") as the Company may reasonably request. If
requested by the Company, in lieu of providing printed copies of the Fund
Prospectus, the Fund shall provide camera-ready film or computer diskettes
containing the Fund Prospectus and such other assistance as is reasonably
necessary in order for the Company once each year (or more frequently if the
Fund Prospectus is amended during the year) to have the prospectus for the
Contracts (the "Contract Prospectus") and the Fund Prospectus printed together
in one document or separately. The Company may elect to print the Fund
Prospectus in combination with other fund companies' prospectuses. For purposes
hereof, any combined prospectus including the Fund Prospectus along with the
Contract Prospectus or prospectus of other fund companies shall be referred to
as a "Combined Prospectus." For purposes hereof, the term "Fund Portion of the
Combined Prospectus" shall refer to the percentage of the number of Fund
Prospectus pages in the Combined Prospectus in relation to the total number of
pages of the Combined Prospectus.
3.1(b) The Fund shall provide the Company with as many printed copies of
the Fund's current statement of additional information (the "Fund SAI") as the
Company may reasonably
8
<PAGE>
request. If requested by the Company in lieu of providing printed copies of the
Fund SAI, the Fund shall provide camera-ready film or computer diskettes
containing the Fund SAI, and such other assistance as is reasonably necessary in
order for the Company once each year (or more frequently if the Fund SAI is
amended during the year) to have the statement of additional information for the
Contracts (the "Contract SAI") and the Fund SAI printed together or separately.
The Company may also elect to print the Fund SAI in combination with other fund
companies' statements of additional information. For purposes hereof, any
combined statement of additional information including the Fund SAI along with
the Contract SAI or statement of additional information of other fund companies
shall be referred to as a "Combined SAI." For purposes hereof, the term "Fund
Portion of the Combined SAI" shall refer to the percentage of the number of Fund
SAI pages in the Combined SAI in relation to the total number of pages of the
Combined SAI.
3.1(c) The Fund shall provide the Company with as many printed copies of
the Fund's annual report and semi-annual report (collectively, the "Fund
Reports") as the Company may reasonably request. If requested by the Company in
lieu of providing printed copies of the Fund Reports, the Fund shall provide
camera-ready film or computer diskettes containing the Fund's Reports, and such
other assistance as is reasonably necessary in order for the Company once each
year to have the annual report and semi-annual report for the Contracts
(collectively, the "Contract Reports") and the Fund Reports printed together or
separately. The Company may also elect to print the Fund Reports in combination
with other fund companies' annual reports and semi-annual reports. For purposes
hereof, any combined annual reports and semi-annual reports including the Fund
Reports along with the Contract Reports or annual reports and semi-annual
reports of other fund companies shall be referred to as "Combined Reports." For
purposes hereof, the term "Fund Portion of the Combined Reports" shall refer to
the percentage of the number of Fund Reports pages in the Combined Reports in
relation to the total number or pages of the Combined Reports.
3.2 Expenses
3.2(a) Expenses Borne by Company. Except as otherwise provided in this
Section 3.2., all expenses of preparing, setting in type and printing and
distributing (i) Contract Prospectuses, Fund Prospectuses, and Combined
Prospectuses; (ii) Fund SAIs, Contract SAIs, and Combined SAIs; (iii) Fund
Reports, Contract Reports, and Combined Reports, and (iv) Contract proxy
material that the Company may require in sufficient quantity to be sent to
Contract owners, annuitants, or participants under Contracts (collectively, the
"Participants"), shall be the expense of the Company.
3.2(b) Expenses Borne by Fund
Fund Prospectuses
With respect to existing Participants, the Fund shall pay the cost of
setting in type, printing and distributing Fund Prospectuses made available by
the Company to such existing Participants in order to update disclosure as
required by the 1933 Act and/or the 1940 Act. With respect to existing
Participants, in the event the Company elects to prepare a Combined Prospectus,
the Fund shall pay the cost of setting in type, printing and distributing the
Fund Portion of the Combined Prospectus made available by the Company to its
existing Participants in order to update disclosure as required by the 1933 Act
and/or the 1940 Act. In such event, the Fund shall bear the cost of typesetting
to
9
<PAGE>
provide the Fund Prospectus to the Company in the format in which the Fund is
accustomed to formatting prospectuses. Notwithstanding the foregoing, in no
event shall the Fund pay for any such costs that exceed by more than five (5)
percent what the Fund would have paid to print such documents. The Fund shall
not pay any costs of typesetting, printing and distributing the Fund Prospectus
(or Combined Prospectus, if applicable) to prospective Participants.
Fund SAIs, Fund Reports and Proxy Material
With respect to Participants existing as of the date hereof, the Fund shall
pay the cost of setting in type and printing Fund SAIs, Fund Reports and Fund
proxy material made available by the Company to its existing Participants. With
respect to existing Participants, in the event the Company elects to prepare a
Combined SAI or Combined Reports, the Fund shall pay the cost of setting in type
and printing the Fund Portion of the Combined SAI or Combined Reports,
respectively, made available by the Company to its existing Participants. In
such event, the Fund shall bear the cost of typesetting to provide the Fund SAI
or Fund Reports to the Company in the format in which the Fund is accustomed to
formatting statements of additional information and annual and semi-annual
reports. Notwithstanding the foregoing, in no event shall the Fund pay for any
such costs that exceed by more than five (5) percent what the Fund would have
paid to print such documents. The Fund shall pay one half the cost of
distributing Fund SAIs, Fund Reports and Fund proxy statements and proxy-related
material to such existing Participants. The Fund shall pay the cost of
distributing the Fund Portion of the Combined SAIs and the Fund Portion of the
Combined Reports to existing Participants. The Fund shall not pay any costs of
distributing Fund SAIs, Combined SAIs, Fund Reports, Combined Reports or proxy
statements or proxy-related material to prospective Participants.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of typesetting, printing or distributing any of
the foregoing documents other than those actually distributed to existing
Participants.
The Fund shall pay no fee or other compensation to the Company under this
Agreement, except that if the Fund or any Portfolio adopts and implements a plan
pursuant to Rule 12b-1 to finance distribution expenses, then the Underwriter
may make payments to the Company or to AGSI if and in amounts agreed to by the
Underwriter in writing.
All expenses, including expenses to be borne by the Fund pursuant to
Section 3.2 hereof, incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed available by the Fund, in accordance with
applicable state laws prior to their sale. The Fund shall bear the expenses for
the cost of registration and qualification of the Fund's shares.
10
<PAGE>
3.2(c) Expenses Borne by AGSI.
Fund Prospectuses
With respect to prospective Participants, AGSI shall pay one half of the
cost of setting in type, printing and distributing Fund Prospectuses made
available by the Company as sales literature to such prospective Participants.
With respect to prospective Participants, in the event the Company elects to
prepare a Combined Prospectus, AGSI shall pay one half of the cost of printing
and distributing the Combined Prospectus made available by the Company to its
prospective Participants as sales literature. In such event, AGSI shall bear
the cost of typesetting to provide the Fund Prospectus to the Company in the
format in which the Fund is accustomed to formatting prospectuses.
Notwithstanding the foregoing, in no event shall AGSI pay for any such costs
that exceed by more than five (5) percent what AGSI would have paid to print
such documents.
Fund SAIs, Fund Reports and Proxy Material.
With respect to prospective Participants, AGSI shall pay one half of the
cost of setting in type and printing Fund SAIs, Fund Reports and Fund proxy
material made available by the Company to its prospective Participants as sales
literature. In the event the Company elects to prepare a Combined SAI or
Combined Reports, AGSI shall pay one half of the cost of printing the Combined
SAI or Combined Reports, respectively, made available by the Company to its
prospective Participants as sales literature. In such event, AGSI shall bear
the cost of typesetting to provide the Fund SAI and Fund Reports to the Company
in the format in which the Fund is accustomed to formatting statements of
additional information and annual and semi-annual reports. Notwithstanding the
foregoing, in no event shall AGSI pay for any such costs that exceed by more
than five (5) percent what AGSI would have paid to print such documents. AGSI
shall pay one half the cost of distributing Fund SAIs, Combined SAIs, Fund
Reports, Combined Reports, and Fund proxy material to such prospective
Participants as sales literature.
3.2(d) If the Company chooses to receive camera-ready film or computer
diskettes in lieu of receiving printed copies of the Fund Prospectus, Fund SAI
or Fund Reports, the Fund or its designee will be responsible for providing the
Fund Prospectus, Fund SAI or Fund Reports in the format in which it is
accustomed to formatting such documents, and, notwithstanding anything in
Sections 3.2(b) or 3.2(c), the Company shall bear the expense of adjusting or
changing the format to conform with any of its prospectuses or reports.
3.3. The Fund SAI shall be obtainable from the Fund, the Company or such
other person as the Fund may designate.
3.4. If and to the extent required by law the Company shall distribute all
proxy material furnished by the Fund to Participants to whom voting privileges
are required to be extended and shall:
11
<PAGE>
(I) solicit voting instructions from Participants;
(ii) vote the Fund shares in accordance with instructions received from
Participants; and
(iii) vote Fund shares for which no instructions have been received in the
same proportion as Fund shares of such Portfolio for which
instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners. The
Company reserves the right to vote Fund shares held in any segregated asset
account in its own right, to the extent permitted by law. The Fund and the
Company shall follow the procedures, and shall have the corresponding
responsibilities, for the handling of proxy and voting instruction
solicitations, as set forth in Schedule C attached hereto and incorporated
herein by reference. Participating Insurance Companies shall be responsible for
ensuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the standards set forth
on Schedule C, which standards will also be provided to the other Participating
Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings (except insofar as the Securities and Exchange Commission may
interpret Section 16 not to require such meetings) or comply with Section 16(c)
of the 1940 Act (although the Fund is not one of the trusts described in Section
16(c) of that Act) as well as with Sections 16(a) and, if and when applicable,
16(b). Further, the Fund will act in accordance with the Securities and
Exchange Commission's interpretation of the requirements of Section 16(a) with
respect to periodic elections of Trustees and with whatever rules the Commission
may promulgate with respect thereto.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material prepared by the Company, AGSI or any person contracting with the
Company or AGSI in which the Fund or the Adviser is named, at least ten Business
Days prior to its use. No such material shall be used if the Fund, the Adviser,
or their designee reasonably objects to such use within ten Business Days after
receipt of such material.
4.2. Neither the Company, AGSI nor any person contracting with the Company
or AGSI shall give any information or make any representations or statements on
behalf of the Fund or concerning the Fund in connection with the sale of the
Contracts other than the information or representations contained in the
registration statement or the Fund Prospectus, as such registration statement or
Fund Prospectus may be amended or supplemented from time to time, or in reports
or proxy statements for the Fund, or in sales literature or other promotional
material approved by the Fund or its designee, except with the permission of the
Fund.
12
<PAGE>
4.3. The Fund or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature or
other promotional material prepared by the Fund in which the Company or its
Account(s) are named at least ten Business Days prior to its use. No such
material shall be used if the Company or its designee reasonably objects to such
use within ten Business Days after receipt of such material.
4.4. Neither the Fund nor the Adviser shall give any information or make
any representations on behalf of the Company or concerning the Company, each
Account, or the Contracts, other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports or solicitations for voting instructions for
each Account which are in the public domain or approved by the Company for
distribution to Participants, or in sales literature or other promotional
material approved by the Company or its designee, except with the permission of
the Company.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the SEC or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, statements of additional information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the investment
in an Account or Contract contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following: advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, or other
public media), sales literature (i.e., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents or employees, and registration
statements, prospectuses, statements of additional information, shareholder
reports, and proxy materials.
ARTICLE V. [RESERVED]
13
<PAGE>
ARTICLE VI. DIVERSIFICATION
6.1. The Adviser represents, as to the Portfolios for which it acts as
investment adviser, that it will use its best efforts at all times to comply
with Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event a Portfolio ceases to so qualify, the Adviser will
take all reasonable steps (a) to notify the Company of such breach and (b) to
adequately diversify the Portfolio so as to achieve compliance within the grace
period afforded by Regulation 817-5.
ARTICLE VII. POTENTIAL CONFLICTS
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract owners and variable life
insurance contract owners; or (f) a decision by a Participating Insurance
Company to disregard the voting instructions of Contract owners. The Board
shall promptly inform the Company if it determines that an irreconcilable
material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing material
irreconcilable conflicts of which it is aware to the Board. The Company will
assist the Board in carrying out its responsibilities under the Shared Funding
Exemptive Order, by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is
not limited to, an obligation by the Company to inform the Board whenever
contract owner voting instructions are disregarded.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested Trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1)
withdrawing the assets allocable to some or all of the Separate Accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance policy
owners, or variable Contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
Contract owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account. No charge
or penalty will be imposed as a result of such withdrawal. The Company agrees
that it bears the responsibility to take remedial action in the event of a Board
determination of an irreconcilable material conflict and the
14
<PAGE>
cost of such remedial action, and these responsibilities will be carried out
with a view only to the interests of Contract owners.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
(at the Company's expense); provided, however that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. No charge or penalty will be imposed as a result of such
withdrawal. The Company agrees that it bears the responsibility to take
remedial action in the event of a Board determination of an irreconcilable
material conflict and the cost of such remedial action, and these
responsibilities will be carried out with a view only to the interests of
Contract owners.
7.5. For purposes of Sections 7.3 and 7.4 of this Agreement, a majority of
the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 or 7.4 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict.
7.6. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable.
7.7 The Company and the Adviser shall at least annually submit to the
Board of the Fund such reports, materials or data as the Board may reasonably
request so that the Board may fully carry out the obligations imposed upon them
by the provisions hereof, and said reports, materials and data shall be
submitted more frequently if deemed appropriate by the Board. All reports
received by the Board of potential or existing conflicts, and all Board action
with regard to determining the existence of a conflict, notifying Participating
Insurance Companies of a conflict, and determining whether any proposed action
adequately remedies a conflict, shall be properly recorded in the minutes of the
Board or other appropriate records, and such minutes or other records shall be
made available to the SEC upon request.
ARTICLE VIII. INDEMNIFICATION
8.1. Indemnification By The Company and AGSI
8.1(a) The Company and AGSI agree to indemnify and hold harmless the Fund
and each member of the Board and officers, and the Adviser and each director and
officer of the Adviser, and
15
<PAGE>
each person, if any, who controls the Fund or the Adviser within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified Parties" and
individually, "Indemnified Party," for purposes of this Section 8.1) against any
and all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Company or AGSI) or litigation
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the registration statement or
prospectus for the Contracts or contained in the Contracts or sales
literature for the Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished to the Company
by or on behalf of the Fund for use in the registration statement or
prospectus for the Contracts or in the Contracts or sales literature (or
any amendment or supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration statement,
prospectus or sales literature of the Fund not supplied by the Company or
AGSI, or persons under its control and other than statements or
representations authorized by the Fund or the Adviser) or unlawful conduct
of the Company or AGSI or persons under its control, with respect to the
sale or distribution of the Contracts or Fund shares; or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature of the Fund or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission was made
in reliance upon and in conformity with information furnished to the Fund
by or on behalf of the Company or AGSI;
(iv) arise as a result of any failure by the Company or AGSI to provide
the services and furnish the materials under the terms of this Agreement;
or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Company or AGSI in this Agreement or arise out
of or result from any other material breach of this Agreement by the
Company or AGSI, as limited by and in accordance with the provisions of
Sections 8.1(b) and 8.1(c) hereof.
8.1(b). Neither the Company nor AGSI shall be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an
16
<PAGE>
Indemnified Party as such may arise from such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations or duties under this Agreement.
8.1(c). Neither the Company nor AGSI shall be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Company or AGSI in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company or AGSI
of any such claim shall not relieve the Company or AGSI from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against any or all of the Indemnified Parties, the Company or
AGSI shall be entitled to participate, at its own expense, in the defense of
such action. The Company or AGSI also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the action. After
notice from the Company or AGSI to such Party of the Company's or AGSI's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Company and
AGSI shall not be liable to such Party under this Agreement for any legal or
other expenses subsequently incurred by such Party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company or AGSI
of the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund shares or the Contracts or the operation
of the Fund.
8.2. Indemnification by the Adviser
8.2(a). The Adviser agrees, with respect to each Portfolio that it manages,
to indemnify and hold harmless the Company and each of its Trustees and officers
and each person, if any, who controls the Company within the meaning of Section
15 of the 1933 Act (collectively, the "Indemnified Parties" and individually,
"Indemnified Party," for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Adviser) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements, result from the
gross negligence, bad faith, willful misconduct of the Adviser or any director,
officer, employee or agent thereof, are related to the operation of the Adviser
or the Fund and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement or
prospectus or sales literature of the Fund (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this
17
<PAGE>
agreement to indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished to the Adviser
or the Fund or the Underwriter by or on behalf of the Company for use in
the registration statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Portfolio shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration statement,
prospectus or sales literature for the Contracts not supplied by the
Adviser or persons under its control and other than statements or
representations authorized by the Company) or unlawful conduct of the
Adviser or persons under its control, with respect to the sale or
distribution of the Contracts or Portfolio shares; or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Contracts, or any amendment
thereof or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to the Company by
or on behalf of the Adviser; or
(iv) arise as a result of any failure by the Adviser to provide the
services and furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Adviser in this Agreement or arise out of or
result from any other material breach of this Agreement by the Fund or the
Adviser; including without limitation any failure by the Fund or the
Adviser to comply with the conditions of Article VI hereof.
8.2(b).The Adviser shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party as may arise from such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement.
8.2(c). The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Adviser of any
such claim shall not relieve the Adviser from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against any or all of the
18
<PAGE>
Indemnified Parties, the Adviser will be entitled to participate, at its own
expense, in the defense thereof. The Adviser also shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Adviser to such Party of the Adviser's election to assume
the defense thereof, the Indemnified Party shall bear the fees and expenses of
any additional counsel retained by it, and the Adviser will not be liable to
such Party under this Agreement for any legal or other expenses subsequently
incurred by such Party independently in connection with the defense thereof
other than reasonable costs of investigation.
8.2(d). The Company and AGSI agree promptly to notify the Adviser of the
commencement of any litigation or proceedings against it or any of its officers,
trustees or directors in connection with this Agreement, the issuance or sale of
the Contracts with respect to the operation of each Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Connecticut.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason upon six-months advance
written notice delivered to the other parties; or
(b) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio based upon the
Company's determination that shares of such Portfolio are not
reasonably available to meet the requirements of the Contracts.
Reasonable advance notice of election to terminate shall be
furnished by the Company, said termination to be effective ten
(10) days after receipt of notice unless the Fund makes available
a sufficient number of shares to reasonably meet the requirements
of the Account within said ten (10) day period; or
(c) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio in the event any of
the Portfolio's shares are not registered, issued or sold in
accordance with applicable state and/or federal law or such law
precludes the use of such shares as the underlying
19
<PAGE>
investment medium of the Contracts issued or to be issued by the
Company. The terminating party shall give prompt notice to the
other parties of its decision to terminate; or
(d) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio in the event that
such Portfolio ceases to qualify as a Regulated Investment
Company under Subchapter M of the Code or under any successor or
similar provision, or if the Company or AGSI reasonably believes
that the Fund may fail to so qualify; or
(e) termination by the Company or AGSI by written notice to the Fund
and the Adviser with respect to any Portfolio in the event that
such Portfolio fails to meet the diversification requirements
specified in Article VI hereof; or
(f) termination by either the Fund or the Adviser by written notice
to the Company if the Adviser or the Fund shall determine, in its
sole judgment exercised in good faith, that the Company, AGSI
and/or their affiliated companies has suffered a material adverse
change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject of
material adverse publicity, provided that the Fund or the Adviser
will give the Company sixty (60) days' advance written notice of
such determination of its intent to terminate this Agreement, and
provided further that after consideration of the actions taken by
the Company or AGSI and any other changes in circumstances since
the giving of such notice, the determination of the Fund or the
Adviser shall continue to apply on the 60th day since giving of
such notice, then such 60th day shall be the effective date of
termination; or
(g) termination by the Company or AGSI by written notice to the Fund
and the Adviser, if the Company or AGSI shall determine, in its
sole judgment exercised in good faith, that either the Fund or
the Adviser (with respect to the appropriate Portfolio) has
suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement
or is the subject of material adverse publicity; provided that
the Company will give the Fund or the Adviser sixty (60) days'
advance written notice of such determination of its intent to
terminate this Agreement, and provided further that after
consideration of the actions taken by the Company and any other
changes in circumstances since the giving of such notice, the
determination of the Company or AGSI shall continue to apply on
the 60th day since giving of such notice, then such 60th day
shall be the effective date of termination; or
20
<PAGE>
(h) termination by the Fund or the Adviser by written notice to the
Company, if the Company gives the Fund and the Adviser the
written notice specified in Section 2.4 hereof and at the time
such notice was given there was no notice of termination
outstanding under any other provision of this Agreement;
provided, however any termination under this Section 10.1(h)
shall be effective sixty (60) days after the notice specified in
Section 2.4 was given; or
(i) termination by any party upon the other party's breach of any
representation in Section 2 or any material provision of this
Agreement, which breach has not been cured to the satisfaction of
the terminating party within ten (10) days after written notice
of such breach is delivered to the Fund or the Company, as the
case may be; or
(j) termination by the Fund or the Adviser by written notice to the
Company in the event an Account or Contract is not registered or
sold in accordance with applicable federal or state law or
regulation, or the Company fails to provide pass-through voting
privileges as specified in Section 3.4.
10.2. EFFECT OF TERMINATION. Notwithstanding any termination of this
Agreement, the Fund shall at the option of the Company, continue to make
available additional shares of the Fund pursuant to the terms and conditions of
this Agreement, for all Contracts in effect on the effective date of termination
of this Agreement (hereinafter referred to as "Existing Contracts") unless such
further sale of Fund shares is proscribed by law, regulation or applicable
regulatory body, or unless the Fund determines that liquidation of the Fund
following termination of this Agreement is in the best interests of the Fund and
its shareholders. Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to direct reallocation of investments in the Fund,
redemption of investments in the Fund and/or investment in the Fund upon the
making of additional purchase payments under the Existing Contracts. The
parties agree that this Section 10.2 shall not apply to any terminations under
Article VII and the effect of such Article VII terminations shall be governed by
Article VII of this Agreement.
10.3. The Company shall not redeem Fund shares attributable to the
Contracts (as distinct from Fund shares attributable to the Company's assets
held in the Account) except (i) as necessary to implement Contract Owner
initiated or approved transactions, or (ii) as required by state and/or federal
laws or regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act.
Upon request, the Company will promptly furnish to the Fund the opinion of
counsel for the Company (which counsel shall be reasonably satisfactory to the
Fund and the Adviser) to the effect that any redemption pursuant to clause (ii)
above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts, the Company shall not prevent
Contract Owners from allocating payments to a Portfolio that was
21
<PAGE>
otherwise available under the Contracts without first giving the Fund or the
appropriate Adviser 90 days prior written notice of its intention to do so.
ARTICLE XI. 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: Wright Managed Blue Chip Series Trust
24 Federal Street
Boston, MA 02110
Attention: Peter M. Donovan
If to Adviser: Wright Investors Service, Inc.
1000 Lafayette Blvd.
Bridgeport, CT 06604
Attention: Peter M. Donovan
If to the Company: The United States Life Insurance Company
in the City of New York
125 Maiden Lane
New York, NY 10038-4992
Attention: Jane K. Rushton, Esq.
If to AGSI: American General Securities Incorporated
2727 Allen Parkway
Houston, Texas 77019
Attention: F. Paul Kovach, Jr.
ARTICLE XII. FOREIGN TAX CREDITS
The Fund and the Adviser agree to consult with the Company concerning
whether any Portfolio of the Fund qualifies to provide a foreign tax credit
pursuant to Section 853 of the Code.
ARTICLE XIII. MISCELLANEOUS
13.1. All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Board, nor its officers, agents or shareholders assume any personal liability
for obligations entered into on behalf of the Fund. No portfolio will be liable
for obligations arising out of an act or omission of any other portfolio under
this Agreement.
13.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other
22
<PAGE>
confidential information until such time as it may come into the public domain
without the express written consent of the affected party.
13.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
13.5. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
13.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
13.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
13.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Adviser may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Adviser, if such assignee is duly licensed and registered to
perform the obligations of the Adviser under this Agreement.
13.9 The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory accounting
principles) and annual report (prepared under generally accepted
accounting principles ("GAAP"), if any), as soon as practical and in
any event within 90 days after the end of each fiscal year;
(b) the Company's June 30th quarterly statements (statutory) (and GAAP, if
any), as soon as practical and in any event within 60 days after the
end of each semi-annual period:
(c) any financial statement, proxy statement, notice or report of the
Company sent to stockholders and/or policyholders, as soon as
practical after the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and financial reports of
the Company filed with the SEC or any state insurance regulator, as
soon as practical after the filing thereof; and
23
<PAGE>
(e) any other public report submitted to the Company by independent
accountants in connection with any annual, interim or special audit
made by them of the books of the Company, as soon as practical after
the receipt thereof.
13.10 It is agreed by the Parties hereto that Article VIII and Sections
13.1 and 13.2 shall survive any termination of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
hereto as of the date specified above.
THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK on
behalf of itself and each of its Accounts named in Schedule B hereto,
as amended from time to time.
By: __________________________________
Larry M. Robinson
Vice President
AMERICAN GENERAL SECURITIES INCORPORATED
By: __________________________________
Name: F. Paul Kovach, Jr.
Title: President
WRIGHT MANAGED BLUE CHIP SERIES TRUST
By: __________________________________
Name:
Title:
WRIGHT INVESTORS' SERVICE, INC.
By: __________________________________
Name:
Title:
24
<PAGE>
SCHEDULE A
PORTFOLIOS OF
WRIGHT MANAGED BLUE CHIP SERIES TRUST
AVAILABLE FOR PURCHASE BY
THE UNITED STATES LIFE INSURANCE COMPANY
UNDER THIS AGREEMENT
Wright International Blue Chip Portfolio
Wright Selected Blue Chip Portfolio
25
<PAGE>
SCHEDULE B
SEPARATE ACCOUNTS AND CONTRACTS
<TABLE>
<CAPTION>
NAME OF SEPARATE ACCOUNT AND FORM NUMBERS AND NAMES OF CONTRACT FUNDED BY
DATE ESTABLISHED BY BOARD OF DIRECTORS SEPARATE ACCOUNT
<S> <C>
The United States Life Insurance Company Form No:
in the City of New York 98505N
Separate Account USL VA-R
Established: August 8, 1997 Name of Contract:
Select Reserve(SM) Flexible Payment Variable and Fixed
Individual Deferred Annuity
</TABLE>
26
<PAGE>
SCHEDULE C
PROXY VOTING PROCEDURES
The following is a list of procedures and corresponding responsibilities for the
handling of proxies and voting instructions relating to the Fund. The defined
terms herein shall have the meanings assigned in the Participation Agreement
except that the term "Company" shall also include the department or third party
assigned by the Company to perform the steps delineated below.
1. The proxy proposals are given to the Company by the Fund as early as
possible before the date set by the Fund for the shareholder meeting to
enable the Company to consider and prepare for the solicitation of voting
instructions from owners of the Contracts and to facilitate the
establishment of tabulation procedures. At this time the Fund will inform
the Company of the Record, Mailing and Meeting dates. This will be done
verbally approximately two months before meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contract owner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in this Step #2. The Company will use its best efforts to call
in the number of Customers to the Fund , as soon as possible, but no later
than two weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of a proxy statement
or other voting instructions and solicitation material. The Fund will
provide at least one copy of the last Annual Report to the Company pursuant
to the terms of Section 3.3 of the Agreement to which this Schedule
relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Fund or its
affiliate must approve the Card before it is printed. Allow approximately
2-4 business days for printing information on the Cards. Information
commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund).
27
<PAGE>
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, the Fund will develop, produce and pay for the Notice of
Proxy and the Proxy Statement (one document). Printed and folded notices
and statements will be sent to Company for insertion into envelopes
(envelopes and return envelopes are provided and paid for by the Company).
Contents of envelope sent to Customers by the Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the Company
or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small, single
sheet of paper that requests Customers to vote as quickly as possible
and states that their vote is important. One copy will be supplied by
the Fund.)
e. cover letter - optional, supplied by Company and reviewed and approved
in advance by the Fund.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to the Fund.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the Company
as the shareowner. (A 5-week period is recommended.) Solicitation
time is calculated as calendar days from (but not including,) the
meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by the Fund in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For example, if the account registration is under "John A. Smith,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter and a
new Card and return envelope. The mutilated or illegible Card is
disregarded and considered to be not received for purposes of vote
tabulation. Any Cards that have been "kicked out" (e.g. mutilated,
illegible) of the
28
<PAGE>
procedure are "hand verified," i.e., examined as to why they did not
complete the system. Any questions on those Cards are usually remedied
individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated
in terms of a percentage and the number of shares.) The Fund must review
and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to the Fund on
the morning of the meeting not later than 10:00 a.m. Eastern time. The
Fund may request an earlier deadline if reasonable and if required to
calculate the vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
The Fund will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, the Fund will be
permitted reasonable access to such Cards.
16. All approvals and "signing-off' may be done orally, but must always be
followed up in writing.
29
<PAGE>
EXHIBIT 3(c)
<PAGE>
SELLING GROUP AGREEMENT
AMERICAN GENERAL SECURITIES INCORPORATED AND
THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK
This Selling Group Agreement ("Agreement") is made among American General
Securities Incorporated, a registered broker - dealer and the distributor for
the variable life insurance policies and/or annuity contracts or certificates
set forth in Schedule A ("Distributor"),
- - --------------------------------------------------------------------------------
("Selling Group Member")
- - --------------------------------------------------------------------------------
("Associated Agency")
and, as the fourth party, The United States Life Insurance Company in the City
of New York ("USL"). Distributor is a wholly-owned subsidiary of USL. Selling
Group Member is registered with the Securities and Exchange Commission ("SEC")
as a broker-dealer under the Securities Exchange Act of 1934 ("1934 Act") and
under any appropriate regulatory requirements of state law, and is a member in
good standing of the National Association of Securities Dealers, Inc. ("NASD"),
unless Selling Group Member is exempt from the broker-dealer registration
requirements of the 1934 Act. Unless exempt, Selling Group Member maintains a
level of qualification with the NASD appropriate to enable it to offer and sell
the products set forth in Schedule A. Selling Group Member is affiliated with
Associated Agency, which is properly licensed under the insurance laws of the
state(s) in which Selling Group Member will act under this Agreement.
This Agreement is for the purpose of providing for the distribution of certain
variable life insurance policies and/or annuity contracts or certificates set
forth in Schedule A and any successor or additional SEC registered insurance
products (as discussed in Part (1) "NEW PRODUCTS" of this Agreement) to be
issued by USL and distributed through Distributor through representatives who
are state insurance licensed and appointed agents of USL and associated with
Associated Agency and are also NASD registered representatives of Selling Group
Member ("Sales Persons"). The policies and/or annuity contracts or certificates
set forth in Schedule A, along with any successor or additional SEC registered
insurance products, are referred to collectively herein as the "Contracts".
In consideration of the mutual promises and covenants contained in this
Agreement, USL and Distributor appoint Selling Group Member and those persons
associated with Associated Agency who are NASD registered representatives of
Selling Group Member and state insurance licensed agents of USL to solicit and
procure applications for the Contracts. This appointment is not deemed to be
exclusive in any manner and only extends to those jurisdictions where the
Contracts have been approved for sale. Selling Group Member is authorized to
collect the first purchase payment or premium (collectively "Premiums") on the
Contracts and, unless Selling Group Member and USL have otherwise agreed, must
remit such premiums
<PAGE>
in full dollar amount to USL. Unless Selling Group Member and USL have otherwise
agreed, applications shall be taken only on preprinted application forms
supplied by USL. All completed applications and supporting documents are the
sole property of USL and must be promptly delivered to USL. All applications are
subject to acceptance by USL at its sole discretion.
(1) NEW PRODUCTS
USL and Distributor may propose, and USL may issue additional or successor
products, in which event Selling Group Member will be informed of the product
and its related concession schedule. If Selling Group Member does not agree to
distribute such product(s), it must notify Distributor in writing within 10 days
of receipt of the Concession Schedule for such product(s). If Selling Group
Member does not indicate disapproval of the new product(s) or the terms
contained in the related Concession Schedule, Selling Group Member will be
deemed to have thereby agreed to distribute such product(s) and agreed to the
related Concession Schedule which shall be attached to and made a part of this
Agreement.
(2) SALES PERSONS
Associated Agency is authorized to recommend Sales Persons for appointment by
USL to solicit sales of the Contracts. Associated Agency warrants that all such
Sales Persons shall not commence solicitation nor aid, directly or indirectly,
in the solicitation of any application for any Contract until that Sales Person
is appropriately licensed for such product under applicable insurance laws and
is a currently NASD registered representative of Selling Group Member.
Associated Agency shall be responsible for all fees required to obtain and/or
maintain any licenses or registrations required by state or federal law, for
Associated Agency and its Sales Persons. From time to time, USL will provide
Associated Agency and Selling Group Member with information regarding the
jurisdictions in which USL is authorized to solicit applications for the
Contracts and any limitations on the availability of such Contracts in any
jurisdiction.
(3) SALES MATERIAL
Associated Agency and Selling Group Member shall not utilize in their efforts to
market the Contracts, any written brochure, prospectus, descriptive literature,
printed and published material, audio-visual material or standard letters unless
such material has been provided preprinted by USL or Distributor or unless USL
and Distributor have provided written approval for the use of such literature.
In accordance with the requirements of the laws of the several states,
Associated Agency and Selling Group Member shall maintain complete records
indicating the manner and extent of distribution of any such solicitation
material, shall make such records and files available to staff of USL and/or
Distributor in field inspections and shall make such material available to
personnel of state insurance departments, the NASD or other regulatory agencies,
including the SEC, which have regulatory authority over USL or Distributor.
Associated Agency and Selling Group Member jointly and severally hold USL,
Distributor and their affiliates harmless from any liability arising from the
use of any material which either (a) has not been specifically approved in
writing by USL, or (b) although previously approved, has been disapproved by USL
or Distributor, in writing for further use.
2
<PAGE>
(4) PROSPECTUSES
Selling Group Member and Associated Agency warrant that solicitation for the
sale of SEC registered insurance products will be made by use of a currently
effective prospectus, that a prospectus will be delivered concurrently with each
sales presentation and that no statements shall be made to a client superseding
or controverting any statement made in the prospectus. USL and Distributor
shall furnish Selling Group Member and Associated Agency, at no cost to Selling
Group Member or Associated Agency, reasonable quantities of prospectuses to aid
in the solicitation of Contracts.
(5) SELLING GROUP MEMBER COMPLIANCE
Selling Group Member shall be solely responsible for the approval of suitability
determinations for the purchase of any Contract or the selection of any
investment option thereunder, in compliance with federal and state securities
laws and shall supervise Associated Agency and Sales Persons in determining
client suitability. Selling Group Member shall hold USL and Distributor
harmless from any financial claim resulting from improper suitability decisions.
Selling Group Member will fully comply with the requirements of the NASD and of
the 1934 Act and such other applicable federal and state laws and will establish
rules, procedures, and supervisory and inspection techniques necessary to
diligently supervise the activities of its NASD registered representatives who
are state insurance licensed agents or solicitors of USL, in connection with
offers and sales of the Contracts. Such supervision shall include providing, or
arranging for, initial and periodic training in knowledge of the Contracts.
Upon request by Distributor or USL, Selling Group Member will furnish
appropriate records as are necessary to establish diligent supervision and
client suitability.
Selling Group Member shall fully cooperate in any insurance or securities
regulatory examination, investigation, or proceeding or any judicial proceeding
with respect to USL, Distributor, Selling Group Member, and Associated Agency
and their respective affiliates, agents and representatives to the extent that
such examination, investigation, or proceeding arises in connection with the
Contracts. Selling Group Member shall immediately notify Distributor if its
broker-dealer registration or the registration of any of its Sales Persons is
revoked, suspended, or terminated.
(6) ASSOCIATED AGENCY AND SALES PERSON COMPLIANCE
Associated Agency will fully comply with the requirements of state insurance
laws and applicable federal laws and will establish rules and procedures
necessary to diligently supervise the activities of the Sales Persons. Upon
request by Distributor or USL, Selling Group Member will furnish appropriate
records as are necessary to establish such supervision. Associated Agency and
Sales Persons shall be responsible for making suitability determinations for
the purchase of any Contract or the selection of any investment option
thereunder, in compliance with federal and state securities laws.
Associated Agency shall fully cooperate in any insurance or securities
regulatory examination, investigation, or proceeding or any judicial proceeding
with respect to USL, Distributor, Selling Group Member, and Associated Agency
and their respective affiliates, agents and representatives to the extent that
such examination, investigation, or proceeding arises in connection with the
Contracts. Associated
3
<PAGE>
Agency shall immediately notify Distributor if its insurance license or the
license of any of its Sales Persons is revoked, suspended, or terminated.
(7) USL COMPLIANCE
USL represents that the prospectus(es) and registration statement(s) relating to
the Contracts contain no untrue statements of material fact or omission to state
a material fact, the omission of which makes any statement contained in the
prospectus and registration statement misleading. USL agrees to indemnify
Associated Agency and Selling Group Member from and against any claims,
liabilities and expenses which may be incurred by any of those parties under the
Securities Act of 1933, the 1934 Act, the Investment Company Act of 1940, common
law, or otherwise, and that arises out of a breach of this paragraph.
(8) COMPENSATION
USL will remit to Associated Agency compensation as set forth in Schedule B
hereto.
(9) CUSTOMER SERVICE, COMPLAINTS, AND INDEMNIFICATION
The parties agree that USL may contact by mail or otherwise, any client, agent,
account executive, or employee of Associated Agency or other individual acting
in a similar capacity if deemed appropriate by USL, in the course of normal
customer service for existing Contracts, in the investigation of complaints, or
as required by law. The parties agree to cooperate fully in the investigation
of any complaint.
Selling Group Member, Associated Agency, and Sales Persons agree to hold
harmless and indemnify Distributor and USL against any and all claims,
liabilities and expenses incurred by either Distributor or USL, and arising out
of or based upon any alleged or untrue statement of Selling Group Member,
Associated Agency or Sales Person other than statements contained in the
approved sales material for any Contract, or in the registration statement or
prospectus for any Contract.
USL hereby agrees to indemnify and hold harmless Selling Group Member and each
of its employees, controlling persons, officers or directors against any losses,
expenses (including reasonable attorneys' fees and court costs), damages or
liabilities to which Selling Group Member or such affiliates, controlling
persons, officers or directors become subject, under the Securities Act of 1933
or otherwise, insofar as such losses, expenses, damages or liabilities (or
actions in respect thereof) arise out of or are based upon USL's performance,
non-performance or breach of this Agreement, or are based upon any untrue
statement contained in, or material omission from, the prospectus for any of the
Contracts.
(10) FIDELITY BOND
Associated Agency represents that all directors, officers, employees and Sales
Persons of Associated Agency licensed pursuant to this Agreement or who have
access to funds of USL are and will continue to be covered by a blanket fidelity
bond including coverage for larceny, embezzlement and other defalcation, issued
by a reputable bonding company. This bond shall be maintained at Associated
Agency's expense.
4
<PAGE>
Such bond shall be at least equivalent to the minimal coverage required under
the NASD Rules of Fair Practice, and endorsed to extend coverage to life
insurance and annuity transactions. Associated Agency acknowledges that USL may
require evidence that such coverage is in force and Associated Agency shall
promptly give notice to USL of any notice of cancellation or change of coverage.
Associated Agency assigns any proceeds received from the fidelity bond company
to USL to the extent of USL's loss due to activities covered by the bond. If
there is any deficiency, Associated Agency will promptly pay USL that amount on
demand. Associated Agency indemnifies and holds harmless USL from any
deficiency and from the cost of collection.
(11) LIMITATIONS OF AUTHORITY
The Contract forms are the sole property of USL. No person other than USL has
the authority to make, alter or discharge any policy, Contract, certificate,
supplemental contract or form issued by USL. No party has the right to waive
any provision with respect to any Contract or policy; give or offer to give, on
behalf of USL, any tax or legal advice related to the purchase of a Contract or
policy; or make any settlement of any claim or bind USL or any of its affiliates
in any way. No person has the authority to enter into any proceeding in a court
of law or before a regulatory agency in the name of or on behalf of USL.
(12) ARBITRATION
The parties agree that any controversy between or among them arising out of
their business or pursuant to this Agreement that cannot be settled by agreement
shall be taken to arbitration as set forth herein. Such arbitration will be
conducted according to the securities arbitration rules then in effect, of the
American Arbitration Association, NASD, or any registered national securities
exchange. Arbitration may be initiated by serving or mailing a written notice.
The notice must specify which rules will apply to the arbitration. This
specification will be binding on all parties.
The arbitrators shall render a written opinion, specifying the factual and legal
bases for the award, with a view to effecting the intent of this Agreement. The
written opinion shall be signed by a majority of the arbitrators. In rendering
the written opinion, the arbitrators shall determine the rights and obligations
of the parties according the substantive and procedural laws of the State of
Texas. Accordingly, the written opinion of the arbitrators will be determined
by the rule of law and not by equity. The decision of the majority of the
arbitrators shall be final and binding on the parties and shall be enforced by
the courts in Texas.
(13) GENERAL PROVISIONS
(A) Waiver
Failure of any of the parties to promptly insist upon strict
compliance with any of the obligations of any other party under this
Agreement will not be deemed to constitute a waiver of the right to
enforce strict compliance.
5
<PAGE>
(B) Independent Contractors
Selling Group Member and Associated Agency are independent contractors
and not employees or subsidiaries of USL. AGSI is a wholly-owned
subsidiary of USL. Selling Group Member and Associated Agency are not
employees or subsidiaries of Distributor.
(C) Independent Assignment
No assignment of this Agreement or of commissions or other payments
under this Agreement shall be valid without prior written consent of
USL and Distributor.
(D) Notice
Any notice pursuant to this Agreement may be given electronically
(other than vocally by telephone) or by mail, postage paid,
transmitted to the last address communicated by the receiving party to
the other parties to this Agreement.
(E) Severability
To the extent this Agreement may be in conflict with any applicable
law or regulation, this Agreement shall be construed in a manner
consistent with such law or regulation. The invalidity or illegality
of any provisions of this Agreement shall not be deemed to affect the
validity or legality of any other provision of this Agreement.
(F) Amendment
This Agreement may be amended only in writing and signed by all
parties. No amendment will impair the right to receive commissions as
accrued with respect to Contracts issued and applications procured
prior to the amendment.
(G) Termination
This Agreement may be terminated by any party upon 30 days' prior
written notice. It may be terminated, for cause, by any party
immediately. Termination of this Agreement shall not impair the right
to receive commissions accrued with respect to applications procured
prior to the termination except as otherwise specifically provided in
Schedule B.
(H) TEXAS LAW
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS.
(I) This Agreement replaces and supersedes any other agreement or
understanding related to the Contracts, between or among the parties
to this Agreement.
6
<PAGE>
By signing below, the undersigned agree to have read and be bound by the terms
and conditions of this Agreement.
Date: ________________
Selling Group Member: ____________________________________________________
(BROKER-DEALER)
Address: ____________________________________________________
Signature: ____________________________________________________
Name & Title: ____________________________________________________
Associated Agency: ____________________________________________________
(PRIMARY INSURANCE AGENCY AFFILIATION)
Address: ____________________________________________________
Signature: ____________________________________________________
Name & Title: ____________________________________________________
American General Securities Incorporated
2727 Allen Parkway
Houston, Texas 77019
Signature: ____________________________________________________
Name & Title: ____________________________________________________
The United States Life Insurance Company in the City of New York
2727-A Allen Parkway
Houston Texas 77019
Signed By: ____________________________________________________
Name & Title ____________________________________________________
7
<PAGE>
SCHEDULE A - SELECT RESERVE VARIABLE ANNUITY
CONTROL DATE - JUNE 1, 1999
THE UNITED STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK
CONTRACTS COVERED BY THIS AGREEMENT
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Policy Registration Forms Separate
Contract Name Form Nos. and Numbers Account
- - ------------- -------- ------------------ ---------
FLEXIBLE PAYMENT VARIABLE
Annuity Certificates:
Select Reserve Certificate Form N-4 USL VA-R
Form No. 98505N Nos. 811-09007
333-63843
</TABLE>
<PAGE>
EXHIBIT (5)(a)(ii)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
COMPLETE AND RETURN TO: THE UNITED STATES LIFE INSURANCE COMPANY
Administrative Center In the City of New York ("USL")
P. O. Box Administrative Center: Houston, TX
Houston, TX VARIABLE ANNUITY CERTIFICATE APPLICATION SELECT RESERVE
(800) 246-1924
Fax: (713) 831-3701
Hearing Impaired: (888) 436-5257
INSTRUCTIONS: Please type or print in permanent black ink.
- - ------------------------------------------------------------------------------------------------------------------------------------
1. ANNUITANT | 2. CONTINGENT ANNUITANT (optional)
Name: __________________________________________________ | Name: _________________________________________________
Address: _______________________________________________ | Address: ______________________________________________
________________________________________________________ | _______________________________________________________
Phone: ________________ DOB: ______________ (Max Age 85) | Phone: ________________ DOB: ______________ (Max Age 85)
Sex: [_]M [_]F SS #: ________________________________ | Sex: [_]M [_]F SS #: ________________________________
- - ------------------------------------------------------------------------------------------------------------------------------------
3. OWNER (Complete only if different than Annuitant) | 4. JOINT OWNER (optional)
|
Name: __________________________________________________ | Name: _________________________________________________
Address: _______________________________________________ | Address: ______________________________________________
________________________________________________________ | _______________________________________________________
Phone: ________________ DOB: ______________ (Max Age 85) | Phone: ________________ DOB: ______________ (Max Age 85)
Sex: [_]M [_]F SS #: ________________________________ | Sex: [_]M [_]F SS #: ________________________________
- - ------------------------------------------------------------------------------------------------------------------------------------
5. BENEFICIARY DESIGNATION (if more space is needed, use Section 11 on page 2.)
_______________
PRIMARY (if more than one, indicate percentages) | SECONDARY (if more than one, indicate percentages)
NAME/RELATIONSHIP: | NAME/RELATIONSHIP:
|
|
- - ------------------------------------------------------------------------------------------------------------------------------------
6. PAYMENT INFORMATION (Please make checks payable to United States Life.)
Initial Purchase Payment $ ________________ If [_]1035X OR [_] Transfer then estimated amount: $ ______________
[_] Non-Qualified [_] Qualified: (Check appropriate boxes in A and B)
A. [_] Rollover [_] Transfer
B. Type of Plan: [_] IRA [_] SEP-IRA [_] 401(k) [_] Other _____________
If any portion of the initial purchase payment is allocated to a Fixed Account, refer to this section in the prospectus and to
your annuity certificate regarding eligibiity for an interest rate lock on 1035 Exchanges or other rollovers and transfers that
qualify for special tax treatment under the Internal Revenue Code.
- - ------------------------------------------------------------------------------------------------------------------------------------
7. INVESTMENT OPTIONS (Total allocation must equal 100%; use whole percentages.)
AMERICAN GENERAL SERIES PORTFOLIO COMPANY OFFITBANK VIF-Total Return (7) ------%
Money Market (13) ------% OFFITBANK VIF-U.S. Government Securities (8) ------%
HOTCHKIS AND WILEY VARIABLE TRUST ROYCE CAPITAL FUND
Equity Income VIP (1) ------% Royce Premier (9) ------%
Low Duration VIP (3) ------% Royce Total Return (10) ------%
LEVCO SERIES TRUST WRIGHT MANAGED BLUE CHIP SERIES TRUST
LEVCO Equity Value (2) ------% Wright International Blue Chip (11) ------%
NAVELLIER VARIABLE INSURANCE SERIES FUND, INC. Wright Selected Blue Chip (12) ------%
Navellier Growth (4) ------% OTHER ------%
OFFITBANK VARIABLE INSURANCE FUND, INC. ------% --------------------------------------------- ------%
OFFITBANK VIF-Emerging Markets (5) ------% FIXED ACCOUNT
OFFITBANK VIF-High Yield (6) ------% 1-Year Guarantee Period (20) ------%
- - ------------------------------------------------------------------------------------------------------------------------------------
8. DOLLAR COST AVERAGING
Dollar cost average: $______________ (per transfer) taken from the: [_] Money Market OR [_] 1-Year Guarantee Period.
Frequency: [_] Monthly [_] Quarterly [_] Semiannually [_] Annually
Duration: [_] 12 months [_] 24 months [_] 36 months to be allocated to the Variable Division(s) as indicated below.
AMERICAN GENERAL SERIES PORTFOLIO COMPANY OFFITBANK VIF-Total Return (7) $_______
Money Market (13) $________ OFFITBANK VIF-U.S. Government Securities (8) $_______
HOTCHKIS AND WILEY VARIABLE TRUST ROYCE CAPITAL FUND
Equity Income VIP (1) $________ Royce Premier (9) $_______
Low Duration VIP (3) $________ Royce Total Return (10) $_______
LEVCO SERIES TRUST WRIGHT MANAGED BLUE CHIP SERIES TRUST
LEVCO Equity Value (2) $________ Wright International Blue Chip (11) $_______
NAVELLIER VARIABLE INSURANCE SERIES FUND, INC. Wright Selected Blue Chip (12) $_______
Navellier Growth (4) $________ OTHER
OFFITBANK VARIABLE INSURANCE FUND, INC. _____________________________________________ $_______
OFFITBANK VIF-Emerging Markets (5) $________ _____________________________________________ $_______
OFFITBANK VIF-High Yield (6) $________ _____________________________________________ $_______
- - ------------------------------------------------------------------------------------------------------------------------------------
PAGE 1 OF 2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
9. AUTOMATIC REBALANCING ($25,000 minimum) Total allocation must equal 100%. Use whole percentages only.
[_] Check here for Automatic Rebalancing of investment, based on certificate anniversary, to the VARIABLE ALLOCATION ONLY
indicated below or then in effect.
FREQUENCY [_] Quarterly Semiannually [_] [_] Annually
AMERICAN GENERAL SERIES PORTFOLIO COMPANY OFFITBANK VIF-Total Return (7) ------%
Money Market (13) ------% OFFITBANK VIF-U.S. Government Securities (8) ------%
HOTCHKIS AND WILEY VARIABLE TRUST ROYCE CAPITAL FUND
Equity Income VIP (1) ------% Royce Premier (9) ------%
Low Duration VIP (3) ------% Royce Total Return (10) ------%
LEVCO SERIES TRUST WRIGHT MANAGED BLUE CHIP SERIES TRUST
LEVCO Equity Value (2) ------% Wright International Blue Chip (11) ------%
NAVELLIER VARIABLE INSURANCE SERIES FUND, INC. Wright Selected Blue Chip (12) ------%
Navellier Growth (4) ------% OTHER ------%
OFFITBANK VARIABLE INSURANCE FUND, INC. ------% --------------------------------------------- ------%
OFFITBANK VIF-Emerging Markets (5) ------% --------------------------------------------- ------%
OFFITBANK VIF-High Yield (6) ------%
- - ------------------------------------------------------------------------------------------------------------------------------------
10. REPLACEMENT Will the proposed variable annuity replace any existing annuity or insurance contract? [_] No [_] Yes
(If "yes," list company name, plan, and year of issue, and complete appropriate replacement documents.)
- - ------------------------------------------------------------------------------------------------------------------------------------
11. SPECIAL INSTRUCTIONS
- - ------------------------------------------------------------------------------------------------------------------------------------
12. SIGNATURES
All statements made in this application are true to the best of our knowledge and belief, and we agree to all terms and
conditions as shown.
We further agree that this application, if attached, shall be a part of the proposed annuity, and we verify our understanding
that ALL PAYMENTS AND VALUES PROVIDED BY THE PROPOSED ANNUITY, WHEN BASED ON INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE
VARIABLE, MAY INCREASE OR DECREASE, AND ARE NOT GUARANTEED AS TO THE DOLLAR AMOUNT.
We acknowledge receipt of the prospectuses for THE UNITED STATES LIFE Insurance Company in the City of New York Separate
Account USL VA-R and the summary prospectus for each of the investment options listed in Section 7 of this application. If this
application is for an IRA or a Simplified Employee Pension, we acknowledge receipt of the Individual Retirement Annuity
Disclosure Statement provided to us in conjunction with the current prospectus for Separate Account USL VA-R.
----------------------------------------------------------------------------------------------------------------------------
UNDER PENALTIES OF PERJURY, I CERTIFY: (1) THAT THE SOCIAL SECURITY (OR TAXPAYER IDENTIFICATION) NUMBER IS CORRECT AS IT
APPEARS IN THIS APPLICATION; AND (2) THAT I AM NOT SUBJECT TO BACKUP WITHHOLDING UNDER SECTION 3406 (a)(1)(C) of the
INTERNAL REVENUE CODE.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS
REQUIRED TO AVOID BACKUP WITHHOLDING.
----------------------------------------------------------------------------------------------------------------------------
Signed at _______________________________________________________________________ Date _______________________________
CITY STATE
X________________________________________________________ X_______________________________________________________
SIGNATURE OF ANNUITANT SIGNATURE OF OWNER (if different than Annuitant)
X________________________________________________________ X_______________________________________________________
SIGNATURE OF CONTINGENT ANNUITANT (if applicable) SIGNATURE OF JOINT OWNER (if applicable)
- - ------------------------------------------------------------------------------------------------------------------------------------
13. DEALER/LICENSED AGENT INFORMATION AND SIGNATURES
Licensed Agent: _________________________________________ _________________________________________________________
PRINT AGENT NAME AGENT NUMBER/LOCATION
_________________________________________
PHONE NUMBER
Will the proposed variable annuity replace any existing annuity or insurance contract? [_] NO [_] YES
The agent hereby certifies that all information contained in this application is true to the best of his/her knowledge and
belief.
X________________________________________________________ _________________________________________________________
SIGNATURE OF LICENSED AGENT PRINT NAME OF BROKER/DEALER
X________________________________________________________ __________________________________________________________
SIGNATURE OF LICENSED PRINCIPAL OF BROKER/DEALER ADDRESS OF BRANCH OFFICE
- - ------------------------------------------------------------------------------------------------------------------------------------
PAGE 2 OF 2
- - ------------------------------------------------------------------------------------------------------------------------------------
For Agent Use Only - Contact your Home Office for details. [_] Profile A [_] Profile B Once selected, Profile cannot
be changed on this contract.
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT (5)(b)
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Complete and return to: THE UNITED STATES LIFE Insurance Company
Adminstrative Center In the City of New York ("USL")
P.O. Box 1401 Administrative Center: Houston, TX
Houston, TX 77251-1401 SELECT RESERVE
(800) 246-1924 SERVICE REQUEST
Fax: (713) 831-3701
Hearing Impaired: (888) 436-5257
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
[X] CERTIFICATE 1.| CERTIFICATE #:______________________________________________ ANNUITANT:_______________________________
IDENTIFICATION |
| CERTIFICATE OWNER(S):__________________________________________________________________________________
(COMPLETE SECTIONS 1 & 13 |
FOR ALL REQUESTS.) | ADDRESS: ______________________________________________________________________________________________
|
INDICATE CHANGE OR | [ ] Check here if _____________________________________________________________________________________
REQUEST DESIRED BELOW. | change of address
| S.S. No. or Tax I.D. No.:________/________/__________ Phone Number: (___) ____ - ______
- - ------------------------------------------------------------------------------------------------------------------------------------
[ ] NAME 2.| [ ] Annuitant* [ ] Beneficiary* [ ] Owner(s)* (*DOES NOT CHANGE ANNUITANT, BENEFICIARY, OR
CHANGE | OWNERSHIP DESIGNATION.)
| ------------------------------------------------------------------------------------------------------
| FROM (FIRST, MIDDLE, LAST) TO (FIRST, MIDDLE, LAST)
|
| ------------------------------------------------------------------------------------------------------
| Reason: [ ] Marriage [ ] Divorce [ ] Correction [ ] Other (Attach copy of a certified court order.)
- - -----------------------------------------------------------------------------------------------------------------------------------
[ ] AUTOMATIC 3.| _______________ By initialing here, I authorize USL to collect $_______________ (min. $100),
ADDITIONAL | starting on: __________________________ by initiating electronic debit entries against my bank account
PURCHASE | MONTH/DAY
PAYMENT OPTION | with the following frequency:
| [ ] Monthly [ ] Quarterly [ ] Semiannually [ ] Annually (Attach voided check to Service Request.)
- - -----------------------------------------------------------------------------------------------------------------------------------
[ ] DOLLAR COST 4.| Dollar cost average [ ] $___________ OR [ ] ________% (whole % only) Begin Date:_______/_____/________
AVERAGING | Taken from the [ ] Money Market OR [ ] 1-Year Guarantee Period MM DD YY
| Frequency: [ ] Monthly [ ] Quarterly [ ] Semiannually [ ] Annually
| Duration: [ ] 12 months [ ] 24 months [ ] 36 months
| to be allocated to the following division(s) as indicated. (Use only dollars OR percentages.)
|
| American General Series Portfolio Company OFFITBANK VIF-High Yield (6) ______
| Money Market (13) __________ OFFITBANK VIF-Total Return (7) ______
| Hotchkis and Wiley Variable Trust OFFITBANK VIF-U.S. Government Securities (8)______
| Equity Income VIP (1) __________ Royce Capital Fund
| Low Duration VIP (3) __________ Royce Premier (9) ______
| LEVCO Series Trust Royce Total Return (10) ______
| LEVCO Equity Value (2) __________ Wright Managed Blue Chip Series Trust
| Navellier Variable Insurance Series Fund, Inc. Wright International Blue Chip (11) ______
| Navellier Growth (4) __________ Wright Selected Blue Chip (12) ______
| OFFITBANK Variable Insurance Fund, Inc. Other
| OFFITBANK VIF-Emerging Markets (5)__________ _________________________________________ ______
- - -----------------------------------------------------------------------------------------------------------------------------------
[ ] AUTOMATIC 5.| [ ] Add [ ] Stop automatic rebalancing.
REBALANCING | [ ] Change automatic rebalancing of variable investments to the percentage allocations indicated below:
($25,000 minimum) | [ ] Quarterly [ ] Semiannually [ ] Annually (frequency based on certificate anniversary)
|
USE WHOLE PERCENTAGES. | American General Series Portfolio Company OFFITBANK VIF-High Yield (6) _____%
TOTAL MUST EQUAL 100%. | Money Market (13) __________% OFFITBANK VIF-Total Return (7) _____%
| Hotchkis and Wiley Variable Trust OFFITBANK VIF-U.S. Government Securities (8)_____%
| Equity Income VIP (1) __________% Royce Capital Fund
| Low Duration VIP (3) __________% Royce Premier (9) _____%
| LEVCO Series Trust Royce Total Return (10) _____%
| LEVCO Equity Value (2) __________% Wright Managed Blue Chip Series Trust
| Navellier Variable Insurance Series Fund, Inc. Wright International Blue Chip (11) _____%
| Navellier Growth (4) __________% Wright Selected Blue Chip (12) _____%
| OFFITBANK Variable Insurance Funds, Inc. Other
| OFFITBANK VIF-Emerging Markets (5)__________% _________________________________________ _____%
| NOTE: Automatic rebalancing is only available for variable divisions. Automatic Rebalancing will not
| change allocation of future purchase payments.
- - -----------------------------------------------------------------------------------------------------------------------------------
[ ] CHANGE 6.| American General Series Portfolio Company OFFITBANK VIF-Total Return (7) _____%
ALLOCATION | Money Market (13) __________% OFFITBANK VIF-U.S. Government Securities (8)_____%
OF FUTURE | Hotchkis and Wiley Variable Trust Royce Capital Fund
PURCHASE | Equity Income VIP (1) __________% Royce Premier (9) _____%
PAYMENTS | Low Duration VIP (3) __________% Royce Total Return (10) _____%
| LEVCO Series Trust Wright Managed Blue Chip Series Trust
USE WHOLE PERCENTAGES. | LEVCO Equity Value (2) __________% Wright International Blue Chip (11) _____%
TOTAL MUST EQUAL 100%. | Navellier Variable Insurance Series Fund, Inc. Wright Selected Blue Chip (12) _____%
| Navellier Growth (4) __________% Other
| OFFITBANK Variable Insurance Funds, Inc. _________________________________________ _____%
| OFFITBANK VIF-Emerging Markets (5)__________% Fixed Account
| OFFITBANK VIF-High Yield (6) __________% 1-Year Guarantee Period (20) _____%
| NOTE: A change to the allocation of future purchase payments will not alter Automatic Rebalancing
| allocations.
- - -----------------------------------------------------------------------------------------------------------------------------------
PAGE 1 OF 2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
[ ] TRANSFER OF 7.| Indicate division number along with gross dollar or percentage amount. (Maintain $ or % consistency.)
ACCUMULATED |
VALUES | % or $_______ from Div. _______ to Div. ______ % or $_______ from Div. _______ to Div. ______
| % or $_______ from Div. _______ to Div. ______ % or $_______ from Div. _______ to Div. ______
| % or $_______ from Div. _______ to Div. ______ % or $_______ from Div. _______ to Div. ______
| NOTE: If a transfer is elected and Automatic Rebalancing is active for your certificate, you may want
| to consider changing the Automatic Rebalancing allocations (Section 5). Otherwise, the Automatic
| Rebalancing will transfer funds in accordance with instructions on file.
- - -----------------------------------------------------------------------------------------------------------------------------------
[ ] SYSTEMATIC 8.| Specified Dollar Amount $_________ Frequency: [ ] Monthly [ ] Quarterly [ ] Semiannually [ ] Annually
WITHDRAWAL |
(ALSO COMPLETE | To begin on _____/_____/______ (Date must be between the 5th and 24th of the month and at least
SECTIONS 11, 12 & 13.) | MM DD YY 30 days after issue date.)
($100 MINIMUM WITHDRAWAL) | Unless specified below, withdrawals will be taken from the divisions as they are currently allocated in
| your certificate.
PERCENTAGES (WHOLE % |
ONLY) MUST EQUAL 100%; OR | $ or %________ Div No. ________ $ or %________ Div No. ________ $ or %________ Div No. _________
DOLLARS MUST EQUAL TOTAL | $ or %________ Div No. ________ $ or %________ Div No. ________ $ or %________ Div No. _________
AMOUNT. | $ or %________ Div No. ________ $ or %________ Div No. ________ $ or %________ Div No. _________
- - -----------------------------------------------------------------------------------------------------------------------------------
[ ] REQUEST FOR 9.| Amount requested is to be ( ) net OR ( ) gross of applicable charges. Total Amount = $___________
PARTIAL |
WITHDRAWAL | $ or %________ Div No. ________ $ or %________ Div No. ________ $ or %________ Div No. _________
| $ or %________ Div No. ________ $ or %________ Div No. ________ $ or %________ Div No. _________
(ALSO COMPLETE | $ or %________ Div No. ________ $ or %________ Div No. ________ $ or %________ Div No. _________
SECTIONS 11, 12 & 13.) |
- - -----------------------------------------------------------------------------------------------------------------------------------
[ ] REQUEST FOR 10.| [ ] Certificate attached
FULL SURRENDER |
| [ ] I hereby declare that the certificate specified above has been lost, destroyed, or misplaced and
| request that the value of the certificate be paid. I agree to indemnify and hold harmless USL
(ALSO COMPLETE | against any claims which may be asserted on my behalf and on the behalf of my heirs, assignees,
SECTIONS 11, 12 & 13.) | legal representatives, or any other person claiming rights derived through me against USL on the
| basis of the certificate.
- - -----------------------------------------------------------------------------------------------------------------------------------
[ ] METHOD OF 11.| NOTE: If no method is indicated, check(s) will be mailed to the owner at the address of record.
DISTRIBUTION | Check one: [ ] Mail check to owner. [ ] Mail check to alternate address.
| [ ] Deposit funds directly to bank/firm.*
| (available only for systematic withdrawals)
|
| _______________________________________________________________________________________________________
| INDIVIDUAL OR BANK/FIRM
|
| ____________________________________________________ ___________________________________________
| ADDRESS CITY/STATE/ZIP
|
| ____________________________________________________ Type of account: [ ] Checking [ ] Savings
| IF BANK/FIRM, PROVIDE ACCOUNT NUMBER TO BE REFERENCED FOR DEPOSIT.
| * Enclose a voided check from account where funds are to be deposited. PLEASE DO NOT ENCLOSE A DEPOSIT
| SLIP.
- - -----------------------------------------------------------------------------------------------------------------------------------
[ ] NOTICE OF 12.| The taxable portion of the distribution you receive from your annuity certificate is subject to federal
WITHHOLDING | income tax withholding unless you elect not to have withholding apply. Withholding of state income tax
| may also be required by your state of residence. You may elect not to have withholding apply by
| checking the appropriate box below. If you elect not to have withholding apply to your distribution or
| if you do not have enough income tax withheld, you may be responsible for payment of estimated tax.
| You may incur penalties under the estimated tax rules if your withholding and estimated tax are not
| sufficient. If no election is made we are REQUIRED to withhold Federal Income Tax.
| Check one: [ ] I do NOT want income tax withheld from this distribution.
| [ ] I do want 10% or _________% income tax withheld from this distribution.
- - -----------------------------------------------------------------------------------------------------------------------------------
[X] AFFIRMATION/ 13.| CERTIFICATION: Under penalties of perjury, I certify (1) that the number shown on this form is my
SIGNATURE | correct taxpayer identification number and (2) that I am not subject to backup withholding under
COMPLETE THIS SECTION | Section 3406(a)(1)(C) of the Internal Revenue Code.
FOR ALL REQUESTS. |
| The Internal Revenue Service does not require your consent to any provision of this document other than
| the certification required to avoid backup withholding.
|
| _______________________________________ _________________________________________________________
| DATE SIGNATURE(S) OF OWNER(S)
- - -----------------------------------------------------------------------------------------------------------------------------------
PAGE 2 OF 2
</TABLE>
<PAGE>
EXHIBIT (5)(c)
<PAGE>
SELECT RESERVE VARIABLE ANNUITY
Enclosed is confirmation of the initial purchase payment applied
to your SELECT RESERVE variable annuity contract issued by
THE UNITED STATES LIFE Insurance Company In the City of New York.
The contract itself will be delivered to you in the very near
future.
We appreciate the confidence you have placed in THE UNITED STATES
LIFE Insurance Company In the City of New York and the SELECT
RESERVE product. Should you have any questions, please contact
your Investment Representative or the Administrative Center at
(800) 346-4944.
USL 8875-SR 0599
SELECT RESERVE VARIABLE ANNUITY
Enclosed is confirmation of the initial purchase payment applied
to your SELECT RESERVE variable annuity contract issued by
THE UNITED STATES LIFE Insurance Company In the City of New York.
The contract itself will be delivered to you in the very near
future.
We appreciate the confidence you have placed in THE UNITED STATES
LIFE Insurance Company In the City of New York and the SELECT
RESERVE product. Should you have any questions, please contact
your Investment Representative or the Administrative Center at
(800) 346-4944.
USL 8875-SR 0599
SELECT RESERVE VARIABLE ANNUITY
Enclosed is confirmation of the initial purchase payment applied
to your SELECT RESERVE variable annuity contract issued by
THE UNITED STATES LIFE Insurance Company In the City of New York.
The contract itself will be delivered to you in the very near
future.
We appreciate the confidence you have placed in THE UNITED STATES
LIFE Insurance Company In the City of New York and the SELECT
RESERVE product. Should you have any questions, please contact
your Investment Representative or the Administrative Center at
(800) 346-4944.
USL 8875-SR 0599
<PAGE>
EXHIBIT (5)(h)
<PAGE>
THE UNITED STATES LIFE Insurance Company
IN THE CITY OF NEW YORK ("USL")
Administrative Center: Houston, TX SELECT RESERVE
To Obtain a Statement of Additional Information, please complete the form
below and mail to:
THE UNITED STATES Life Insurance Company In the City of New York
Attn: Administrative Center
P.O. Box 1401
Houston, TX 77251-1401
Please send a Statement of Additional Information for the SELECT RESERVE
Variable Annuity to me at the following address:
____________________________________________
Name
____________________________________________
Address
____________________________________________
City/State Zip Code
USL8869 0599
<PAGE>
EXHIBIT 8(a)
<PAGE>
AGREEMENT
THIS AGREEMENT ("Agreement") made as of December 1, 1998, is by and between
HOTCHKIS AND WILEY, a division of the Capital Management Group of Merrill Lynch
Asset Management, L.P. ("Adviser") and THE UNITED STATES LIFE INSURANCE COMPANY
IN THE CITY OF NEW YORK, a New York corporation ("USL").
W I T N E S S E T H:
WHEREAS, each of the investment companies listed on Schedule One hereto
("Schedule One," as the same may be amended from time to time), is registered as
an open-end management investment company under the Investment Company Act of
1940, as amended (the "Act") (such investment companies are hereinafter called
the "Funds, whether one or more); and
WHEREAS, each of the Funds is available as the investment vehicle for certain
separate accounts of USL, established for variable life insurance policies
and/or variable annuity contracts offered by USL (the "Separate Account,"
whether one or more); and
WHEREAS, USL has entered into a participation agreement dated December 1, 1998
among USL, American General Securities Incorporated, Advisor and the Funds (the
"Participation Agreement," as the same may be amended from time to time); and
WHEREAS, Adviser provides, among other things, investment advisory and/or
administrative services to the Funds; and
WHEREAS, Princeton Funds Distributor, Inc (formerly known as Merrill Lynch Funds
Distributor Inc.) ("Distributor") is the distributor of the Funds; and
WHEREAS, Adviser desires USL to provide the administrative services specified in
the attached Exhibit A ("Administrative Services"), in connection with the
ownership of interests of the Separate Account, which is the owner of shares of
the Funds for the benefit of persons who maintain their ownership interests in
the Separate Account, whose interests are included in the master account
("Master Account") referred to in paragraph 1, of Exhibit A ("Shareholders"),
and USL is willing and able to provide such Administrative Services on the terms
and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter contained, each party hereto severally agrees as follows:
1. USL agrees to perform the Administrative Services specified in Exhibit A
hereto for the benefit of the Shareholders.
2. USL represents and agrees that it will maintain and preserve all records as
required by law to be maintained and preserved in connection with providing
the Administrative Services, and will otherwise comply with all laws, rules
and regulations applicable to the Administrative Services.
3. USL agrees to provide copies of all the historical records relating to
transactions between the
<PAGE>
Funds and Shareholders, and all written communications and other related
materials regarding the Fund(s) to or from such Shareholders, as reasonably
requested by Adviser or its representatives (which representatives, include,
without limitation, its auditors, legal counsel or the Distributor), to
enable Adviser or its representatives to monitor and review the
Administrative Services performed by USL, or comply with any request of the
board of directors, or trustees or general partners (collectively, the
"Directors") of any Fund, or of a governmental body, self-regulatory
organization or Shareholder.
In addition, USL agrees that it will permit Adviser, the Funds or their
representatives, to have reasonable access to its personnel and records in
order to facilitate the monitoring of the quality of the Administrative
Services.
4. USL may, with the prior consent of Adviser, contract with or establish
relationships with other parties for the provision of the Administrative
Services or other activities of USL required by this Agreement, or the
Participation Agreement, provided that USL shall be fully responsible for the
acts and omissions of such other parties.
5. USL hereby agrees to notify Adviser promptly if for any reason it is unable
to perform fully and promptly any of its obligations under this Agreement.
6. USL represents that it is not registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and it is not
required to be so registered, including as a result of entering into this
Agreement and performing the Administrative Services, and other obligations
of USL set forth in this Agreement.
7. The provisions of the Agreement shall in no way limit the authority of
Adviser, or any of the Funds or Distributor to take such action as any of
such parties may deem appropriate or advisable in connection with all matters
relating to the operations of any of such Funds and/or sale of its shares.
8. In consideration of the performance of Administrative Services by USL,
Adviser agrees to pay USL the following fees:
a. in connection with the Equity Income VIP Portfolio, Adviser shall pay USL
a monthly fee at an annual rate equal to (i) .15% of the first $20 Million
of the Fund's average daily net assets maintained in the Master Account
for the Shareholders; and (ii) .25% of the Fund's average daily net assets
maintained in the Master Account for the Shareholders in excess of $20
Million; and
b. in connection with the Low Duration VIP Portfolio, Adviser shall pay USL a
monthly fee at an annual rate equal to (i) .065% of the first $20 Million
of the Fund's average daily net assets maintained in the Master Account
for the Shareholders; and (ii) .07% of the Fund's average daily net assets
maintained in the Master Account for the Shareholders in excess of $20
Million.
The foregoing fee will be paid by Advisor on a calendar quarterly basis,
and in this regard, as soon as practicable after the end of each quarter,
USL will provide Adviser an invoice for the
2
<PAGE>
amount of the fee due for each Fund. Each invoice will be accompanied by a
statement showing in reasonable detail the calculation of the fees. Payments
are due within 60 days after receipt of the invoices. For the month in which
this Agreement becomes effective or terminates, the fee for the abbreviated
month will be pro-rated for the number of days in that month during which
this Agreement was in effect.
The determination of applicable assets shall be made by averaging the assets
of the applicable portfolios of the Funds maintained in the Master Account
for the Shareholders as of the last Business Day (as defined in the
Participation Agreement) of each month falling within the applicable
calendar quarter.
Notwithstanding anything in this Agreement or the Participation Agreement
appearing to the contrary, the payments by Adviser to USL relate solely to
the performance by USL of the Administrative Services described herein only,
and do not constitute payment in any manner for any investment advisory
services, or for costs associated with the distribution of any variable
annuity or variable life insurance contracts. The amount of administrative
expense payments made by Adviser to USL pursuant to this Agreement are not
intended to be, and shall not be deemed to be, determinative of Advisers
bonafide profits from serving as Adviser to the funds.
9. USL shall indemnify and hold harmless each of the Funds, Adviser and
Distributor and each of their respective officers, Directors, employees and
agents from and against any and all losses, claims, damages, expenses, or
liabilities that any one or more of them may incur including without
limitation reasonable attorneys' fees, expenses and costs arising out of or
related to the performance or non-performance by USL of the Administrative
Services under this Agreement.
10. This Agreement may be terminated without penalty at any time by USL or by
Adviser as to one or more of the Funds collectively, upon sixty days (60)
written notice to the other party. Notwithstanding the foregoing, the
provisions of paragraphs 2, 3, 9 and 11 of this Agreement, shall continue in
full force and effect after termination of this Agreement.
This Agreement shall not require USL to preserve any records (in any medium
or format) relating to this Agreement beyond the time periods otherwise
required by the laws to which USL or the Funds are subject provided that
such records shall be offered to the Funds in the event USL decides to no
longer preserve such records following such time periods.
11. After the date of any termination of this Agreement in accordance with
paragraph 10 of this Agreement, no fee will be due with respect to any
amounts first placed in the Master Account for the benefit of Shareholders
after the date of such termination. However, notwithstanding any such
termination, Adviser will remain obligated to pay USL the fee specified in
paragraph 8 of this Agreement, with respect to the value of each Fund's
average daily net assets maintained in the Master Account as of the date of
such termination, for so long as such amounts are held in the Master Account
and USL continues to provide the Administrative Services with respect to
such amounts in conformity with this Agreement.
3
<PAGE>
This Agreement, or any provision hereof, shall survive termination to the
extent necessary for each party to perform its obligations with respect to
amounts for which a fee continues to be due subsequent to such termination.
12. USL understands and agrees that the obligations of Adviser under this
Agreement are not binding upon any of the Funds, upon any of their Board
members or upon any shareholder of any of the Funds.
13. It is understood and agreed that in performing the services under this
Agreement USL, acting in its capacity described herein, shall at no time be
acting as an agent for Adviser, Distributor or any of the Funds. USL
agrees, and agrees to cause its agents, not to make any representations
concerning any of the Funds except those contained in the Funds' then-
current prospectus; in current sales literature furnished by the Funds,
Adviser or Distributor to USL; in the then current prospectus for a variable
annuity contract or variable life insurance policy issued by USL or then
current sales literature with respect to such variable annuity contract or
variable life insurance policy, approved by Adviser.
14. This Agreement, including the provisions set forth herein in paragraph 8,
may only be amended pursuant to a written instrument signed by the party to
be charged. This Agreement may not be assigned by a party hereto, by
operation of law or otherwise, without the prior written consent of the
other party.
15. This Agreement shall be governed by the laws of the State of California,
without giving effect to the principles of conflicts of law of such
jurisdiction.
16. This Agreement, including Exhibit A and Schedule One, constitutes the entire
agreement between the parties with respect to the matters dealt with herein
and supersedes any previous agreements and documents with respect to such
matters. The parties agree that Schedule One may be replaced from time to
time with a new Schedule One to accurately reflect any changes in the Funds
available as investment vehicles under the Participation Agreement.
17. All notices, requests, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered to:
a. Advisor, at: Hotchkis and Wiley
Attention: Turner Swan, Esq.
725 S. Figueroa St., Suite 4000
Los Angeles, California 90071
b. USL, at: The United States Life Insurance Company
in the City of New York
Attention: Jane Rushton, Esq.
125 Maiden Lane
New York, NY 10038-4992
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
THE UNITED STATES LIFE INSURANCE COMPANY
IN THE CITY OF NEW YORK
By: /s/ LARRY M. ROBINSON
----------------------------
Larry M. Robinson
Vice President
HOTCHKIS AND WILEY, A DIVISION OF
THE CAPITAL MANAGEMENT GROUP OF
MERRILL LYNCH ASSET MANAGEMENT, L.P.
By: /s/ NANCY D. CELICK
------------------------------
Name: Chief Admin. Officer
----------------------------
Title: 12/16/98
---------------------------
5
<PAGE>
SCHEDULE ONE
FUNDS: AVAILABLE PORTFOLIOS OF THE FUNDS:
- - ----- ---------------------------------
Hotchkis and Wiley Variable Trust Equity Income VIP Portfolio
Low Duration VIP Portfolio
6
<PAGE>
EXHIBIT A
Pursuant to the Agreement by and among the parties hereto, USL shall perform the
following Administrative Services:
1. Maintain separate records for each Shareholder, which records shall reflect
shares purchased and redeemed for the benefit of the Shareholder and share
balances held for the benefit of the Shareholder. USL shall maintain the
Master Account with the transfer agent of each of the Funds on behalf of
Shareholders and such Master Account shall be in the name of USL or its
nominee as the record owner of the shares held for such Shareholders.
2. For each of the Funds, disburse or credit to Shareholders all proceeds of
redemptions of shares of the Fund and all dividends and other distributions
not reinvested in shares of the Fund or paid to the Separate Account holding
the Shareholders' interests.
3. Prepare and transmit to Shareholders periodic account statements showing the
total number of shares held for the benefit of the Shareholder as of the
statement closing date (converted to interests in the Separate Account),
purchases and redemptions of Fund shares for the benefit of the Shareholder
during the period covered by the statement, and the dividends and other
distributions paid for the benefit of the Shareholder during the statement
period (whether paid in cash or reinvested in Fund shares).
4. Transmit to Shareholders proxy materials and reports and other information
received by USL from any of the Funds and required to be sent to Shareholders
under the federal securities laws and, upon request of any of the Funds'
transfer agent, transmit to Shareholders material Fund communications deemed
by the Fund, through its Board of Directors or other similar governing body,
to be necessary and proper for receipt by all Fund beneficial shareholders.
5. Transmit to each of the Funds' transfer agent purchase and redemption orders
on behalf of Shareholders.
6. Provide to the Funds, or to the transfer agent for any of the Funds, or any
of the agents designated by any of them, such periodic reports as shall
reasonably be concluded to be necessary to enable each of the Funds and the
Distributor to comply with any applicable State Blue Sky requirements.
7. When and if applicable, tax reporting and withholding for Shareholder
interest.
7
<PAGE>
EXHIBIT 8(b)
<PAGE>
AGREEMENT
THIS AGREEMENT ("Agreement") made as of December 1, 1998, is by and between JOHN
A. LEVIN & CO., a Delaware corporation ("Adviser") and THE UNITED STATES LIFE
INSURANCE COMPANY IN THE CITY OF NEW YORK, a New York corporation ("USL").
W I T N E S S E T H:
WHEREAS, each of the investment companies listed on Schedule One hereto
("Schedule One," as the same may be amended from time to time), is registered as
an open-end management investment company under the Investment Company Act of
1940, as amended (the "Act") (such investment companies are hereinafter
collectively called the "Funds," whether one or more); and
WHEREAS, each of the Funds is available as the investment vehicle for certain
separate accounts of USL, established for variable life insurance policies
and/or variable annuity contracts offered by USL (the "Separate Account,"
whether one or more); and
WHEREAS, USL has entered into a participation agreement dated December 1, 1998
among USL, American General Securities Incorporated, Advisor and the Funds (the
"Participation Agreement," as the same may be amended from time to time); and
WHEREAS, Adviser provides, among other things, investment advisory and/or
administrative services to the Funds; and
WHEREAS, LEVCO Securities, Inc. (the "Underwriter") is the underwriter of the
Funds; and
WHEREAS, Adviser desires USL to provide the administrative services specified in
the attached Exhibit A ("Administrative Services"), in connection with the
ownership of interests of the Separate Account, which is the owner of shares of
the Funds for the benefit of persons who are the holders of variable life
insurance policies or variable annuity contracts, and who have directed USL to
invest all or a portion of their interests in the Separate Account in shares of
the Funds and whose respective interests in shares owned by the Separate Account
are included in the master account ("Master Account") referred to in paragraph 1
of Exhibit A ("Shareholders"), and USL is willing and able to provide
Administrative Services on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter contained, each party hereto severally agrees as follows:
1. USL agrees to perform the Administrative Services for the benefit of the
Shareholders.
2. USL represents and agrees that it will maintain and preserve all records as
required by law to be maintained and preserved in connection with providing
the Administrative Services, and will otherwise comply with all laws, rules
and regulations applicable to the Administrative Services.
<PAGE>
3. USL agrees to provide copies of all the historical records relating to
transactions between the Funds and the Separate Account and relating to the
respective interests of Shareholders in shares of the Funds owned by the
Separate Account, and all written communications and other related materials
regarding the Funds which have been sent to or received from such
Shareholders, as reasonably requested by Adviser or its representatives
(which representatives, include, without limitation, its auditors, legal
counsel or the Underwriter), to enable Adviser or its representatives to
monitor and review the Administrative Services performed by USL, or comply
with any request of the board of directors, or trustees or general partners
(collectively, the "Directors") of any of the Funds, or of a governmental
body, self-regulatory organization or Shareholder.
In addition, USL agrees that it will permit Adviser, the Funds and their
representatives, to have reasonable access to its personnel and records in
order to facilitate the monitoring of the quality of the Administrative
Services.
4. USL may, with the consent of Adviser, contract with or establish
relationships with other parties for the provision of the Administrative
Services or other activities of USL required by this Agreement, or the
Participation Agreement, provided that USL shall be fully responsible for the
acts and omissions of such other parties.
5. USL hereby agrees to notify Adviser promptly if for any reason it is unable
to perform fully and promptly any of its obligations under this Agreement.
6. USL hereby represents and covenants that it does not, and will not, own or
hold or control with power to vote any shares of the Funds which are
registered in the name of USL or the name of its nominee and which are
maintained in USL variable annuity or variable life insurance accounts. USL
represents further that it is not registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and it is not
required to be so registered, including as a result of entering into this
Agreement and performing the Administrative Services, and other obligations
of USL set forth in this Agreement.
7. The provisions of the Agreement shall in no way limit the authority of
Adviser, or any of the Funds or Underwriter to take such action as any of
such parties may deem appropriate or advisable in connection with all matters
relating to the operations of any of such Funds and/or sale of its shares.
8. In consideration of the performance of Administrative Services by USL,
Adviser agrees to pay USL a monthly fee at an annual rate equal to (i) .11%
of the first $20 Million of the average monthly net assets of the Funds
maintained in the Master Account for Shareholders; and (ii) .25% of the
average monthly net assets of the Funds maintained in the Master Account for
Shareholders in excess of $20 Million. The foregoing fee will be paid by
Adviser to USL on a calendar quarterly basis, and in this regard, payment of
such fee will be made by Adviser to USL within thirty (30) days following the
end of each calendar quarter. The determination of applicable assets shall
be made by averaging the assets of the applicable portfolios of the Funds
maintained in the Master Account for Shareholders as of the last Business Day
(as defined in the Participation Agreement) of each month falling within the
applicable calendar quarter.
2
<PAGE>
Notwithstanding anything in this Agreement or the Participation Agreement
appearing to the contrary, the payments by Adviser to USL are being made
solely in consideration of USL providing Administrative Services as
described herein, and do not constitute payment in any manner for services
provided by USL to USL policy or contract owners, or to any separate
account organized by USL, or for any investment advisory services, or for
costs associated with the distribution of any variable annuity or variable
life insurance contracts.
9. USL shall indemnify and hold harmless each of the Funds, Adviser and
Underwriter and each of their respective officers, Directors, employees and
agents from and against any and all losses, claims, damages, expenses, or
liabilities that any one or more of them may incur including without
limitation reasonable attorneys' fees, expenses and costs arising out of or
related to the performance or non-performance by USL of the Administrative
Services under this Agreement.
10. This Agreement may be terminated without penalty at any time by USL or by
Adviser as to one or more of the Funds collectively, upon one hundred and
eighty days (180) written notice to the other party. Notwithstanding the
foregoing, the provisions of paragraphs 2, 3, 9 and 11 of this Agreement,
shall continue in full force and effect after termination of this
Agreement.
This Agreement shall not require USL to preserve any records (in any medium
or format) relating to this Agreement beyond the time periods otherwise
required by the laws to which USL or the Funds are subject provided that
such records shall be offered to the Funds in the event USL decides to no
longer preserve such records following such time periods.
11. After the date of any termination of this Agreement in accordance with
paragraph 10 of this Agreement, no fee will be due with respect to any
amounts first placed in the Master Account for the benefit of Shareholders
after the date of such termination or any earnings thereon. However,
notwithstanding any such termination, Adviser will remain obligated to pay
USL the fee specified in paragraph 8 of this Agreement, with respect to
that portion of the value of each of the Funds' average monthly net assets
reflected in the Master Account that is attributable to shares of the Fund
held by the Separate Account as of the date of such termination and all
earning thereon, for so long as USL continues to provide the Administrative
Services with respect to such holdings in conformity with this Agreement.
This Agreement and each provision hereof, shall survive termination so as
to govern the rights and obligations of each party with respect to the
holdings of shares of the Fund for which a fee continues to be due
subsequent to such termination and Administrative Services relating
thereto.
12. USL understands and agrees that the obligations of Adviser under this
Agreement are not binding upon any of the Funds, upon any of their Board
members or upon any shareholder of any of the Funds.
3
<PAGE>
13. It is understood and agreed that in performing the services under this
Agreement USL, acting in its capacity described herein, shall at no time
be acting as an agent for Adviser, Underwriter or any of the Funds. USL
agrees, and agrees to cause its agents, not to make any representations
concerning any of the Funds except those contained in the Funds' then-
current prospectuses; in current sales literature furnished by the Funds,
Adviser or Underwriter to USL; in the then current prospectus for a
variable annuity contract or variable life insurance policy issued by USL
or then current sales literature with respect to such variable annuity
contract or variable life insurance policy, approved by Adviser.
14. This Agreement, including the provisions set forth herein in paragraph 8,
may only be amended pursuant to a written instrument signed by the party
to be charged. This Agreement may not be assigned by either party hereto,
by operation of law or otherwise, without the prior written consent of the
other party.
15. This Agreement shall be governed by the laws of the State of Texas,
without giving effect to the principles of conflicts of law of such
jurisdiction.
16. This Agreement, including Exhibit A and Schedule One, constitutes the
entire agreement between the parties with respect to the matters dealt
with herein and supersedes any previous agreements and documents with
respect to such matters. The parties agree that Schedule One may be
replaced from time to time with a new Schedule One to accurately reflect
any changes in the Funds available as investment vehicles under the
Participation Agreement.
IN WITNESS HEREOF, the parties hereto have executed and delivered this Agreement
as of the date first above written.
THE UNITED STATES LIFE INSURANCE COMPANY
IN THE CITY OF NEW YORK
By: /s/ LARRY M. ROBINSON
---------------------------
Larry M. Robinson
Vice President
JOHN A. LEVIN & CO.
By: /S/ JOHN A. LEVIN
-------------------------
Name: John A. Levin
------------------------
Title: President
----------------------
4
<PAGE>
SCHEDULE ONE
FUNDS: AVAILABLE PORTFOLIOS OF THE FUNDS:
- - ----- ---------------------------------
LEVCO Series Trust LEVCO Equity Value Fund
5
<PAGE>
EXHIBIT A
Pursuant to the Agreement by and among the parties hereto, USL shall perform the
following Administrative Services:
1. Maintain separate records for each Shareholder, which records shall reflect
shares of the Funds purchased and redeemed by the Separate Account for the
benefit of the Shareholder and share balances held by the Separate Accounts
for the benefit of the Shareholder. USL shall maintain a master account with
the transfer agent of each of the Funds, which master account shall be in the
name of USL or its nominee as the record owner of the shares held for the
Separate Account (the "Master Account").
2. For each of the Funds, disburse or credit to the appropriate account or
accounts all proceeds of redemptions of shares of the Fund by the Separate
Account and all dividends and other distributions not reinvested by the
Separate Account in shares of the Fund.
3. Prepare and transmit to Shareholders periodic account statements showing the
total number of shares held by the Separate Account for the benefit of the
Shareholder as of the statement closing date (converted to interests in the
Separate Account), purchases and redemptions of Fund shares by the Separate
Account for the benefit of the Shareholder during the period covered by the
statement, and the dividends and other distributions paid to the Separate
Account for the benefit of the Shareholder during the statement period
(whether paid in cash or reinvested in Fund shares).
4. Transmit to Shareholders proxy materials and reports and other information
received by USL from any of the Funds and required to be sent to Shareholders
under the federal securities laws and, upon request of any of the Funds'
transfer agent, transmit to Shareholders material Fund communications deemed
by the Fund, through its Board of Directors or other similar governing body,
to be necessary and proper for receipt by all Fund beneficial shareholders.
5. Transmit to each of the Funds' transfer agent purchase and redemption orders
on behalf of the Separate Account.
6. Provide to the Funds, or to the transfer agent for any of the Funds, or any
of the agents designated by any of them, such periodic reports as shall
reasonably be concluded to be necessary to enable each of the Funds and its
Underwriter to comply with any applicable State Blue Sky requirements.
6
<PAGE>
EXHIBIT 8(c)
<PAGE>
AGREEMENT
THIS AGREEMENT ("Agreement") made as of December 1, 1998, is by and between
NAVELLIER & ASSOCIATES, a Nevada corporation ("Adviser") and THE UNITED STATES
LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK, a New York corporation ("USL").
W I T N E S S E T H:
WHEREAS, each of the investment companies listed on Schedule One hereto
("Schedule One," as the same may be amended from time to time), is registered as
an open-end management investment company under the Investment Company Act of
1940, as amended (the "Act") (such investment companies are hereinafter called
the "Funds," whether one or more); and
WHEREAS, each of the Funds is available as the investment vehicle for certain
separate accounts of USL, established for variable life insurance policies
and/or variable annuity contracts offered by USL (the "Separate Account,"
whether one or more); and
WHEREAS, USL has entered into a participation agreement dated as of December 1,
1998 among USL, American General Securities Incorporated, Advisor and the Funds
(the "Participation Agreement," as the same may be amended from time to time);
and
WHEREAS, Adviser provides, among other things, investment advisory and/or
administrative services to the Funds; and
WHEREAS, Navellier Securities Corp. (the "Underwriter") is the underwriter of
the Funds; and
WHEREAS, Adviser desires USL to provide the administrative services specified in
the attached Exhibit A ("Administrative Services"), in connection with the
ownership of interests of the Separate Account, which is the owner of shares of
the Funds for the benefit of persons who maintain their ownership interests in
the Separate Account, whose interests are included in the master account
("Master Account") referred to in paragraph 1, of Exhibit A ("Shareholders"),
and USL is willing and able to provide such Administrative Services on the terms
and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter contained, each party hereto severally agrees as follows:
1. USL agrees to perform the Administrative Services specified in Exhibit A
hereto for the benefit of the Shareholders.
2. USL represents and agrees that it will maintain and preserve all records as
required by law to be maintained and preserved in connection with providing
the Administrative Services, and will otherwise comply with all laws, rules
and regulations applicable to the Administrative Services.
<PAGE>
3. USL agrees to provide copies of all the historical records relating to
transactions between the Funds and Shareholders, and all written
communications and other related materials regarding the Funds to or from
such Shareholders, as reasonably requested by Adviser or its representatives
(which representatives, include, without limitation, its auditors, legal
counsel or the Underwriter), to enable Adviser or its representatives to
monitor and review the Administrative Services performed by USL, or comply
with any request of the board of directors, or trustees or general partners
(collectively, the "Directors") of any of the Funds, or of a governmental
body, self-regulatory organization or Shareholder.
In addition, USL agrees that it will permit Adviser, the Funds or their
representatives, to have reasonable access to its personnel and records in
order to facilitate the monitoring of the quality of the Administrative
Services.
4. USL may, with the consent of Adviser, contract with or establish
relationships with other parties for the provision of the Administrative
Services or other activities of USL required by this Agreement, or the
Participation Agreement, provided that USL shall be fully responsible for the
acts and omissions of such other parties.
5. USL hereby agrees to notify Adviser promptly if for any reason it is unable
to perform fully and promptly any of its obligations under this Agreement.
6. USL hereby represents and covenants that it does not, and will not, own or
hold or control with power to vote any shares of the Funds which are
registered in the name of USL or the name of its nominee and which are
maintained in USL variable annuity or variable life insurance accounts. USL
represents further that it is not registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and it is not
required to be so registered, including as a result of entering into this
Agreement and performing the Administrative Services, and other obligations
of USL set forth in this Agreement.
7. The provisions of the Agreement shall in no way limit the authority of
Adviser, or any or the Funds or Underwriter to take such action as any of
such parties may deem appropriate or advisable in connection with all matters
relating to the operations of any of such Funds and/or sale of its shares.
8. In consideration of the performance of the Administrative Services by USL,
Adviser agrees for as long as Adviser remains as investment adviser to the
Funds, to pay USL a monthly fee at an annual rate which shall equal .25% of
the value of the average daily net assets of the Funds maintained in the
Master Account for the Shareholders. The foregoing fee will be paid by
Adviser to USL on a calendar quarterly basis, and in this regard, payment of
such fee will be made by Adviser to USL within thirty (30) days following the
end of each calendar quarter. The determination of applicable assets shall
be made by averaging the daily net assets of the applicable portfolios of the
Funds maintained in the Master Account for the Shareholders as of the last
Business Day (as defined in the Participation Agreement) of each month
falling within the applicable calendar quarter.
2
<PAGE>
Notwithstanding anything in this Agreement or the Participation Agreement
appearing to the contrary, the payments by Adviser to USL relate solely to
the performance by USL of the Administrative Services described herein only,
and do not constitute payment in any manner for services provided by USL to
USL policy or contract owners, or to any separate account organized by USL,
or for any investment advisory services, or for costs associated with the
distribution of any variable annuity or variable life insurance contracts.
9. USL shall indemnify and hold harmless each of the Funds, Adviser and
Underwriter and each of their respective officers, Directors, employees and
agents from and against any and all losses, claims, damages, expenses, or
liabilities that any one or more of them may incur including without
limitation reasonable attorneys' fees, expenses and costs arising out of or
related to the performance or non-performance by USL of the Administrative
Services under this Agreement.
10. This Agreement may be terminated without penalty at any time by USL or by
Adviser as to one or more of the Funds collectively, upon ninety (90) days
written notice to the other party. Notwithstanding the foregoing, the
provisions of paragraphs 2, 3, 9 and 11 of this Agreement, shall continue in
full force and effect after termination of this Agreement.
This Agreement shall not require USL to preserve any records (in any medium
or format) relating to this Agreement beyond the time periods otherwise
required by the laws to which USL or the Funds are subject provided that
such records shall be offered to the Funds in the event USL decides to no
longer preserve such records following such time periods.
11. After the date of any termination of this Agreement in accordance with
paragraph 10 of this Agreement, no fee will be due with respect to any
amounts first placed in the Master Account for the benefit of Shareholders
after the date of such termination. However, notwithstanding any such
termination, Adviser will remain obligated to pay USL the fee specified in
paragraph 8 of this Agreement, with respect to the value of the average
daily net assets of each of the Funds maintained in the Master Account as of
the date of such termination, for so long as such amounts are held in the
Master Account, USL continues to provide the Administrative Services with
respect to such amounts in conformity with this Agreement and Advisor
remains as the investment advisor to the funds. This Agreement, or any
provision hereof, shall survive termination to the extent necessary for each
party to perform its obligations with respect to amounts for which a fee
continues to be due subsequent to such termination.
12. USL understands and agrees that the obligations of Adviser under this
Agreement are not binding upon any of the Funds, upon any of their Board
members or upon any shareholder of any of the Funds.
13. It is understood and agreed that in performing the services under this
Agreement USL, acting in its capacity described herein, shall at no time be
acting as an agent for Adviser, Underwriter or any of the Funds. USL
agrees, and agrees to cause its agents, not to make any representations
concerning any of the Funds except those contained in the Funds' then-
current prospectus; in
3
<PAGE>
current sales literature furnished by the Funds, Adviser or Underwriter to
USL; in the then current prospectus for a variable annuity contract or
variable life insurance policy issued by USL or then current sales
literature with respect to such variable annuity contract or variable life
insurance policy, approved by Adviser.
14. This Agreement, including the provisions set forth herein in paragraph 8,
may only be amended pursuant to a written instrument signed by the party to
be charged. This Agreement may not be assigned by a party hereto, by
operation of law or otherwise, without the prior written consent of the
other party.
15. This Agreement shall be governed by the laws of the State of Maryland.
16. This Agreement, including Exhibit A and Schedule One, constitutes the entire
agreement between the parties with respect to the matters dealt with herein
and supersedes any previous agreements and documents with respect to such
matters. The parties agree that Schedule One may be replaced from time to
time with a new Schedule One to accurately reflect any changes in the Funds
available as investment vehicles under the Participation Agreement.
IN WITNESS HEREOF, the parties hereto have executed and delivered this Agreement
as of the date first above written.
THE UNITED STATES LIFE INSURANCE COMPANY
IN THE CITY OF NEW YORK
By: /s/ LARRY M. ROBINSON
--------------------------
Name: Larry M. Robinson
Title: Vice President
NAVELLIER & ASSOCIATES, INC.
By: /s/ LOUIS NAVELLIER
--------------------------
Name: Louis Navellier
Title: President
4
<PAGE>
SCHEDULE ONE
FUNDS: AVAILABLE PORTFOLIOS OF THE FUNDS:
- - ----- ---------------------------------
Navellier Variable Insurance
Series Fund, Inc. Navellier Growth Portfolio
5
<PAGE>
EXHIBIT A
Pursuant to the Agreement by and among the parties hereto, USL shall perform the
following Administrative Services:
1. Maintain separate records for each Shareholder, which records shall reflect
shares purchased and redeemed for the benefit of the Shareholder and share
balances held for the benefit of the Shareholder. USL shall maintain the
Master Account with the transfer agent of each of the Funds on behalf of
Shareholders and such Master Account shall be in the name of USL or its
nominee as the record owner of the shares held for such Shareholders.
2. For each of the Funds, disburse or credit to Shareholders all proceeds of
redemptions of shares of the Fund and all dividends and other distributions
not reinvested in shares of the Fund or paid to the Separate Account holding
the Shareholders' interests.
3. Prepare and transmit to Shareholders periodic account statements showing the
total number of shares held for the benefit of the Shareholder as of the
statement closing date (converted to interests in the Separate Account),
purchases and redemptions of Fund shares for the benefit of the Shareholder
during the period covered by the statement, and the dividends and other
distributions paid for the benefit of the Shareholder during the statement
period (whether paid in cash or reinvested in Fund shares).
4. Transmit to Shareholders proxy materials and reports and other information
received by USL from any of the Funds and required to be sent to Shareholders
under the federal securities laws and, upon request of any of the Funds'
transfer agent, transmit to Shareholders material Fund communications deemed
by the Fund, through its Board of Directors or other similar governing body,
to be necessary and proper for receipt by all Fund beneficial shareholders.
5. Transmit to each of the Funds' transfer agent purchase and redemption orders
on behalf of Shareholders.
6. Provide to the Funds, or to the transfer agent for any of the Funds, or any
of the agents designated by any of them, such periodic reports as shall
reasonably be concluded to be necessary to enable each of the Funds and its
Underwriter to comply with any applicable State Blue Sky requirements.
6
<PAGE>
Exhibit 8(d)
<PAGE>
AGREEMENT
THIS AGREEMENT ("Agreement") made as of December 1, 1998, is by and between
OFFITBANK, a New York chartered trust company ("Adviser") and THE UNITED STATES
LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK, a New York corporation ("USL").
W I T N E S S E T H:
WHEREAS, each of the investment companies listed on Schedule One hereto
("Schedule One," as the same may be amended from time to time), is registered as
an open-end management investment company under the Investment Company Act of
1940, as amended (the "Act") (such investment companies are hereinafter called
the "Funds," whether one or more); and
WHEREAS, each of the Funds is available as the investment vehicle for certain
separate accounts of USL, established for variable life insurance policies
and/or variable annuity contracts offered by USL (the "Separate Account,"
whether one or more); and
WHEREAS, USL has entered into a participation agreement dated December 1, 1998
among USL, American General Securities Incorporated, Advisor, the Funds and
OFFIT Funds Distributor Inc. (the "Participation Agreement," as the same may be
amended from time to time); and
WHEREAS, Adviser provides, among other things, investment advisory and/or
administrative services to the Funds; and
WHEREAS, OFFIT Funds Distributor Inc. ("Distributor") is the distributor of the
Funds; and
WHEREAS, Adviser desires USL to provide the administrative services specified in
the attached Exhibit A ("Administrative Services"), in connection with the
ownership of interests of the Separate Account, which is the owner of shares of
the Funds for the benefit of persons who are the holders of variable life
insurance policies or variable annuity contracts, and who have directed USL to
invest all or a portion of their interests in the Separate Account in shares of
the Funds and whose respective interests in shares owned by the Separate Account
are included in the master account ("Master Account") referred to in paragraph 1
of Exhibit A ("Shareholders"), and USL is willing and able to provide
Administrative Services on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter contained, each party hereto severally agrees as follows:
1. USL agrees to perform the Administrative Services for the benefit of the
Shareholders.
2. USL represents and agrees that it will maintain and preserve all records as
required by law to be maintained and preserved in connection with providing
the Administrative Services, and will otherwise comply with all laws, rules
and regulations applicable to the Administrative Services.
<PAGE>
3. USL agrees to provide copies of all the historical records relating to
transactions between the Funds and the Separate Account and relating to the
respective interests of Shareholders in shares of the Funds owned by the
Separate Account, and all written communications and other related materials
regarding the Funds which have been sent to or received from such
Shareholders, as reasonably requested by Adviser or its representatives
(which representatives, include, without limitation, its auditors, legal
counsel or the Underwriter), to enable Adviser or its representatives to
monitor and review the Administrative Services performed by USL, or comply
with any request of the board of directors, or trustees or general partners
(collectively, the "Directors") of any of the Funds, or of a governmental
body, self-regulatory organization or Shareholder.
In addition, USL agrees that it will permit Adviser, the Funds and their
representatives, to have reasonable access to its personnel and records in
order to facilitate the monitoring of the quality of the Administrative
Services.
4. USL may, with the consent of Adviser, contract with or establish
relationships with other parties for the provision of the Administrative
Services or other activities of USL required by this Agreement, or the
Participation Agreement, provided that USL shall be fully responsible for the
acts and omissions of such other parties.
5. USL hereby agrees to notify Adviser promptly if for any reason it is unable
to perform fully and promptly any of its obligations under this Agreement.
6. USL hereby represents and covenants that it does not, and will not, own or
hold or control with power to vote any shares of the Funds which are
registered in the name of USL or the name of its nominee and which are
maintained in USL variable annuity or variable life insurance accounts. USL
represents further that it is not registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and it is not
required to be so registered, including as a result of entering into this
Agreement and performing the Administrative Services, and other obligations
of USL set forth in this Agreement.
7. The provisions of the Agreement shall in no way limit the authority of
Adviser, or any of the Funds or Distributor to take such action as any of
such parties may deem appropriate or advisable in connection with all matters
relating to the operations of any of such Funds and/or sale of its shares.
8. In consideration of the performance of Administrative Services by USL,
Adviser agrees to pay USL the following fees:
a. in connection with the OFFITBANK VIF-Emerging Markets Fund, Adviser shall
pay USL a monthly fee at an annual rate which shall equal (i) .135% of the
first $200 Million of the Fund's average monthly net assets maintained in
the Master Account for the Shareholders; and (ii) .12% of the Fund's
average monthly net assets maintained in the Master Account for the
Shareholders in excess of the first $200 Million;
2
<PAGE>
b. in connection with the OFFITBANK VIF-High Yield Fund, Adviser shall pay
USL a monthly fee at an annual rate which shall equal (i) .1275% of the
first $200 Million of the Fund's average monthly net assets maintained in
the Master Account for the Shareholders; and (ii) .1125% of the Fund's
average monthly net assets maintained in the Master Account for the
Shareholders in excess of the first $200 Million.
c. in connection with the OFFITBANK VIF-Total Return Fund, Adviser shall pay
USL a monthly fee at an annual rate which shall equal to .105% of the
Fund's average monthly net assets maintained in the Master Account for the
Shareholders, with a reservation by OFFITBANK to adjust the rate
respecting the OFFITBANK VIF-Total Return Fund only, to be exercised, if
at all, one year from the effective date of this Agreement, to the extent
experience warrants, as determined in OFFITBANK's sole discretion.
d. in connection with the OFFITBANK VIF-U.S. Government Securities, Adviser
shall pay USL a monthly fee at an annual rate which shall equal .06% of
the Fund's average monthly net assets maintained in the Master Account for
the Shareholders.
The foregoing fees will be paid by Adviser to USL on a calendar quarterly basis,
and in this regard, payment of such fee will be made by Adviser to USL within
thirty (30) days following the end of each calendar quarter. The determination
of applicable assets shall be made by averaging the assets of the applicable
portfolios of the Funds maintained in the Master Account for the Shareholders as
of the last Business Day (as defined in the Participation Agreement) of each
month falling within the applicable calendar quarter.
Notwithstanding anything in this Agreement or the Participation Agreement
appearing to the contrary, the payments by Adviser to USL are being made solely
in consideration of USL providing Administrative Services as described herein
only, and do not constitute payment in any manner for services provided by USL
to USL policy or contract owners, or to any separate account organized by USL,
or for any investment advisory services, or for costs associated with the
distribution of any variable annuity or variable life insurance contracts.
9. USL shall indemnify and hold harmless each of the Funds, Adviser and
Distributor and each of their respective officers, Directors, employees and
agents from and against any and all losses, claims, damages, expenses, or
liabilities that any one or more of them may incur including without
limitation reasonable attorneys' fees, expenses and costs arising out of or
related to the performance or non-performance by USL of the Administrative
Services under this Agreement.
10. This Agreement may be terminated without penalty at any time by USL or by
Adviser as to one or more of the Funds collectively, upon one hundred and
eighty days (180) written notice to the other party. Notwithstanding the
foregoing, the provisions of paragraphs 2, 3, 9 and 11 of this Agreement,
shall continue in full force and effect after termination of this Agreement.
3
<PAGE>
This Agreement shall not require USL to preserve any records (in any medium
or format) relating to this Agreement beyond the time periods otherwise
required by the laws to which USL or the Funds are subject provided that
such records shall be offered to the Funds in the event USL decides to no
longer preserve such records following such time periods.
11. After the date of any termination of this Agreement in accordance with
paragraph 10 of this Agreement, no fee will be due with respect to any
amounts first placed in the Master Account for the benefit of Shareholders
after the date of such termination or any earnings thereon. However,
notwithstanding any such termination, Adviser will remain obligated to pay
USL the fee specified in paragraph 8 of this Agreement, with respect to that
portion of the value of each of the Funds' average monthly net assets
reflected in the Master Account that is attributable to shares of the Fund
held by the Separate Account as of the date of such termination and all
earning thereon, for so long as USL continues to provide the Administrative
Services with respect to such holdings in conformity with this Agreement.
This Agreement and each provision hereof, shall survive termination so as to
govern the rights and obligations of each party with respect to the holdings
of shares of the Fund for which a fee continues to be due subsequent to such
termination and Administrative Services relating thereto.
12. USL understands and agrees that the obligations of Adviser under this
Agreement are not binding upon any of the Funds, upon any of their Board
members or upon any shareholder of any of the Funds.
13. It is understood and agreed that in performing the services under this
Agreement USL, acting in its capacity described herein, shall at no time be
acting as an agent for Adviser, Distributor or any of the Funds. USL
agrees, and agrees to cause its agents, not to make any representations
concerning any of the Funds except those contained in the Funds' then-
current prospectus; in current sales literature furnished by the Funds,
Adviser or Distributor to USL; in the then current prospectus for a variable
annuity contract or variable life insurance policy issued by USL or then
current sales literature with respect to such variable annuity contract or
variable life insurance policy, approved by Adviser.
14. This Agreement, including the provisions set forth herein in paragraph 8,
may only be amended pursuant to a written instrument signed by the party to
be charged. This Agreement may not be assigned by either party hereto, by
operation of law or otherwise, without the prior written consent of the
other party.
15. This Agreement shall be governed by the laws of the State of Texas, without
giving effect to the principles of conflicts of law of such jurisdiction.
4
<PAGE>
16. This Agreement, including Exhibit A and Schedule One, constitutes the entire
agreement between the parties with respect to the matters dealt with herein
and supersedes any previous agreements and documents with respect to such
matters. The parties agree that Schedule One may be replaced from time to
time with a new Schedule One to accurately reflect any changes in the Funds
available as investment vehicles under the Participation Agreement.
IN WITNESS HEREOF, the parties hereto have executed and delivered this Agreement
as of the date first above written.
THE UNITED STATES LIFE INSURANCE COMPANY
IN THE CITY OF NEW YORK
By: /s/ LARRY M. ROBINSON
---------------------------------
Larry M. Robinson
Vice President
OFFITBANK
By: /s/ STEPHEN B. WELLS
-----------------------------------
Name: Stephen Brent Wells
Title: Managing Director
5
<PAGE>
SCHEDULE ONE
<TABLE>
<CAPTION>
FUNDS: AVAILABLE PORTFOLIOS OF THE FUNDS:
<S> <C>
OFFITBANK Variable Insurance Fund, Inc. OFFITBANK VIF-Emerging Markets Fund
OFFITBANK VIF-High Yield Fund
OFFITBANK VIF-Total Return Fund
OFFITBANK VIF-U.S. Government Securities
</TABLE>
6
<PAGE>
EXHIBIT A
Pursuant to the Agreement by and among the parties hereto, USL shall perform the
following Administrative Services:
1. Maintain separate records for each Shareholder, which records shall reflect
shares of the Funds purchased and redeemed by the Separate Account for the
benefit of the Shareholder and share balances held by the Separate Accounts
for the benefit of the Shareholder. USL shall maintain a master account with
the transfer agent of each of the Funds, which master account shall be in the
name of USL or its nominee as the record owner of the shares held for the
Separate Account (the "Master Account").
2. For each of the Funds, disburse or credit to the appropriate account or
accounts all proceeds of redemptions of shares of the Fund by the Separate
Account and all dividends and other distributions not reinvested by the
Separate Account in shares of the Fund.
3. Prepare and transmit to Shareholders periodic account statements showing the
total number of shares held by the Separate Account for the benefit of the
Shareholder as of the statement closing date (converted to interests in the
Separate Account), purchases and redemptions of Fund shares by the Separate
Account for the benefit of the Shareholder during the period covered by the
statement, and the dividends and other distributions paid to the Separate
Account for the benefit of the Shareholder during the statement period
(whether paid in cash or reinvested in Fund shares).
4. Transmit to Shareholders proxy materials and reports and other information
received by USL from any of the Funds and required to be sent to Shareholders
under the federal securities laws and, upon request of any of the Funds'
transfer agent, transmit to Shareholders material Fund communications deemed
by the Fund, through its Board of Directors or other similar governing body,
to be necessary and proper for receipt by all Fund beneficial shareholders.
5. Transmit to each of the Funds' transfer agent purchase and redemption orders
on behalf of the Separate Account.
6. Provide to the Funds, or to the transfer agent for any of the Funds, or any
of the agents designated by any of them, such periodic reports as shall
reasonably be concluded to be necessary to enable each of the Funds and its
Underwriter to comply with any applicable State Blue Sky requirements.
7
<PAGE>
Exibit 8(e)
<PAGE>
AGREEMENT
THIS AGREEMENT ("Agreement") made as of December 1, 1998, is by and between
ROYCE & ASSOCIATES, INC., a New York corporation ("Adviser") and THE UNITED
STATES LIFE INSURANCE COMPANY IN THE CITY OF NEW YORK, a New York corporation
("USL").
W I T N E S S E T H:
WHEREAS, each of the investment companies listed on Schedule One hereto
("Schedule One," as the same may be amended from time to time), is registered as
an open-end management investment company under the Investment Company Act of
1940, as amended (the "Act") (such investment companies are hereinafter called
the "Fund," whether one or more); and
WHEREAS, each Fund is available as the investment vehicle for certain separate
accounts of USL, established for variable life insurance policies and/or
variable annuity contracts offered by USL (the "Separate Account," whether one
or more); and
WHEREAS, USL has entered into a participation agreement dated December 1, 1998
among USL, American General Securities Incorporated, Advisor and the Fund, (the
"Participation Agreement," as amended from time to time); and
WHEREAS, Adviser provides, among other things, investment advisory and/or
administrative services to the Fund; and
WHEREAS, Adviser desires USL to provide the administrative services specified in
the attached Exhibit A ("Administrative Services"), in connection with the
ownership of interests of the Separate Account, which is the owner of shares of
the Fund for the benefit of persons who maintain their ownership interests in
the Separate Account, whose interests are included in the master account
("Master Account") referred to in paragraph 1, of Exhibit A ("Shareholders"),
and USL is willing and able to provide such Administrative Services on the terms
and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter contained, each party hereto severally agrees as follows:
1. USL agrees to perform the Administrative Services specified in Exhibit A
hereto for the benefit of the Shareholders.
2. USL represents and agrees that it will maintain and preserve all records as
required by law to be maintained and preserved in connection with providing
the Administrative Services, and will otherwise comply with all laws, rules
and regulations applicable to the Administrative Services.
3. USL agrees to provide copies of all the historical records relating to
transactions between the
<PAGE>
Fund and Shareholders, and all written communications and other related
materials regarding the Fund(s) to or from such Shareholders, as reasonably
requested by Adviser or its representatives (which representatives, include,
without limitation, its auditors or legal counsel), to enable Adviser or its
representatives to monitor and review the Administrative Services performed
by USL, or comply with any request of the board of directors, or trustees or
general partners (collectively, the "Directors") of any Fund, or of a
governmental body, self-regulatory organization or Shareholder.
In addition, USL agrees that it will permit Adviser, the Fund or their
representatives, to have reasonable access to its personnel and records in
order to facilitate the monitoring of the quality of the Administrative
Services.
4. USL may, with the consent of Adviser, contract with or establish
relationships with other parties for the provision of the Administrative
Services or other activities of USL required by this Agreement, or the
Participation Agreement, provided that USL shall be fully responsible for the
acts and omissions of such other parties.
5. USL hereby agrees to notify Adviser promptly if for any reason it is unable
to perform fully and promptly any of its obligations under this Agreement.
6. USL hereby represents and covenants that it does not, and will not, own or
hold or control with power to vote any shares of the Fund which are
registered in the name of USL or the name of its nominee and which are
maintained in USL variable annuity or variable life insurance accounts. USL
represents further that it is not registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and it is not
required to be so registered, including as a result of entering into this
Agreement and performing the Administrative Services, and other obligations
of USL set forth in this Agreement.
7. The provisions of the Agreement shall in no way limit the authority of
Adviser or the Fund to take such action as any of such parties may deem
appropriate or advisable in connection with all matters relating to the
operations of any Fund and/or sale of its shares.
8. In consideration of the performance of the Administrative Services by USL,
Adviser agrees to pay USL a monthly fee at an annual rate which shall equal
.25% of the value of the average daily net assets of the Fund maintained in
the Master Account for the Shareholders. The foregoing fee will be paid by
Adviser to USL on a calendar quarterly basis, and in this regard, payment of
such fee will be made by Adviser to USL within thirty (30) days following the
end of each calendar quarter. The determination of applicable assets shall
be made by averaging assets of applicable portfolios of the Fund maintained
in the Master Account for the Shareholders, as of the last Business Day (as
defined in the Participation Agreement) of each month falling within the
applicable calendar quarter.
2
<PAGE>
Notwithstanding anything in this Agreement or the Participation Agreement
appearing to the contrary, the payments by Adviser to USL relate solely to
the performance by USL of the Administrative Services described herein only,
and do not constitute payment in any manner for services provided by USL to
USL policy or contract owners, or to any separate account organized by USL,
or for any investment advisory services, or for costs associated with the
distribution of any variable annuity or variable life insurance contracts.
9. USL shall indemnify and hold harmless the Fund, Adviser and each of their
respective officers, Directors, employees and agents from and against any
and all losses, claims, damages, expenses, or liabilities that any one or
more of them may incur including without limitation reasonable attorneys'
fees, expenses and costs arising out of or related to the performance or non
-performance by USL of the Administrative Services under this Agreement.
10. This Agreement may be terminated without penalty at any time by USL or by
Adviser as to one or more of the Fund collectively, upon one hundred and
eighty days (180) written notice to the other party. Notwithstanding the
foregoing, the provisions of paragraphs 2, 3, 9 and 11 of this Agreement,
shall continue in full force and effect after termination of this Agreement.
This Agreement shall not require USL to preserve any records (in any medium
or format) relating to this Agreement beyond the time periods otherwise
required by the laws to which USL or the Fund are subject provided that such
records shall be offered to the Fund in the event USL decides to no longer
preserve such records following such time periods.
11. After the date of any termination of this Agreement in accordance with
paragraph 10 of this Agreement, no fee will be due with respect to any
amounts first placed in the Master Account for the benefit of Shareholders
after the date of such termination. However, notwithstanding any such
termination, Adviser will remain obligated to pay USL the fee specified in
paragraph 8 of this Agreement, with respect to the value of each Fund's
average daily net assets maintained in the Master Account as of the date of
such termination, for so long as such amounts are held in the Master Account
and USL continues to provide the Administrative Services with respect to
such amounts in conformity with this Agreement. This Agreement, or any
provision hereof, shall survive termination to the extent necessary for each
party to perform its obligations with respect to amounts for which a fee
continues to be due subsequent to such termination.
12. USL understands and agrees that the obligations of Adviser under this
Agreement are not binding upon any Fund, upon any of their Board members or
upon any shareholder of any of the Fund.
13. It is understood and agreed that in performing the services under this
Agreement USL, acting in its capacity described herein, shall at no time be
acting as an agent for Adviser or the Fund. USL agrees, and agrees to cause
its agents, not to make any representations concerning the Fund except those
contained in the Fund's then-current prospectus; in current sales literature
furnished by the Fund or Adviser to USL; in the then current prospectus for
a variable annuity contract or variable life insurance policy issued by USL
or then current sales literature with respect to such variable annuity
contract or variable life insurance policy, approved by Adviser.
3
<PAGE>
14. This Agreement, including the provisions set forth herein in paragraph 8,
may only be amended pursuant to a written instrument signed by the party to
be charged. This Agreement may not be assigned by a party hereto, by
operation of law or otherwise, without the prior written consent of the
other party.
15. This Agreement shall be governed by the laws of the State of Texas, without
giving effect to the principles of conflicts of law of such jurisdiction.
16. This Agreement, including Exhibit A and Schedule One hereto, constitutes the
entire agreement between the parties with respect to the matters dealt with
herein and supersedes any previous agreements and documents with respect to
such matters. The parties agree that Schedule One may be replaced from
time to time with a new Schedule One to accurately reflect any changes in
the Fund available as investment vehicles under the Participation Agreement.
IN WITNESS HEREOF, the parties hereto have executed and delivered this Agreement
as of the date first above written.
THE UNITED STATES LIFE INSURANCE COMPANY
IN THE CITY OF NEW YORK
By: /s/ LARRY M. ROBINSON
--------------------------------
Larry M. Robinson
Vice President
ROYCE & ASSOCIATES, INC.
By: /s/ DAN O'BYRNE
--------------------------------
Daniel A. O'Byrne
Vice President
4
<PAGE>
SCHEDULE ONE
FUND: AVAILABLE PORTFOLIOS OF THE FUND:
Royce Capital Fund Royce Premier Portfolio
Royce Total Return Portfolio
5
<PAGE>
EXHIBIT A
Pursuant to the Agreement by and among the parties hereto, USL shall perform the
following Administrative Services:
1. Maintain separate records for each Shareholder, which records shall reflect
shares purchased and redeemed for the benefit of the Shareholder and share
balances held for the benefit of the Shareholder. USL shall maintain the
Master Account with the transfer agent of each Fund on behalf of Shareholders
and such Master Account shall be in the name of USL or its nominee as the
record owner of the shares held for such Shareholders.
2. For each Fund, disburse or credit to Shareholders all proceeds of redemptions
of shares of the Fund and all dividends and other distributions not
reinvested in shares of the Fund or paid to the Separate Account holding the
Shareholders' interests.
3. Prepare and transmit to Shareholders periodic account statements showing the
total number of shares held for the benefit of the Shareholder as of the
statement closing date (converted to interests in the Separate Account),
purchases and redemptions of Fund shares for the benefit of the Shareholder
during the period covered by the statement, and the dividends and other
distributions paid for the benefit of the Shareholder during the statement
period (whether paid in cash or reinvested in Fund shares).
4. Transmit to Shareholders proxy materials and reports and other information
received by USL from any Fund and required to be sent to Shareholders under
the federal securities laws and, upon request of any of the Fund's transfer
agent, transmit to Shareholders material Fund communications deemed by the
Fund, through its Board of Directors or other similar governing body, to be
necessary and proper for receipt by all Fund beneficial shareholders.
5. Transmit to each Fund's transfer agent purchase and redemption orders on
behalf of Shareholders.
6. Provide to the Fund, or to the transfer agent for any Fund, or any of the
agents designated by any of them, such periodic reports as shall reasonably
be concluded to be necessary to enable each Fund to comply with any
applicable State Blue Sky requirements.
6
<PAGE>
EXHIBIT 8(f)
<PAGE>
AGREEMENT
THIS AGREEMENT ("Agreement") made as of December 1, 1998, is by and between
WRIGHT INVESTORS' SERVICE, INC. ("Adviser") and THE UNITED STATES LIFE
INSURANCE COMPANY IN THE CITY OF NEW YORK, a New York corporation ("USL").
W I T N E S S E T H:
WHEREAS, each of the investment companies listed on Schedule One hereto
("Schedule One," as the same may be amended from time to time), is registered as
an open-end management investment company under the Investment Company Act of
1940, as amended (the "Act") (such investment companies are hereinafter
collectively called the "Funds," whether one or more); and
WHEREAS, each of the Funds is available as the investment vehicle for certain
separate accounts of USL, established for variable life insurance policies
and/or variable annuity contracts offered by USL (the "Separate Account,"
whether one or more); and
WHEREAS, USL has entered into a participation agreement dated December 1, 1998
among USL, American General Securities Incorporated, Advisor and the Funds (the
"Participation Agreement," as the same may be amended from time to time); and
WHEREAS, Adviser provides, among other things, investment advisory and/or
administrative services to the Funds; and
WHEREAS, Wright Investors Services Distributors, Inc. (the "Underwriter") is the
underwriter of the Funds; and
WHEREAS, Adviser desires USL to provide the administrative services specified in
the attached Exhibit A ("Administrative Services"), in connection with the
ownership of interests of the Separate Account, which is the owner of shares of
the Funds for the benefit of persons who maintain their ownership interests in
the Separate Account, whose interests are included in the master account
("Master Account") referred to in paragraph 1, of Exhibit A ("Shareholders"),
and USL is willing and able to provide such Administrative Services on the terms
and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter contained, each party hereto severally agrees as follows:
1. USL agrees to perform the Administrative Services specified in Exhibit A
hereto for the benefit of the Shareholders.
2. USL represents and agrees that it will maintain and preserve all records as
required by law to be maintained and preserved in connection with providing
the Administrative Services, and will otherwise comply with all laws, rules
and regulations applicable to the Administrative Services.
<PAGE>
3. USL agrees to provide copies of all the historical records relating to
transactions between the Funds and Shareholders, and all written
communications and other related materials regarding the Funds to or from
such Shareholders, as reasonably requested by Adviser or its representatives
(which representatives, include, without limitation, its auditors, legal
counsel or the Underwriter), to enable Adviser or its representatives to
monitor and review the Administrative Services performed by USL, or comply
with any request of the board of directors, or trustees or general partners
(collectively, the "Directors") of any of the Funds, or of a governmental
body, self-regulatory organization or Shareholder.
In addition, USL agrees that it will permit Adviser, the Funds or their
representatives, to have reasonable access to its personnel and records in
order to facilitate the monitoring of the quality of the Administrative
Services.
4. USL may, with the consent of Adviser, contract with or establish
relationships with other parties for the provision of the Administrative
Services or other activities of USL required by this Agreement, or the
Participation Agreement, provided that USL shall be fully responsible for the
acts and omissions of such other parties.
5. USL hereby agrees to notify Adviser promptly if for any reason it is unable
to perform fully and promptly any of its obligations under this Agreement.
6. USL hereby represents and covenants that it does not, and will not, own or
hold or control with power to vote any shares of the Funds which are
registered in the name of USL or the name of its nominee and which are
maintained in USL variable annuity or variable life insurance accounts. USL
represents further that it is not registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and it is not
required to be so registered, including as a result of entering into this
Agreement and performing the Administrative Services, and other obligations
of USL set forth in this Agreement.
7. The provisions of the Agreement shall in no way limit the authority of
Adviser, or any of the Funds or Underwriter to take such action as any of
such parties may deem appropriate or advisable in connection with all matters
relating to the operations of any of such Funds and/or sale of its shares.
8. In consideration of the performance of Administrative Services by USL,
Adviser agrees to pay USL a monthly fee at an annual rate which shall equal
(i) .15% of the first $20 Million of the average daily net assets of the
Funds maintained in the Master Account for the Shareholders; and (ii) .25% of
the average daily net assets of the Funds maintained in the Master Account
for the Shareholders in excess of $20 Million. The foregoing fee will be
paid by Adviser to USL on a calendar quarterly basis, and in this regard,
payment of such fee will be made by Adviser to USL within thirty (30) days
following the end of each calendar quarter. The determination of applicable
assets shall be made by averaging the assets of the applicable portfolios of
the Funds maintained in the Master Account for the Shareholders as of the
last Business Day (as defined in the Participation Agreement) of each month
falling within the applicable calendar quarter.
2
<PAGE>
Notwithstanding anything in this Agreement or the Participation Agreement
appearing to the contrary, the payments by Adviser to USL relate solely to
the performance by USL of the Administrative Services described herein only,
and do not constitute payment in any manner for services provided by USL to
USL policy or contract owners, or to any separate account organized by USL,
or for any investment advisory services, or for costs associated with the
distribution of any variable annuity or variable life insurance contracts.
9. USL shall indemnify and hold harmless each of the Funds, Adviser and
Underwriter and each of their respective officers, Directors, employees and
agents from and against any and all losses, claims, damages, expenses, or
liabilities that any one or more of them may incur including without
limitation reasonable attorneys' fees, expenses and costs arising out of or
related to the performance or non-performance by USL of the Administrative
Services under this Agreement.
10. This Agreement may be terminated without penalty at any time by USL or by
Adviser as to one or more of the Funds collectively, upon one hundred and
eighty days (180) written notice to the other party. Notwithstanding the
foregoing, the provisions of paragraphs 2, 3, 9 and 11 of this Agreement,
shall continue in full force and effect after termination of this Agreement.
This Agreement shall not require USL to preserve any records (in any medium
or format) relating to this Agreement beyond the time periods otherwise
required by the laws to which USL or the Funds are subject provided that
such records shall be offered to the Funds in the event USL decides to no
longer preserve such records following such time periods.
11. After the date of any termination of this Agreement in accordance with
paragraph 10 of this Agreement, no fee will be due with respect to any
amounts first placed in the Master Account for the benefit of Shareholders
after the date of such termination. However, notwithstanding any such
termination, Adviser will remain obligated to pay USL the fee specified in
paragraph 8 of this Agreement, with respect to the value of each of the
Funds' average daily net assets maintained in the Master Account as of the
date of such termination, for so long as such amounts are held in the Master
Account and USL continues to provide the Administrative Services with
respect to such amounts in conformity with this Agreement. This Agreement,
or any provision hereof, shall survive termination to the extent necessary
for each party to perform its obligations with respect to amounts for which
a fee continues to be due subsequent to such termination.
12. USL understands and agrees that the obligations of Adviser under this
Agreement are not binding upon any of the Funds, upon any of their Board
members or upon any shareholder of any of the Funds.
13. It is understood and agreed that in performing the services under this
Agreement USL, acting in its capacity described herein, shall at no time be
acting as an agent for Adviser, Underwriter or any of the Funds. USL
agrees, and agrees to cause its agents, not to make any representations
concerning any of the Funds except those contained in the Funds' then-
current prospectuses; in current sales literature furnished by the Funds,
Adviser or Underwriter to USL; in the then current prospectus for a variable
annuity contract or variable life insurance policy issued by USL or then
current sales literature with respect to such variable annuity contract or
variable life insurance policy, approved by Adviser.
3
<PAGE>
14. This Agreement, including the provisions set forth herein in paragraph 8,
may only be amended pursuant to a written instrument signed by the party to
be charged. This Agreement may not be assigned by a party hereto, by
operation of law or otherwise, without the prior written consent of the
other party.
15. This Agreement shall be governed by the laws of the State of Texas, without
giving effect to the principles of conflicts of law of such jurisdiction.
16. This Agreement, including Exhibit A and Schedule One, constitutes the entire
agreement between the parties with respect to the matters dealt with herein
and supersedes any previous agreements and documents with respect to such
matters. The parties agree that Schedule One may be replaced from time to
time with a new Schedule One to accurately reflect any changes in the Funds
available as investment vehicles under the Participation Agreement.
IN WITNESS HEREOF, the parties hereto have executed and delivered this Agreement
as of the date first above written.
THE UNITED STATES LIFE INSURANCE COMPANY
IN THE CITY OF NEW YORK
By:
-----------------------------
Larry M. Robinson
Vice President
WRIGHT INVESTORS' SERVICE, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
4
<PAGE>
SCHEDULE ONE
FUNDS: AVAILABLE PORTFOLIOS OF THE FUNDS:
------ ----------------------------------
Wright Managed Blue Chip
Series Trust Wright International Blue Chip Portfolio
Wright Selected Blue Chip Portfolio
5
<PAGE>
EXHIBIT A
Pursuant to the Agreement by and among the parties hereto, USL shall perform the
following Administrative Services:
1. Maintain separate records for each Shareholder, which records shall reflect
shares purchased and redeemed for the benefit of the Shareholder and share
balances held for the benefit of the Shareholder. USL shall maintain the
Master Account with the transfer agent of each of the Funds on behalf of
Shareholders and such Master Account shall be in the name of USL or its
nominee as the record owner of the shares held for such Shareholders.
2. For each of the Funds, disburse or credit to Shareholders all proceeds of
redemptions of shares of the Fund and all dividends and other distributions
not reinvested in shares of the Fund or paid to the Separate Account holding
the Shareholders' interests.
3. Prepare and transmit to Shareholders periodic account statements showing the
total number of shares held for the benefit of the Shareholder as of the
statement closing date (converted to interests in the Separate Account),
purchases and redemptions of Fund shares for the benefit of the Shareholder
during the period covered by the statement, and the dividends and other
distributions paid for the benefit of the Shareholder during the statement
period (whether paid in cash or reinvested in Fund shares).
4. Transmit to Shareholders proxy materials and reports and other information
received by USL from any of the Funds and required to be sent to Shareholders
under the federal securities laws and, upon request of any of the Funds'
transfer agent, transmit to Shareholders material Fund communications deemed
by the Fund, through its Board of Directors or other similar governing body,
to be necessary and proper for receipt by all Fund beneficial shareholders.
5. Transmit to each of the Funds' transfer agent purchase and redemption orders
on behalf of Shareholders.
6. Provide to the Funds, or to the transfer agent for any of the Funds, or any
of the agents designated by any of them, such periodic reports as shall
reasonably be concluded to be necessary to enable each of the Funds and its
Underwriter to comply with any applicable State Blue Sky requirements.
6
<PAGE>
Exhibit 9
<PAGE>
American
GENERAL
LIFE COMPANIES
2727 Allen Parkway (WT3-02), Houston, Texas 77019
Pauletta P. Cohn
ASSOCIATE GENERAL COUNSEL
Direct Line (713) 831-8471
FAX (713) 831-5492
E-mail: [email protected]
May 27, 1999
The United States Life Insurance Company
in the City of New York
125 Maiden Lane
New York, NY 10038
Dear Ladies and Gentlemen:
As Associate General Counsel of American General Life Companies, I have acted as
counsel to The United States Life Insurance Company in the City of New York (the
"Company") in connection with the filing of Pre-effective Amendment No. 1 to
Registration Statement on Form N-4, File Nos. 333-63843 and 811-09007
("Registration Statement") of Separate Account USL VA-R ("Separate Account USL
VA-R") of the Company with the Securities and Exchange Commission pursuant to
the Securities Act of 1933, as amended (the "1933 Act"), and the Investment
Company Act of 1940, as amended. The Registration Statement relates to a
proposed issuance of an indefinite number of units of interest in Separate
Account USL VA-R ("Units") funding Select Reserve (certificate form No. 98505N)
flexible payment variable and fixed individual deferred annuity certificates
issued by the Company ("Certificates"). Net premiums received under the
Certificates are allocated by the Company to Separate Account USL VA-R to the
extent directed by owners of the Certificates. Net premiums under other
variable annuity contracts or certificates that may be issued by the Company may
also be allocated to Separate Account USL VA-R. The Certificates are designed
to provide retirement protection and are to be offered in the manner described
in the prospectus and the prospectus supplements included in the Registration
Statement. The Certificates will be sold only in jurisdictions authorizing such
sales.
In connection with rendering this opinion, I have examined and am familiar with
originals or copies, certified or otherwise identified to my satisfaction, of
the corporate records of the Company and all such other documents as I have
deemed necessary or appropriate as a basis for the opinion expressed herein and
have assumed that prior to the issuance or sale of any Certificates the
Registration Statement, as finally amended, will be effective.
<PAGE>
May 27, 1999
Page Two
Based on and subject to the foregoing and the limitations, qualifications,
exceptions and assumptions set forth herein, I am of the opinion that:
l. The Company is a corporation duly organized and validly existing under the
laws of the State of New York.
2. Separate Account USL VA-R was duly established and is maintained by the
Company pursuant to the laws of the State of New York, under which income,
gains and losses, whether or not realized, from assets allocated to
Separate Account USL VA-R, are, in accordance with the Certificates,
credited to or charged against Separate Account USL VA-R without regard to
other income, gains or losses of the Company.
3. Assets allocated to Separate Account USL VA-R will be owned by the Company.
The Company is not a trustee with respect thereto. The Certificates provide
that the portion of the assets of Separate Account USL VA-R equal to the
reserves and other Certificate liabilities with respect to Separate Account
USL VA-R will not be chargeable with liabilities arising out of any other
business the Company may conduct. The Company reserves the right to
transfer assets of Separate Account USL VA-R in excess of such reserves and
other Certificate liabilities to the general account of the Company.
3. When issued and sold as described above, the Certificates (including any
Units duly credited thereunder) will be duly authorized and will constitute
validly issued and binding obligations of the Company in accordance with
their terms.
I am admitted to the bar in the State of Texas, and I do not express any opinion
as to the laws of any other jurisprudence.
This opinion is being furnished in accordance with the requirements of Item
601(b)(5), Regulation S-K of the 1933 Act and I hereby consent to the use of
this opinion as an exhibit to the Registration Statement.
Sincerely,
\s\ PAULETTA P. COHN
-----------------------------------
<PAGE>
Exhibit 10
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference made to our firm under the caption "Independent
Auditors" and to the use of our report dated April 23, 1999, as to The United
States Life Insurance Company in the City of New York, in Pre-Effective
Amendment No. 1 to the Registration Statement (Form N-4, Nos. 333-63843 and 811-
09007) of The United States Life Insurance Company in the City of New York.
/s/ ERNST & YOUNG LLP
-------------------------------
ERNST & YOUNG LLP
New York, New York
May 21, 1999
<PAGE>
EXHIBIT (13)(a)
<PAGE>
<TABLE>
<CAPTION>
12/31/98 SEC FILING, PART C, ITEM 24, (13)(a)&13(b)
USLIFE SELECT RESERVE
HYPOTHETICAL HISTORICAL AVERAGE AAT RETURN
ANNUAL TOTAL RETURNS 10 YEARS OR
USING HYPOTHETICAL UNIT VALUES 1 YEAR 5 YEAR SINCE
S:\VACC\AOPS\N-4FILIN\USLSR\1999\PERF_98.WK4 AATR AATR INCEPTION
====================================================================================================
<S> <C> <C> <C>
01/05/94
WRIGHT INT'L BLUE CHIP 12/31/98
365 1825 1821
INITIAL INVESTMENT 1,000.00 N/A 1,000.00
BEG OF PERIOD UV 12.309448 N/A 10.000000
# OF UNITS PURCHASED 81.238411 N/A 100.000000
END OF PERIOD UV 13.289228 N/A 13.289228
END OF PERIOD VALUE 1,079.60 N/A 1,328.92
REDEEMABLE VALUE 1,079.60 N/A 1,328.92
PERCENT RETURN (HHAATR) 7.96% N/A 5.87%
- - ----------------------------------------------------------------------------------------------------
01/05/94
WRIGHT SELECTED BLUE CHIP 12/31/98
365 1825 1821
INITIAL INVESTMENT 1,000.00 N/A 1,000.00
BEG OF PERIOD UV 18.9997 N/A 10.000000
# OF UNITS PURCHASED 52.632410 N/A 100.000000
END OF PERIOD UV 18.424558 N/A 18.424558
END OF PERIOD VALUE 969.73 N/A 1,842.46
REDEEMABLE VALUE 969.73 N/A 1,842.46
PERCENT RETURN (HHAATR) (3.03%) N/A 13.03%
- - ----------------------------------------------------------------------------------------------------
12/31/88
AGSPC MONEY MARKET 12/31/98
(fund inception 01/16/86) 365 1825 3652
INITIAL INVESTMENT 1,000.00 1,000.00 1,000.00
BEG OF PERIOD UV 8.631583 7.248676 5.000000
# OF UNITS PURCHASED 115.853604 137.956228 200.000000
END OF PERIOD UV 9.040409 9.040409 9.040409
END OF PERIOD VALUE 1,047.36 1,247.18 1,808.08
REDEEMABLE VALUE 1,047.36 1,247.18 1,808.08
PERCENT RETURN (HHAATR) 4.74% 4.52% 6.10%
- - ----------------------------------------------------------------------------------------------------
08/28/96
OFFITBANK VIF EMERGING MARKETS 12/31/98
365 1825 855
INITIAL INVESTMENT 1,000.00 N/A 1,000.00
BEG OF PERIOD UV 11.171164 N/A 10.000000
# OF UNITS PURCHASED 89.516186 N/A 100.000000
END OF PERIOD UV 9.305994 N/A 9.305994
END OF PERIOD VALUE 833.04 N/A 930.60
REDEEMABLE VALUE 833.04 N/A 930.60
PERCENT RETURN (HHAATR) (16.70%) N/A (3.02%)
- - ----------------------------------------------------------------------------------------------------
</TABLE>
05/19/99
<PAGE>
<TABLE>
<CAPTION>
12/31/98 SEC FILING, PART C, ITEM 24, (13)(a)&13(b)
USLIFE SELECT RESERVE
HYPOTHETICAL HISTORICAL AVERAGE AAT RETURN
ANNUAL TOTAL RETURNS 10 YEARS OR
USING HYPOTHETICAL UNIT VALUES 1 YEAR 5 YEAR SINCE
S:\VACC\AOPS\N-4FILIN\USLSR\1999\PERF_98.WK4 AATR AATR INCEPTION
====================================================================================================
<S> <C> <C> <C>
04/04/96
OFFITBANK VIF HIGH YIELD FUND 12/31/98
365 1825 1001
INITIAL INVESTMENT 1,000.00 N/A 1,000.00
BEG OF PERIOD UV 12.331792 N/A 10.000000
# OF UNITS PURCHASED 81.091215 N/A 100.000000
END OF PERIOD UV 12.811994 N/A 12.811994
END OF PERIOD VALUE 1,038.94 N/A 1,281.20
REDEEMABLE VALUE 1,038.94 N/A 1,281.20
PERCENT RETURN (HHAATR) 3.89% N/A 9.46%
- - ----------------------------------------------------------------------------------------------------
06/29/98
OFFITBANK VIF TOTAL RETURN FUND 12/31/98
365 1825 185
INITIAL INVESTMENT N/A N/A 1,000.00
BEG OF PERIOD UV N/A N/A 10.000000
# OF UNITS PURCHASED N/A N/A 100.000000
END OF PERIOD UV N/A N/A 10.149406
END OF PERIOD VALUE N/A N/A 1,014.94
REDEEMABLE VALUE N/A N/A 1,014.94
PERCENT RETURN (HHAATR) N/A N/A 2.97%
- - ----------------------------------------------------------------------------------------------------
08/21/98
OFFITBANK VIF U.S. GOVERNMENT 12/31/98
SECURITIES FUND
365 1825 132
INITIAL INVESTMENT N/A N/A 1,000.00
BEG OF PERIOD UV N/A N/A 10.000000
# OF UNITS PURCHASED N/A N/A 100.000000
END OF PERIOD UV N/A N/A 10.226302
END OF PERIOD VALUE N/A N/A 1,022.63
REDEEMABLE VALUE N/A N/A 1,022.63
PERCENT RETURN (HHAATR) N/A N/A 6.38%
- - ----------------------------------------------------------------------------------------------------
03/18/98
HOTCHKIS & WILEY EQUITY INCOME 12/31/98
VIP PORTFOLIO
365 1825 288
INITIAL INVESTMENT N/A N/A 1,000.00
BEG OF PERIOD UV N/A N/A 10.000000
# OF UNITS PURCHASED N/A N/A 100.000000
END OF PERIOD UV N/A N/A 9.338206
END OF PERIOD VALUE N/A N/A 933.82
REDEEMABLE VALUE N/A N/A 933.82
PERCENT RETURN (HHAATR) N/A N/A (8.31%)
- - ----------------------------------------------------------------------------------------------------
</TABLE>
05/19/99
<PAGE>
<TABLE>
<CAPTION>
12/31/98 SEC FILING, PART C, ITEM 24, (13)(a)&13(b)
USLIFE SELECT RESERVE
HYPOTHETICAL HISTORICAL AVERAGE AAT RETURN
ANNUAL TOTAL RETURNS 10 YEARS OR
USING HYPOTHETICAL UNIT VALUES 1 YEAR 5 YEAR SINCE
S:\VACC\AOPS\N-4FILIN\USLSR\1999\PERF_98.WK4 AATR AATR INCEPTION
====================================================================================================
<S> <C> <C> <C>
03/18/98
HOTCHKIS & WILEY LOW DURATION 12/31/98
VIP PORTFOLIO
365 1825 288
INITIAL INVESTMENT N/A N/A 1,000.00
BEG OF PERIOD UV N/A N/A 10.000000
# OF UNITS PURCHASED N/A N/A 100.000000
END OF PERIOD UV N/A N/A 10.40627
END OF PERIOD VALUE N/A N/A 1,040.63
REDEEMABLE VALUE N/A N/A 1,040.63
PERCENT RETURN (HHAATR) N/A N/A 5.18%
- - ----------------------------------------------------------------------------------------------------
08/04/97
LEVCO EQUITY VALUE FUND 12/31/98
365 1825 514
INITIAL INVESTMENT 1,000.00 N/A 1,000.00
BEG OF PERIOD UV 10.063500 N/A 10.000000
# OF UNITS PURCHASED 99.369007 N/A 100.000000
END OF PERIOD UV 11.625500 N/A 11.6255
END OF PERIOD VALUE 1,155.21 N/A 1,162.55
REDEEMABLE VALUE 1,155.21 N/A 1,162.55
PERCENT RETURN (HHAATR) 15.52% N/A 11.29%
- - ----------------------------------------------------------------------------------------------------
02/27/98
NAVELLIER GROWTH PORTFOLIO 12/31/98
365 1825 307
INITIAL INVESTMENT N/A N/A 1,000.00
BEG OF PERIOD UV N/A N/A 10.000000
# OF UNITS PURCHASED N/A N/A 100.000000
END OF PERIOD UV N/A N/A 11.182342
END OF PERIOD VALUE N/A N/A 1,118.23
REDEEMABLE VALUE N/A N/A 1,118.23
PERCENT RETURN (HHAATR) N/A N/A 14.21%
- - ----------------------------------------------------------------------------------------------------
12/27/96
ROYCE PREMIER PORTFOLIO 12/31/98
365 1825 734
INITIAL INVESTMENT 1,000.00 N/A 1,000.00
BEG OF PERIOD UV 11.778372 N/A 10.000000
# OF UNITS PURCHASED 84.901377 N/A 100.000000
END OF PERIOD UV 12.777472 N/A 12.777472
END OF PERIOD VALUE 1,084.82 N/A 1,277.75
REDEEMABLE VALUE 1,084.82 N/A 1,277.75
PERCENT RETURN (HHAATR) 8.48% N/A 12.96%
- - ----------------------------------------------------------------------------------------------------
</TABLE>
05/19/99
<PAGE>
<TABLE>
<CAPTION>
12/31/98 SEC FILING, PART C, ITEM 24, (13)(a)&13(b)
USLIFE SELECT RESERVE
HYPOTHETICAL HISTORICAL AVERAGE AAT RETURN
ANNUAL TOTAL RETURNS 10 YEARS OR
USING HYPOTHETICAL UNIT VALUES 1 YEAR 5 YEAR SINCE
S:\VACC\AOPS\N-4FILIN\USLSR\1999\PERF_98.WK4 AATR AATR INCEPTION
====================================================================================================
<S> <C> <C> <C>
05/14/98
ROYCE TOTAL RETURN PORTFOLIO 12/31/98
365 1825 231
INITIAL INVESTMENT N/A N/A 1,000.00
BEG OF PERIOD UV N/A N/A 10.000000
# OF UNITS PURCHASED N/A N/A 100.000000
END OF PERIOD UV N/A N/A 10.216122
END OF PERIOD VALUE N/A N/A 1,021.61
REDEEMABLE VALUE N/A N/A 1,021.61
PERCENT RETURN (HHAATR) N/A N/A 3.44%
- - ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT (13)(b)
<PAGE>
<TABLE>
<CAPTION>
12/31/98 SEC FILING, PART C, ITEM 24, (13)(a)&13(b)
USLIFE SELECT RESERVE
HYPOTHETICAL HISTORICAL AVERAGE AAT RETURN
ANNUAL TOTAL RETURNS 10 YEARS OR
USING HYPOTHETICAL UNIT VALUES 1 YEAR 5 YEAR SINCE
S:\VACC\AOPS\N-4FILIN\USLSR\1999\PERF_98.WK4 AATR AATR INCEPTION
====================================================================================================
<S> <C> <C> <C>
01/05/94
WRIGHT INT'L BLUE CHIP 12/31/98
365 1825 1821
INITIAL INVESTMENT 1,000.00 N/A 1,000.00
BEG OF PERIOD UV 12.309448 N/A 10.000000
# OF UNITS PURCHASED 81.238411 N/A 100.000000
END OF PERIOD UV 13.289228 N/A 13.289228
END OF PERIOD VALUE 1,079.60 N/A 1,328.92
REDEEMABLE VALUE 1,079.60 N/A 1,328.92
PERCENT RETURN (HHAATR) 7.96% N/A 5.87%
- - ----------------------------------------------------------------------------------------------------
01/05/94
WRIGHT SELECTED BLUE CHIP 12/31/98
365 1825 1821
INITIAL INVESTMENT 1,000.00 N/A 1,000.00
BEG OF PERIOD UV 18.9997 N/A 10.000000
# OF UNITS PURCHASED 52.632410 N/A 100.000000
END OF PERIOD UV 18.424558 N/A 18.424558
END OF PERIOD VALUE 969.73 N/A 1,842.46
REDEEMABLE VALUE 969.73 N/A 1,842.46
PERCENT RETURN (HHAATR) (3.03%) N/A 13.03%
- - ----------------------------------------------------------------------------------------------------
12/31/88
AGSPC MONEY MARKET 12/31/98
(fund inception 01/16/86) 365 1825 3652
INITIAL INVESTMENT 1,000.00 1,000.00 1,000.00
BEG OF PERIOD UV 8.631583 7.248676 5.000000
# OF UNITS PURCHASED 115.853604 137.956228 200.000000
END OF PERIOD UV 9.040409 9.040409 9.040409
END OF PERIOD VALUE 1,047.36 1,247.18 1,808.08
REDEEMABLE VALUE 1,047.36 1,247.18 1,808.08
PERCENT RETURN (HHAATR) 4.74% 4.52% 6.10%
- - ----------------------------------------------------------------------------------------------------
08/28/96
OFFITBANK VIF EMERGING MARKETS 12/31/98
365 1825 855
INITIAL INVESTMENT 1,000.00 N/A 1,000.00
BEG OF PERIOD UV 11.171164 N/A 10.000000
# OF UNITS PURCHASED 89.516186 N/A 100.000000
END OF PERIOD UV 9.305994 N/A 9.305994
END OF PERIOD VALUE 833.04 N/A 930.60
REDEEMABLE VALUE 833.04 N/A 930.60
PERCENT RETURN (HHAATR) (16.70%) N/A (3.02%)
- - ----------------------------------------------------------------------------------------------------
</TABLE>
05/19/99
<PAGE>
<TABLE>
<CAPTION>
12/31/98 SEC FILING, PART C, ITEM 24, (13)(a)&13(b)
USLIFE SELECT RESERVE
HYPOTHETICAL HISTORICAL AVERAGE AAT RETURN
ANNUAL TOTAL RETURNS 10 YEARS OR
USING HYPOTHETICAL UNIT VALUES 1 YEAR 5 YEAR SINCE
S:\VACC\AOPS\N-4FILIN\USLSR\1999\PERF_98.WK4 AATR AATR INCEPTION
====================================================================================================
<S> <C> <C> <C>
04/04/96
OFFITBANK VIF HIGH YIELD FUND 12/31/98
365 1825 1001
INITIAL INVESTMENT 1,000.00 N/A 1,000.00
BEG OF PERIOD UV 12.331792 N/A 10.000000
# OF UNITS PURCHASED 81.091215 N/A 100.000000
END OF PERIOD UV 12.811994 N/A 12.811994
END OF PERIOD VALUE 1,038.94 N/A 1,281.20
REDEEMABLE VALUE 1,038.94 N/A 1,281.20
PERCENT RETURN (HHAATR) 3.89% N/A 9.46%
- - ----------------------------------------------------------------------------------------------------
06/29/98
OFFITBANK VIF TOTAL RETURN FUND 12/31/98
365 1825 185
INITIAL INVESTMENT N/A N/A 1,000.00
BEG OF PERIOD UV N/A N/A 10.000000
# OF UNITS PURCHASED N/A N/A 100.000000
END OF PERIOD UV N/A N/A 10.149406
END OF PERIOD VALUE N/A N/A 1,014.94
REDEEMABLE VALUE N/A N/A 1,014.94
PERCENT RETURN (HHAATR) N/A N/A 2.97%
- - ----------------------------------------------------------------------------------------------------
08/21/98
OFFITBANK VIF U.S. GOVERNMENT 12/31/98
SECURITIES FUND
365 1825 132
INITIAL INVESTMENT N/A N/A 1,000.00
BEG OF PERIOD UV N/A N/A 10.000000
# OF UNITS PURCHASED N/A N/A 100.000000
END OF PERIOD UV N/A N/A 10.226302
END OF PERIOD VALUE N/A N/A 1,022.63
REDEEMABLE VALUE N/A N/A 1,022.63
PERCENT RETURN (HHAATR) N/A N/A 6.38%
- - ----------------------------------------------------------------------------------------------------
03/18/98
HOTCHKIS & WILEY EQUITY INCOME 12/31/98
VIP PORTFOLIO
365 1825 288
INITIAL INVESTMENT N/A N/A 1,000.00
BEG OF PERIOD UV N/A N/A 10.000000
# OF UNITS PURCHASED N/A N/A 100.000000
END OF PERIOD UV N/A N/A 9.338206
END OF PERIOD VALUE N/A N/A 933.82
REDEEMABLE VALUE N/A N/A 933.82
PERCENT RETURN (HHAATR) N/A N/A (8.31%)
- - ----------------------------------------------------------------------------------------------------
</TABLE>
05/19/99
<PAGE>
<TABLE>
<CAPTION>
12/31/98 SEC FILING, PART C, ITEM 24, (13)(a)&13(b)
USLIFE SELECT RESERVE
HYPOTHETICAL HISTORICAL AVERAGE AAT RETURN
ANNUAL TOTAL RETURNS 10 YEARS OR
USING HYPOTHETICAL UNIT VALUES 1 YEAR 5 YEAR SINCE
S:\VACC\AOPS\N-4FILIN\USLSR\1999\PERF_98.WK4 AATR AATR INCEPTION
====================================================================================================
<S> <C> <C> <C>
03/18/98
HOTCHKIS & WILEY LOW DURATION 12/31/98
VIP PORTFOLIO
365 1825 288
INITIAL INVESTMENT N/A N/A 1,000.00
BEG OF PERIOD UV N/A N/A 10.000000
# OF UNITS PURCHASED N/A N/A 100.000000
END OF PERIOD UV N/A N/A 10.40627
END OF PERIOD VALUE N/A N/A 1,040.63
REDEEMABLE VALUE N/A N/A 1,040.63
PERCENT RETURN (HHAATR) N/A N/A 5.18%
- - ----------------------------------------------------------------------------------------------------
08/04/97
LEVCO EQUITY VALUE FUND 12/31/98
365 1825 514
INITIAL INVESTMENT 1,000.00 N/A 1,000.00
BEG OF PERIOD UV 10.063500 N/A 10.000000
# OF UNITS PURCHASED 99.369007 N/A 100.000000
END OF PERIOD UV 11.625500 N/A 11.6255
END OF PERIOD VALUE 1,155.21 N/A 1,162.55
REDEEMABLE VALUE 1,155.21 N/A 1,162.55
PERCENT RETURN (HHAATR) 15.52% N/A 11.29%
- - ----------------------------------------------------------------------------------------------------
02/27/98
NAVELLIER GROWTH PORTFOLIO 12/31/98
365 1825 307
INITIAL INVESTMENT N/A N/A 1,000.00
BEG OF PERIOD UV N/A N/A 10.000000
# OF UNITS PURCHASED N/A N/A 100.000000
END OF PERIOD UV N/A N/A 11.182342
END OF PERIOD VALUE N/A N/A 1,118.23
REDEEMABLE VALUE N/A N/A 1,118.23
PERCENT RETURN (HHAATR) N/A N/A 14.21%
- - ----------------------------------------------------------------------------------------------------
12/27/96
ROYCE PREMIER PORTFOLIO 12/31/98
365 1825 734
INITIAL INVESTMENT 1,000.00 N/A 1,000.00
BEG OF PERIOD UV 11.778372 N/A 10.000000
# OF UNITS PURCHASED 84.901377 N/A 100.000000
END OF PERIOD UV 12.777472 N/A 12.777472
END OF PERIOD VALUE 1,084.82 N/A 1,277.75
REDEEMABLE VALUE 1,084.82 N/A 1,277.75
PERCENT RETURN (HHAATR) 8.48% N/A 12.96%
- - ----------------------------------------------------------------------------------------------------
</TABLE>
05/19/99
<PAGE>
<TABLE>
<CAPTION>
12/31/98 SEC FILING, PART C, ITEM 24, (13)(a)&13(b)
USLIFE SELECT RESERVE
HYPOTHETICAL HISTORICAL AVERAGE AAT RETURN
ANNUAL TOTAL RETURNS 10 YEARS OR
USING HYPOTHETICAL UNIT VALUES 1 YEAR 5 YEAR SINCE
S:\VACC\AOPS\N-4FILIN\USLSR\1999\PERF_98.WK4 AATR AATR INCEPTION
====================================================================================================
<S> <C> <C> <C>
05/14/98
ROYCE TOTAL RETURN PORTFOLIO 12/31/98
365 1825 231
INITIAL INVESTMENT N/A N/A 1,000.00
BEG OF PERIOD UV N/A N/A 10.000000
# OF UNITS PURCHASED N/A N/A 100.000000
END OF PERIOD UV N/A N/A 10.216122
END OF PERIOD VALUE N/A N/A 1,021.61
REDEEMABLE VALUE N/A N/A 1,021.61
PERCENT RETURN (HHAATR) N/A N/A 3.44%
- - ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT (13)(c)
<PAGE>
<TABLE>
<CAPTION>
12/31/98 SEC FILING, PART C, ITEM 24, (13)(c) TOTAL
USLIFE SELECT RESERVE RETURN
HYPOTHETICAL HISTORICAL CUMULATIVE 1 YEAR 5 YEAR 10 YEARS OR
TOTAL RETURNS TOTAL TOTAL SINCE
USING HYPOTHETICAL UNIT VALUES RETURN RETURN INCEPTION
=======================================================================================================
<S> <C> <C> <C>
WRIGHT INT'L BLUE CHIP 12/97 12/93 01/94
12/98 12/98 12/98
BEG OF PERIOD UV 12.309448 N/A 10.000000
# OF UNITS PURCHASED 81.238411 N/A 100.000000
END OF PERIOD UV 13.289228 N/A 13.289228
END OF PERIOD VALUE 1,079.60 N/A 1,328.92
DIFFERENCE 79.60 N/A 328.92
PERCENT CHANGE (HHCTR) 7.96% N/A 32.89%
- - -------------------------------------------------------------------------------------------------------
WRIGHT SELECTED BLUE CHIP 12/97 12/93 01/94
12/98 12/98 12/98
BEG OF PERIOD UV 18.9997 N/A 10.000000
# OF UNITS PURCHASED 52.632410 N/A 100.000000
END OF PERIOD UV 18.424558 N/A 18.424558
END OF PERIOD VALUE 969.73 N/A 1,842.46
DIFFERENCE (30.27) N/A 842.46
PERCENT CHANGE (HHCTR) (3.03%) N/A 84.25%
- - -------------------------------------------------------------------------------------------------------
AGSPC MONEY MARKET 12/97 12/93 12/88
12/98 12/98 12/98
BEG OF PERIOD UV 8.631583 7.248676 5.000000
# OF UNITS PURCHASED 115.853604 137.956228 200.000000
END OF PERIOD UV 9.040409 9.040409 9.040409
END OF PERIOD VALUE 1,047.36 1,247.18 1,808.08
DIFFERENCE 47.36 247.18 808.08
PERCENT CHANGE (HHCTR) 4.74% 24.72% 80.81%
- - -------------------------------------------------------------------------------------------------------
OFFITBANK VIF EMERGING MARKETS 12/97 12/93 08/96
12/98 12/98 12/98
BEG OF PERIOD UV 11.171164 N/A 10.000000
# OF UNITS PURCHASED 89.516186 N/A 100.000000
END OF PERIOD UV 9.305994 N/A 9.305994
END OF PERIOD VALUE 833.04 N/A 930.60
DIFFERENCE (166.96) N/A (69.40)
PERCENT CHANGE (HHCTR) (16.70%) N/A (6.94%)
- - -------------------------------------------------------------------------------------------------------
</TABLE>
05/19/99
<PAGE>
<TABLE>
<CAPTION>
12/31/98 SEC FILING, PART C, ITEM 24, (13)(c) TOTAL
USLIFE SELECT RESERVE RETURN
HYPOTHETICAL HISTORICAL CUMULATIVE 1 YEAR 5 YEAR 10 YEARS OR
TOTAL RETURNS TOTAL TOTAL SINCE
USING HYPOTHETICAL UNIT VALUES RETURN RETURN INCEPTION
=======================================================================================================
<S> <C> <C> <C>
OFFITBANK VIF HIGH YIELD FUND 12/97 12/93 04/96
12/98 12/98 12/98
BEG OF PERIOD UV 12.331792 N/A 10.000000
# OF UNITS PURCHASED 81.091215 N/A 100.000000
END OF PERIOD UV 12.811994 N/A 12.811994
END OF PERIOD VALUE 1,038.94 N/A 1,281.20
DIFFERENCE 38.94 N/A 281.20
PERCENT CHANGE (HHCTR) 3.89% N/A 28.12%
- - -------------------------------------------------------------------------------------------------------
OFFITBANK VIF TOTAL RETURN FUND 12/97 12/93 6/98
12/98 12/98 12/98
BEG OF PERIOD UV N/A N/A 10.000000
# OF UNITS PURCHASED N/A N/A 100.000000
END OF PERIOD UV N/A N/A 10.149406
END OF PERIOD VALUE N/A N/A 1,014.94
DIFFERENCE N/A N/A 14.94
PERCENT CHANGE (HHCTR) N/A N/A 1.49%
- - -------------------------------------------------------------------------------------------------------
OFFITBANK VIF U.S. GOVERNMENT
SECURITIES FUND 12/97 12/93 8/98
12/98 12/98 12/98
BEG OF PERIOD UV N/A N/A 10.000000
# OF UNITS PURCHASED N/A N/A 100.000000
END OF PERIOD UV N/A N/A 10.226302
END OF PERIOD VALUE N/A N/A 1,022.63
DIFFERENCE N/A N/A 22.63
PERCENT CHANGE (HHCTR) N/A N/A 2.26%
- - -------------------------------------------------------------------------------------------------------
HOTCHKIS & WILEY EQUITY INCOME
VIP PORTFOLIO 12/97 12/93 03/98
12/98 12/98 12/98
BEG OF PERIOD UV N/A N/A 10.000000
# OF UNITS PURCHASED N/A N/A 100.000000
END OF PERIOD UV N/A N/A 9.338206
END OF PERIOD VALUE N/A N/A 933.82
DIFFERENCE N/A N/A (66.18)
PERCENT CHANGE (HHCTR) N/A N/A (6.62%)
- - -------------------------------------------------------------------------------------------------------
</TABLE>
05/19/99
<PAGE>
<TABLE>
<CAPTION>
12/31/98 SEC FILING, PART C, ITEM 24, (13)(c) TOTAL
USLIFE SELECT RESERVE RETURN
HYPOTHETICAL HISTORICAL CUMULATIVE 1 YEAR 5 YEAR 10 YEARS OR
TOTAL RETURNS TOTAL TOTAL SINCE
USING HYPOTHETICAL UNIT VALUES RETURN RETURN INCEPTION
=======================================================================================================
<S> <C> <C> <C>
HOTCHKIS & WILEY LOW DURATION
VIP PORTFOLIO 12/97 12/93 3/98
12/98 12/98 12/98
BEG OF PERIOD UV N/A N/A 10.000000
# OF UNITS PURCHASED N/A N/A 100.000000
END OF PERIOD UV N/A N/A 10.406270
END OF PERIOD VALUE N/A N/A 1,040.63
DIFFERENCE N/A N/A 40.63
PERCENT CHANGE (HHCTR) N/A N/A 4.06%
- - -------------------------------------------------------------------------------------------------------
LEVCO EQUITY VALUE FUND 12/97 12/93 8/97
12/98 12/98 12/98
BEG OF PERIOD UV 10.063500 N/A 10.000000
# OF UNITS PURCHASED 99.369007 N/A 100.000000
END OF PERIOD UV 11.625500 N/A 11.625500
END OF PERIOD VALUE 1,155.21 N/A 1,162.55
DIFFERENCE 155.21 N/A 162.55
PERCENT CHANGE (HHCTR) 15.52% N/A 16.26%
- - -------------------------------------------------------------------------------------------------------
NAVELLIER GROWTH PORTFOLIO 12/97 12/93 5/98
12/98 12/98 12/98
BEG OF PERIOD UV N/A N/A 10.000000
# OF UNITS PURCHASED N/A N/A 100.000000
END OF PERIOD UV N/A N/A 11.182342
END OF PERIOD VALUE N/A N/A 1,118.23
DIFFERENCE N/A N/A 118.23
PERCENT CHANGE (HHCTR) N/A N/A 11.82%
- - -------------------------------------------------------------------------------------------------------
ROYCE PREMIER PORTFOLIO 12/97 12/93 12/96
12/98 12/98 12/98
BEG OF PERIOD UV 11.778372 N/A 10.000000
# OF UNITS PURCHASED 84.901377 N/A 100.000000
END OF PERIOD UV 12.777472 N/A 12.777472
END OF PERIOD VALUE 1,084.82 N/A 1,277.75
DIFFERENCE 84.82 N/A 277.75
PERCENT CHANGE (HHCTR) 8.48% N/A 27.77%
- - -------------------------------------------------------------------------------------------------------
</TABLE>
05/19/99
<PAGE>
<TABLE>
<CAPTION>
12/31/98 SEC FILING, PART C, ITEM 24, (13)(c) TOTAL
USLIFE SELECT RESERVE RETURN
HYPOTHETICAL HISTORICAL CUMULATIVE 1 YEAR 5 YEAR 10 YEARS OR
TOTAL RETURNS TOTAL TOTAL SINCE
USING HYPOTHETICAL UNIT VALUES RETURN RETURN INCEPTION
=======================================================================================================
<S> <C> <C> <C>
ROYCE TOTAL RETURN PORTFOLIO 12/97 12/93 5/98
12/98 12/98 12/98
BEG OF PERIOD UV N/A N/A 10.000000
# OF UNITS PURCHASED N/A N/A 100.000000
END OF PERIOD UV N/A N/A 10.216122
END OF PERIOD VALUE N/A N/A 1,021.61
DIFFERENCE N/A N/A 21.61
PERCENT CHANGE (HHCTR) N/A N/A 2.16%
- - -------------------------------------------------------------------------------------------------------
</TABLE>
05/19/99
