<PAGE>
As filed with the Securities and Exchange Commission on April 29, 1998.
Registration Nos.: 33-82268 and
811-8670
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 4 X
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 5 X
SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY
(Exact Name of Registrant)
USAA LIFE INSURANCE COMPANY
(Name of Depositor)
9800 Fredericksburg Road
San Antonio, Texas 78288
(Address of Depositor's Principal Executive Offices)
Depositor's Telephone Number, including Area Code: 210-498-8000
RICHARD T. HALINSKI, JR., ESQ.
DWAIN A. AKINS, ESQ.
Life & Health Insurance Counsel
USAA Life Insurance Company
9800 Fredericksburg Road, C-3-W
San Antonio, Texas 78288
(Name and Address of Agents for Service)
Copies to:
GARY O. COHEN, ESQ.
Freedman, Levy, Kroll & Simonds
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036
<PAGE>
Approximate Date of Proposed Public Offering: Continuous.
It is proposed that this filing will become effective (check the appropriate
box):
[ ] Immediately upon filing pursuant to paragraph (b) of Rule 485
[ X ] On May 1, 1998, pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] On (date) pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following:
[ ] This post-effective amendment designates a new effective date
for previously filed post-effective amendment.
Title of Securities Being Registered: Units of Interest in Separate Account of
USAA Life Insurance Company under Flexible Premium Deferred Combination Fixed
and Variable Annuity Contract.
<PAGE>
CROSS REFERENCE SHEET
Pursuant to Rule 495 under the Securities Act of 1933 indicating the location in
the Prospectus of the information called for by the Items of Parts A and B of
Form N-4.
<TABLE>
<CAPTION>
Item No. Caption Location
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<S> <C> <C>
Part A
1. Cover Page Cover Page
2. Definitions Definitions of Special Terms
3. Synopsis Summary; Expense Table
4. Condensed Financial Selected Accumulation Unit Data;
Information Financial Data Performance Information
5. General Description of USAA Life; The Separate Account; The
Registrant, Depositor, and Funds; Fixed Fund Account
Portfolio Companies
6. Deductions Charges and Deductions
7. General Description of Contract Issuance and Premium Payments;
Variable Annuity Contracts Accumulation Phase; Transfer and
Withdrawals; Other Aspects of the
Contract; Owner Inquiries
8. Annuity Period Distribution Phase; Other Aspects of the
Contract
9. Death Benefit Death Benefits
10. Purchases and Contract Contract Issuance and Premium Payments;
Value Accumulation Phase
11. Redemptions Transfers and Withdrawals
12. Taxes Tax Matters
13. Legal Proceedings Not applicable
14. Table of Contents of the Contents of Statement of Additional
Statement of Additional Information
Information
Part B
15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information and General Information; Regulation and
History Reserves
18. Services Services
19. Purchase of Securities Not applicable
Being Offered
20. Underwriters Distributor
21. Calculation of Performance Calculation of Performance Information
Data
22. Annuity Payments Annuity Payments
23. Financial Statements Financial Statements
Part C
Information required to be included in Part C is set forth under the appropriate
Item so numbered in Part C to this Registration Statement.
</TABLE>
<PAGE>
P
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S
P
E
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T
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[USAA LOGO APPEARS HERE]
USAA LIFE INSURANCE COMPANY
VARIABLE ANNUITY
MAY 1, 1998
<PAGE>
USAA LIFE INSURANCE COMPANY
VARIABLE ANNUITY
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
SECTION
- -------
A. Flexible Premium Deferred Combination
Fixed and Variable Annuity Contract Prospectus 3A - 36A
B. USAA Life Investment Trust Prospectus 37B - 58B
C. Scudder Variable Life Investment Fund Prospectus
(Capital Growth Portfolio) 59C - 76C
D. Alger American Fund Prospectus
(American Growth Portfolio) 77D - 86D
E. BT Insurance Funds Trust Prospectuses 87E - 129E
(Equity 500 Index Fund) 87E - 100E
(Small Cap Index Fund) 101E - 114E
(EAFE/R/ Equity Index Fund) 115E - 129E
1
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2
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VARIABLE ANNUITY
Flexible Premium Deferred Combination
Fixed amd Variable Annuity Contract
OFFERED BY
USAA Life Insurance Company
9800 Fredericksburg Road, San Antonio, Texas 78288
Telephone: (1-800-531-2923) Prospectus dated: May 1, 1998
- --------------------------------------------------------------------------------
This Prospectus describes a Flexible Premium Deferred Combination Fixed and
Variable Annuity Contract ("Contract") that USAA Life Insurance Company ("USAA
Life" or the "Company") is offering to individual members and families of
members of the United Services Automobile Association ("USAA"), the parent
company of the USAA group of companies, as well as to the general public.
The Contract is designed to assist individuals in planning for retirement and
other long-term purposes. The Contract is available in connection with
retirement plans that may or may not qualify for special federal tax treatment
under the Internal Revenue Code (the "Code"), i.e. Qualified and Nonqualified
Plans. (See "Tax Matters - Qualified Plans" below.)
The Contract enables Contract owners ("Contract Owners" or "Owners") to earn a
fixed rate of interest declared by USAA Life from time to time by allocating
their premium payments under the Contract to the Fixed Fund Account of USAA
Life. The Fixed Fund Account may not be available in all states. (See "Fixed
Fund Account" below.) Contract Owners also may seek a variable investment return
by allocating their premium payments to the Separate Account of USAA Life (the
"Separate Account"). The Separate Account is a segregated investment account of
USAA Life, and currently is divided into twelve Variable Fund Accounts (referred
to herein as "Variable Fund Accounts"), each of which invests in a
corresponding Fund. The Accumulated Value of the Contract in a Variable Fund
Account will vary, primarily based on the investment experience of the Fund in
whose shares the Variable Fund Account invests.
The Funds that are available under this Contract include: seven Funds of USAA
Life Investment Trust (the "Trust"), namely the USAA Life Money Market Fund
("Money Market Fund"), USAA Life Income Fund ("Income Fund"), USAA Life Growth
and Income Fund ("Growth and Income Fund"), USAA Life World Growth Fund ("World
Growth Fund"), USAA Life Diversified Assets Fund ("Diversified Assets Fund"),
USAA Life Aggressive Growth Fund ("Aggressive Growth Fund"), and USAA Life
International Fund ("International Fund"); the Capital Growth Portfolio-Class A
shares of the Scudder Variable Life Investment Fund (the "Scudder VLIF Capital
Growth Portfolio"); the Growth Portfolio of The Alger American Fund (the "Alger
American Growth Portfolio"); and the Equity 500 Index Fund, Small Cap Index Fund
and EAFE/R/ Equity Index Fund of the BT Insurance Funds Trust (the "BT Equity
500 Index Fund," "BT Small Cap Index Fund" and "BT EAFE/R/ Equity Index Fund").
The Equity 500 Index Fund, Small Cap Index Fund and EAFE/R/ Equity Index Fund of
the BT Insurance Funds Trust are not available to California residents as of the
date of this Prospectus, but are expected to be available in the near future.
ACCUMULATION UNITS AND ANNUITY UNITS OF THE VARIABLE FUND ACCOUNTS ARE NOT
DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY, THE USAA FEDERAL SAVINGS
BANK, ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC) OR ANY
OTHER GOVERNMENT AGENCY, ARE SUBJECT TO INVESTMENT RISKS, AND MAY LOSE VALUE.
This Prospectus sets forth information about the Separate Account that a
potential investor ought to know before investing. Please read it carefully and
retain it for future reference. The Company has filed a Statement of Additional
Information, dated May 1, 1998 ("SAI"), about the Separate Account with the
Securities and Exchange Commission ("SEC" or the "Commission"). The SAI, dated
May 1, 1998, is incorporated by reference into this Prospectus and will be
provided on request and without charge. For a copy of the SAI or an Annual
Report, call 1-800-531-2923 or write the Company at the address above. A Table
of Contents for the SAI appears on page 36 A of this Prospectus.
- --------------------------------------------------------------------------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE
SECURITIES DESCRIBED IN THIS PROSPECTUS NOR HAS IT PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND THE RELATED
STATEMENT OF ADDITIONAL INFORMATION (OR ANY SALES LITERATURE APPROVED BY USAA
LIFE ) IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THE CONTRACTS ARE NOT AVAILABLE IN ALL STATES AND THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY JURISDICTION TO ANY PERSON TO
WHOM SUCH OFFER WOULD BE UNLAWFUL THEREIN. THIS PROSPECTUS IS VALID ONLY WHEN
ACCOMPANIED OR PRECEDED BY THE CURRENT PROSPECTUS OF USAA LIFE INVESTMENT TRUST,
THE SCUDDER VLIF CAPITAL GROWTH PORTFOLIO, THE ALGER AMERICAN GROWTH PORTFOLIO,
THE BT EQUITY 500 INDEX FUND, THE BT SMALL CAP INDEX FUND, AND THE BT EAFE/R/
EQUITY FUND. EACH PROSPECTUS SHOULD BE READ CAREFULLY BEFORE INVESTING AND THEN
RETAINED FOR FUTURE REFERENCE.
3 A
<PAGE>
TABLE OF CONTENTS
DEFINITIONS OF SPECIAL TERMS................................................. 7A
SUMMARY...................................................................... 8A
EXPENSE TABLE................................................................ 9A
SELECTED ACCUMULATION UNIT DATA..............................................11A
FINANCIAL STATEMENTS.........................................................12A
USAA LIFE....................................................................12A
THE SEPARATE ACCOUNT.........................................................13A
THE FUNDS....................................................................13A
Investment Objectives of the Funds.........................................13A
Management of the Funds....................................................14A
Substitution of Funds......................................................14A
Dividends and Capital Gain Distributions...................................14A
Voting Privileges..........................................................14A
Special Considerations.....................................................14A
FIXED FUND ACCOUNT...........................................................15A
Fixed Fund Account Withdrawal Charge.......................................15A
CONTRACT ISSUANCE AND PREMIUM PAYMENTS.......................................16A
Who May Purchase a Contract................................................16A
How to Purchase a Contract................................................16A
Minimum Premium Payments...................................................17A
Initial Premium Payments...................................................17A
Subsequent Premium Payments................................................17A
Distributor................................................................17A
Return Privilege...........................................................18A
Minimum Contract Value.....................................................18A
ACCUMULATION PHASE...........................................................18A
Fixed Fund Account Value...................................................18A
Variable Fund Account Value................................................18A
Net Investment Factor......................................................19A
TRANSFERS AND WITHDRAWALS....................................................19A
Transfers..................................................................19A
Full and Partial Withdrawals...............................................20A
CHARGES AND DEDUCTIONS.......................................................20A
Premium Taxes..............................................................20A
Contract Maintenance Charge................................................20A
Administrative Expense Charge..............................................20A
Mortality and Expense Risk Charge..........................................21A
Income Taxes...............................................................21A
Expenses of the Funds......................................................21A
Transfer Fee...............................................................21A
Fixed Fund Account Withdrawal Charge.......................................21A
SPECIAL SERVICES.............................................................21A
Dollar Cost Averaging Program..............................................21A
Systematic Withdrawal Program..............................................22A
Automatic Payment Plan.....................................................22A
DISTRIBUTION PHASE...........................................................22A
Annuity Date...............................................................22A
Application of Contract Value..............................................23A
Fixed and Variable Annuity Payments........................................23A
4 A
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Number of Annuity Units....................................................23A
Annuity Unit Value.........................................................23A
Distribution Options.......................................................23A
Transfers of Annuity Units.................................................25A
Minimum Contract Value.....................................................25A
POSTPONEMENT OF PAYMENTS.....................................................25A
DEATH BENEFITS...............................................................25A
Death Benefits Prior to the Annuity Date...................................25A
Death Benefits On or After the Annuity Date................................26A
OTHER ASPECTS OF THE CONTRACT................................................26A
Contract Agreement.........................................................26A
Contract Owner.............................................................26A
Change of Ownership and Assignment.........................................26A
Annuitant..................................................................27A
Beneficiary................................................................27A
Change of Beneficiary......................................................27A
TAX MATTERS..................................................................27A
Tax Considerations Relating to Your Annuity................................27A
Natural Persons............................................................27A
Non-Natural Persons........................................................28A
Distributions During the Accumulation Phase from Nonqualified Plans........28A
Distributions During the Distribution Phase from Nonqualified Plans........28A
Distributions from Qualified Plans.........................................28A
Penalty on Distributions...................................................28A
Multiple Contracts.........................................................29A
Federal Income Tax Withholding.............................................29A
Assignments................................................................29A
Tax-Free Exchanges.........................................................29A
Transfers Between Investment Options.......................................29A
Generation-Skipping Transfers..............................................29A
Diversification............................................................29A
Contract Owner Control.....................................................30A
Qualified Plans............................................................30A
TYPES OF QUALIFIED RETIREMENT PLANS..........................................30A
Individual Retirement Annuity ("IRA")......................................30A
Roth IRA...................................................................30A
Simplified Employee Pension-Individual Retirement Annuity ("SEP-IRA")......31A
Salary Reduction Simplified Employee Pension (SARSEP-IRA)..................31A
Simple Retirement Accounts.................................................31A
Tax Sheltered Annuity ("TSA")..............................................31A
Texas Optional Retirement Program ("ORP")..................................31A
LEGAL PROCEEDINGS............................................................32A
ANNUAL STATEMENTS AND REPORTS................................................32A
ADMINISTRATION OF THE CONTRACTS..............................................32A
Telephone Transactions.....................................................32A
OWNER INQUIRIES..............................................................33A
PERFORMANCE INFORMATION......................................................33A
Yield and Total Return.....................................................33A
Performance Comparisons....................................................33A
Variable Fund Account Performance.........................................33A
Effect of Tax-Deferred Accumulations.......................................33A
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION..............................36A
</TABLE>
5 A
<PAGE>
DEFINITIONS OF SPECIAL TERMS:
- -----------------------------
ACCOUNT - The Fixed Fund Account or a Variable Fund Account.
ACCUMULATION PHASE - The period during the lifetime of the Contract Owner
between the Effective Date of the Contract and the Annuity Date.
ACCUMULATION UNIT - An accounting unit of measure used to calculate values in
each Variable Fund Account under the Contract before the Company starts making
income payments from the Variable Fund Accounts.
ANNUITANT - The person named on the Contract Information Page of the Contract
who is to receive income payments, and on whose life annuity payments may be
based.
ANNUITY - A contract designed to provide an Annuitant with income payments.
ANNUITY DATE - The date when the Company is to begin making income payments to
the Annuitant.
ANNUITY UNIT - An accounting unit of measure used to calculate the amount of
Variable Annuity Payments.
AUTHORIZED SALES REPRESENTATIVE - A salaried employee of the Company who is
licensed by state insurance department officials to sell the Contracts and who
is also a registered representative or principal of USAA Investment Management
Company.
BENEFICIARY - The person(s) designated by the Contract Owner to receive a death
benefit or any remaining income payments upon the Owner's or the Annuitant's
death.
CODE - Internal Revenue Code of 1986, as amended.
COMPANY, WE, OUR, OR US - USAA Life Insurance Company.
CONTRACT INFORMATION PAGE - The Contract Information Page of the Contract, which
identifies certain information and specifies certain terms of the Contract.
CONTRACT VALUE - The monetary value of a Contract. It equals the sum of the
Fixed Fund Account Value and the Variable Fund Account Values under the
Contract.
CONTRACT YEAR - A period of 12 calendar months starting with the Effective Date
of the Contract, and each 12-month period thereafter. For example, if your
Contract was issued on July 1, your first Contract Year would end on the
following June 30. Each subsequent Contract Year would start on July 1 and end
on June 30.
DATE OF RECEIPT - The date a premium payment, a Written Request, or other
document is actually received at our Service Office subject to two exceptions:
(1) if received on a date other than a Valuation Date, the Date of Receipt will
be the following Valuation Date; and (2) if received on a Valuation Date after
close of trading of the New York Stock Exchange, the Date of Receipt will be the
following Valuation Date.
DISTRIBUTION OPTION - One of several ways in which the Contract Value can be
paid to the Annuitant.
DISTRIBUTION PHASE - The period starting on the Annuity Date during which the
Company makes annuity payments to the Annuitant.
EFFECTIVE DATE - The date that we approve the application and issue the
Contract. The Effective Date is shown on the Contract Information Page.
FIXED ANNUITY - A Distribution Option under which payments do not vary as to
dollar amount.
FIXED ANNUITY PAYMENTS - Annuity payments that are guaranteed by the Company and
are fixed in amount.
FIXED FUND ACCOUNT - The name of the investment alternative under this Contract
in which premium payments may be invested through the General Account at
interest rates declared from time to time by USAA Life. The minimum effective
annual interest rate is 3% (or a higher rate, if required by state law).
FIXED FUND ACCOUNT VALUE - The amount of your Contract Value which is in the
Fixed Fund Account.
6 A
<PAGE>
DEFINITIONS OF SPECIAL TERMS, CONTINUED:
- ----------------------------------------
FREE LOOK PERIOD - The 10 day period following the date you first receive the
Contract, or such longer period as may be required by state law.
FUND - An individual class, series or portfolio of a Mutual Fund that is
available for investment under the Contract.
GENERAL ACCOUNT - The assets of the Company other than those in the Separate
Account or any other legally-segregated separate account established by USAA
Life.
MUTUAL FUND - A diversified open-end management investment company under federal
securities law. Currently, the Mutual Funds available under the Contract include
USAA Life Investment Trust, Scudder Variable Life Investment Fund ("Scudder
Fund"), The Alger American Fund ("Alger Fund"), and BT Insurance Funds Trust
("BT Funds"). In some cases, only certain Funds of the latter three Mutual
Funds are available.
NET ASSET VALUE - The current value of each Fund's total assets, less all
liabilities, divided by the total number of the Fund's shares outstanding.
NONQUALIFIED PLAN - A retirement plan that is not eligible for favorable tax
treatment under the Code.
OWNER - The person to whom we owe the rights and privileges of the Contract.
PROOF OF DEATH - A certificate of death, a certified copy of a statement of
death from the attending physician, a certified copy of a decree of a court of
competent jurisdiction as to the finding of death, or any other proof
satisfactory to us.
QUALIFIED PLAN - A retirement plan that is eligible for favorable tax treatment
under the Code. Contract Owners may contribute pre-tax dollars to a Qualified
Plan, thereby deferring the federal income tax on the money paid into the Plan
as well as on the interest or other income earned.
SEPARATE ACCOUNT - A segregated asset account established under Texas law
through which USAA Life invests the premium payments received from Contract
Owners. The Separate Account currently is divided into twelve Variable Fund
Accounts, through which the Company invests in the twelve available Funds.
SERVICE OFFICE - The department of USAA Life responsible for administration and
servicing of the Contracts. The address and toll-free telephone number of the
Service Office are shown on the Contract Information Page in the Contract. The
same information is located in this Prospectus under the heading "Owner
Inquiries."
TELEPHONE REQUEST - A telephone request received by our Service Office that is
in proper form. Requests submitted to our Service Office by facsimile, telegraph
or other electronic transmission device will be treated as Telephone Requests.
VALUATION DATE - Any business day, Monday through Friday, on which the New York
Stock Exchange is open for regular trading, except: (1) any day on which the
value of the shares of a Fund is not computed; and (2) any day during which no
order for the purchase, redemption, surrender or transfer of Accumulation Units
or Annuity Units is received.
VALUATION PERIOD - The period of time from the end of one Valuation Date to the
end of the next Valuation Date.
VARIABLE ANNUITY - A Distribution Option under which payments vary in amount
depending on the investment experience of the Funds that correspond to the
Variable Fund Accounts under this Contract.
VARIABLE ANNUITY PAYMENTS - Annuity payments that vary in amount depending on
the investment experience of one or more of the Variable Fund Accounts of the
Separate Account.
VARIABLE FUND ACCOUNT - Any of the several investment alternatives under this
Contract that correspond to a particular Fund. Premium payments allocated to a
Variable Fund Account are invested by the Company through its Separate Account
in the corresponding Fund.
VARIABLE FUND ACCOUNT VALUE - The amount of your Contract Value that is in a
Variable Fund Account.
WRITTEN REQUEST - A written request in proper form signed by the person making
the request and received by our Service Office in good order.
YOU, YOUR, YOURS - The Contract Owner.
7 A
<PAGE>
SUMMARY
- -------
Set out below, in question and answer format, is a summary of the Contract.
Please read the remainder of this Prospectus for a more detailed description.
Variations due to requirements of particular states, if any, are described in
supplements which are attached to this Prospectus, or in endorsements to the
Contract, as appropriate.
WHAT TYPE OF CONTRACT AM I BUYING?
You are buying a Contract that provides you with the ability to make flexible
premium payments that accumulate on a fixed or variable basis, and that you can
use to purchase either a Fixed and/or Variable Annuity. This Prospectus is
intended to provide disclosure primarily about the variable portion of the
Contract. (See "The Contracts," below.)
HOW MUCH MUST I PAY, AND HOW OFTEN?
Subject to the minimum initial and subsequent premium requirements of $1,000
and $100, respectively, the amount and frequency of premium payments is
completely flexible. Lower minimums apply in the case of Qualified Plans and for
USAA Life employees. (See "Contract Issuance and Premium Payments," below.)
Except in the case of Qualified Plans, if your Contract Value falls below $1,000
and we have received no premium payments for two years, we may cancel your
Contract and return to you its remaining value (less any applicable charges).
WHAT IS THE SEPARATE ACCOUNT?
The Separate Account is a segregated asset account of USAA Life established
under Texas insurance law and registered with the SEC as a unit investment
trust. The Separate Account is divided into twelve Variable Fund Accounts,
each of which invests in a corresponding Fund of one of the available Mutual
Funds. (See "The Separate Account," below.)
WHAT ARE MY INVESTMENT CHOICES?
You may invest your premiums in the Fixed Fund Account and/or up to twelve
Variable Fund Accounts, each of which invests in a corresponding Fund of a
Mutual Fund. The twelve Funds that are available through the Variable Fund
Accounts include the following:
USAA LIFE INVESTMENT TRUST
--------------------------
USAA Life Money Market Fund
USAA Life Income Fund
USAA Life Growth and Income Fund
USAA Life World Growth Fund
USAA Life Diversified Assets Fund
USAA Life Aggressive Growth Fund
USAA Life International Fund
SCUDDER VARIABLE LIFE INVESTMENT FUND
-------------------------------------
Scudder Capital Growth Portfolio - Class A shares
THE ALGER AMERICAN FUND
-----------------------
Alger American Growth Portfolio
BT INSURANCE FUNDS TRUST
------------------------
BT Equity 500 Index Fund
BT Small Cap Index Fund
BT EAFE/R/ Equity Index Fund
For more information, see "The Funds" below.
WHO MANAGES MY INVESTMENT?
The investment advisers for the Trust, the Scudder VLIF Capital Growth
Portfolio, the Alger American Growth Portfolio, and the BT Funds, are USAA
Investment Management Company ("USAA IMCO"), Scudder Kemper Investments, Inc.
("Scudder"), Fred Alger Management, Inc. ("Alger Management"), and Bankers
Trust Company ("Bankers Trust"), respectively (collectively, the "Advisers").
Each Adviser is registered as an investment adviser with the SEC. (See "The
Funds - Management of the Funds," below.)
HOW DOES THE CONTRACT WORK?
Once your payment is received and your application is approved by the Company,
we will issue you a Contract. During the Accumulation Phase, you may earn either
a fixed rate of interest that we declare periodically (but not less than 3%) by
allocating your premium payments to the Fixed Fund Account, or you may seek a
variable investment return by allocating your premium payments to one or more of
the Variable Fund Accounts. (See "Contract Issuance and Premium Payments,"
"Accumulation Phase," and "Distribution Phase," below.) During the Distribution
Phase, you may elect to receive Fixed and/or Variable Annuity Payments,
commencing on the Annuity Date. Fixed Annuity
8 A
<PAGE>
Payments are periodic payments from USAA Life, the amount of which is fixed and
guaranteed by USAA Life. The amount of these payments will depend on the
Distribution Option you select, the age, and, generally, the sex of the
Annuitant, and the amount of Contract Value you elect to apply to the Fixed
Annuity Distribution Option. Variable Annuity Payments are periodic payments
from USAA Life, which vary depending on the net investment return of the
Variable Fund Accounts you select in connection with the Variable Annuity
Distribution Option. The net investment return of the Variable Fund Accounts
will, in turn, depend primarily on the investment experience of the
corresponding Funds. (See "Distribution Phase - Distribution Options," below.)
WHAT CHARGES ARE ASSOCIATED WITH THE CONTRACT?
Beginning one year from the Effective Date of your Contract, we will deduct a
Contract Maintenance Charge of $30 per year from your Contract Value for general
administrative expenses. Should you decide to fully or partially withdraw or
transfer amounts from the Fixed Fund Account that have not been on deposit there
for at least seven years, you may incur a charge of anywhere from 1% to 7%,
depending upon how many years those payments have been invested in the Fixed
Fund Account. In addition, USAA Life assesses a charge at an annual rate of
0.65% against the assets of the Separate Account for the mortality and expense
risks we assume under the Contract. We also assess an Administrative Charge at
an annual rate of 0.10% against the assets of the Separate Account. (See
"Charges and Deductions," below.)
In addition to the Contract charges, each Fund pays a fee to its Adviser,
based upon Fund assets under management. There are also other expenses
associated with the daily operation of the Funds. These are more fully described
in the Prospectus for each Fund.
If your state assesses a premium tax with respect to your Contract, USAA Life
will deduct those amounts from the Contract Value in accordance with applicable
law. (See "Charges and Deductions," below.)
WHAT HAPPENS IF I DIE BEFORE THE ANNUITY DATE?
If you are the Annuitant, then the Beneficiary whom you designate will receive
either the sum of all premium payments (minus any prior partial withdrawal) or
the present Contract Value, whichever is greater, less any applicable premium
tax charge. Your Beneficiary will have certain options for how the money is to
be paid out. If you are an Owner who is not also an Annuitant, certain special
rules apply. (See "Death Benefits - Death Benefit Prior to Annuity Date,"
below.)
MAY I TRANSFER CONTRACT VALUE AMONG VARIABLE FUND ACCOUNTS?
Yes. However, there are limits on how often you may do so. (See "Transfers
and Withdrawals" and "Distribution Phase - Transfers of Annuity Units," below.)
MAY I TRANSFER CONTRACT VALUE FROM THE FIXED FUND ACCOUNT TO THE VARIABLE FUND
ACCOUNTS, AND VICE-VERSA?
Yes, subject once again to specific restrictions in the Contract and the
Prospectus. You may incur a charge for transfers from the Fixed Fund Account.
(See "Transfers and Withdrawals," and "Charges and Deductions - Fixed Fund
Account Withdrawal Charge," below.)
MAY I FULLY WITHDRAW FROM THE CONTRACT OR MAKE A PARTIAL WITHDRAWAL?
Yes, subject to any Contract requirements and to any restrictions imposed
under certain retirement plans. (For example, Owners under a public school
system or tax-exempt institution plan qualifying under Section 403(b) of the
Code are subject to special restrictions upon withdrawal.) If you make a full
or partial withdrawal from the Contract, certain charges may be assessed. (See
"Charges and Deductions," below.) In addition, the Internal Revenue Service
("IRS") may assess a 10% premature withdrawal penalty tax if you are under
59 1/2 years of age. (See "Transfers and Withdrawals" and "Tax Matters," below.)
ARE LOANS AVAILABLE UNDER THE CONTRACT?
No. However, the Company may in the future permit loans in connection with
tax-sheltered annuity Contracts. See "TSA Loans" in the SAI.
DO I GET A "FREE LOOK" AT THIS CONTRACT?
Yes. If you return your Contract to the Company within the Free Look Period,
it will be cancelled. (See "Return Privilege," below.) During the Free Look
Period plus five calendar days, your initial premium payment will be allocated
to the USAA Life Money Market Fund Account (See "Initial Premium Payments,"
below.)
EXPENSE TABLE
- -------------
The purpose of the Expense Table and the Example is to assist the Owner in
understanding the various costs and expenses that an Owner will bear directly or
indirectly when investing in the Contract. The expenses of the Separate Account
as well as those of the Funds are reflected in the Table and the Example, but
premium taxes that are applicable in some states are not reflected. For a more
complete description of the expenses of the Separate Account, see "Charges and
Deductions," below. For more complete information regarding expenses paid out
of the assets of the Fund, see the Prospectuses for the Funds.
9 A
<PAGE>
- --------------------------------------------------------------------------------
CONTRACT OWNER TRANSACTION EXPENSES
Sales Load Imposed on Premium Payments......................................None
Deferred Sales Load.........................................................None
Surrender Fee for Variable Fund Account................................None/(1)/
Transfer Fee...........................................................None/(1)/
Contract Maintenance Charge /(2)/.........................................$30.00
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE DAILY NET ASSET VALUE)
Mortality and Expense Risk Charge /(3)/....................................0.65%
Administrative Expense /(3)/...............................................0.10%
Total Separate Account Annual Expenses /(3)/...............................0.75%
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
ANNUAL EXPENSES OF THE FUNDS (AS A PERCENTAGE OF AVERAGE NET ASSETS)/(4)/
- -----------------------------------------------------------------------------------------------------
MANAGEMENT OTHER EXPENSES AFTER TOTAL FUND ANNUAL
NAME OF FUND FEES EXPENSE REIMBURSEMENT /(5)/ EXPENSES/(5)/
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
USAA Life Money Market Fund .20% .15% .35%
- -----------------------------------------------------------------------------------------------------
USAA Life Income Fund .20 .15 .35
- -----------------------------------------------------------------------------------------------------
USAA Life Growth and Income Fund .20 .14 .34
- -----------------------------------------------------------------------------------------------------
USAA Life World Growth Fund .20 .39 .59
- -----------------------------------------------------------------------------------------------------
USAA Life Diversified Assets Fund .20 .15 .35
- -----------------------------------------------------------------------------------------------------
USAA Life Aggressive Growth Fund .50 .20 .70
- -----------------------------------------------------------------------------------------------------
USAA Life International Fund .65 .45 1.10
- -----------------------------------------------------------------------------------------------------
Scudder VLIF Capital Growth Portfolio .475 .035 .51
- -----------------------------------------------------------------------------------------------------
Alger American Growth Portfolio .75 .04 .79
- -----------------------------------------------------------------------------------------------------
BT Equity 500 Index Fund .20 .10 .30
- -----------------------------------------------------------------------------------------------------
BT Small Cap Index Fund .35 .10 .45
- -----------------------------------------------------------------------------------------------------
BT EAFE/R/ Equity Index Fund .45 .21 .65
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) A charge of up to 7% of amounts allocated to the Fixed Fund Account will be
deducted upon certain transfers or withdrawals from that Account. (See
"Charges and Deductions - Fixed Fund Account Withdrawal Charge," below.)
(2) Annual deduction of $30 applies only during the Accumulation Phase and will
be waived to the extent it would cause the amount of interest earned on the
Fixed Fund Account from the last Contract anniversary to be less than a 3%
annual effective rate, or a higher rate if required by state law. (See
"Charges and Deductions - Contract Maintenance Charge," below.)
(3) Applies to all twelve Variable Fund Accounts but not to the Fixed Fund
Account.
(4) The Fund expenses shown above are assessed at the underlying Fund level and
are not direct charges against the Separate Account assets or reductions
from Contract Values and are not relevant to the Fixed Fund Account. These
Fund expenses are taken into consideration in computing each Fund's Net
Asset Value, which is the share price used to calculate the Variable Fund
Account Values.
(5) Pursuant to an Underwriting and Administrative Service Agreement
("Underwriting Agreement") with the Trust, USAA Life, out of its General
Account, has agreed to assume Trust Fund expenses to the extent that such
expenses exceed, on an annual basis, .65% of the monthly average net assets
of the World Growth Fund, .70% of the monthly average net assets of the
Aggressive Growth Fund, 1.10% of the monthly average net assets of the
International Fund, and .35% of the monthly average net assets of each other
Fund. In the absence of expense reimbursement arrangements, the expenses of
certain of the Trust's Funds for the 1997 fiscal year would have been as
follows: .70%, .52%, .85% and 1.24% for the Money Market, Income,
Diversified Assets, Aggressive Growth and International Funds, respectively.
The Underwriting Agreement is terminable by any party thereto upon 120 days'
notice to the other parties. Pursuant to a voluntary expense reimbursement
arrangement, Bankers Trust reimburses the BT Funds for certain expenses so
that the Equity 500 Index Fund, Small Cap Index Fund and EAFE/R/ Equity
Index Fund total operating expenses will not exceed 0.30%, 0.45% and 0.65%
respectively. Such expense reimbursements may be terminated at the
discretion of Bankers Trust. Absent such voluntary reimbursement
arrangement, the expenses for the 1997 fiscal year for the Equity 500 Index
Fund, the Small Cap Index Fund and the EAFE/R/ Equity Index Fund would have
been 2.78%, 3.27% and 2.75% respectively.
- --------------------------------------------------------------------------------
10A
<PAGE>
EXAMPLE:
The following chart depicts the dollar amount of expenses that would be
incurred under this Contract assuming a $1,000 investment and 5% annual return,
assuming you invest solely in one of the Variable Fund Account options. These
dollar figures are illustrative only and should not be considered a
representation of past or future expenses. Actual expenses may be greater or
lesser than those shown below and would differ for amounts allocated to the
Fixed Fund Account. The expense amounts presented are derived from a formula
which expresses the $30 Contract Maintenance Charge as a percentage of an
estimated $32,325 average Contract account size.
If you surrender your Contract or annuitize at the end of the applicable time
period, you would pay the following expenses on a $1,000 investment, assuming a
5% annual return on assets:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
NAME OF FUND ACCOUNT 1 YR. 3 YRS. 5 YRS. 10 YRS.
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
USAA Life Money Market Fund Account 12 38 67 153
- -----------------------------------------------------------------------------------------
USAA Life Income Fund Account 12 38 67 153
- -----------------------------------------------------------------------------------------
USAA Life Growth and Income Fund Account 12 38 67 152
- -----------------------------------------------------------------------------------------
USAA Life World Growth Fund Account 15 46 81 184
- -----------------------------------------------------------------------------------------
USAA Life Diversified Assets Fund Account 12 38 67 153
- -----------------------------------------------------------------------------------------
USAA Life Aggressive Growth Fund Account 16 50 87 198
- -----------------------------------------------------------------------------------------
USAA Life International Fund Account 20 63 110 250
- -----------------------------------------------------------------------------------------
Scudder VLIF Capital Growth Portfolio Account 14 44 76 174
- -----------------------------------------------------------------------------------------
Alger American Growth Portfolio Account 17 53 92 210
- -----------------------------------------------------------------------------------------
BT Equity 500 Index Fund Account 12 37 65 147
- -----------------------------------------------------------------------------------------
BT Small Cap Index Fund Account 13 42 73 166
- -----------------------------------------------------------------------------------------
BT EAFE/R/ Equity Index Fund Account 15 48 85 193
- -----------------------------------------------------------------------------------------
</TABLE>
SELECTED ACCUMULATION UNIT DATA
- -------------------------------
The table below reflects the historical performance of an accumulation unit
outstanding throughout the period shown under a representative Contract invested
in each Variable Fund Account, other than the Variable Fund Accounts
corresponding to the Funds of the BT Funds, which Fund Accounts had not yet
commenced operations. When reading the table, please bear in mind that the unit
value of each Variable Fund Account will not be the same on any given day as the
net asset value per share of the corresponding Fund in which that Subaccount
invests. One reason for this divergence is that each unit value consists of the
corresponding Fund's net asset value minus charges to the Variable Fund Account.
In addition, dividends declared by each corresponding Fund are reinvested by the
Variable Fund Account in additional shares of that Fund. These distributions
have the effect of reducing the value of each share of the Fund and increasing
the number of Fund shares outstanding. However, the total cash value in the
Variable Fund Account does not change as a result of such distribution. The
information in the table below is derived from the Separate Account's financial
statements, which have been audited by KPMG Peat Marwick LLP, the Separate
Account's certified independent public accountants, and should be read in
conjunction with the Separate Account's financial statements.
<TABLE>
<CAPTION> SCUDDER
USAA LIFE VLIF ALGER
USAA LIFE GROWTH USAA LIFE USAA LIFE USAA LIFE CAPITAL AMERICAN
MONEY USAA LIFE AND WORLD DIVERSIFIED USAA LIFE INTER- GROWTH GROWTH
MARKET INCOME INCOME GROWTH ASSETS AGGRESSIVE NATIONAL PORTFOLIO PORTFOLIO
FUND FUND FUND FUND FUND GROWTH FUND FUND FUND FUND
ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1997
- ----------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit
Value 1.127755 13.002940 19.287258 16.144375 16.518656 11.735078 10.113861 19.989715 18.239579
- ----------------------------------------------------------------------------------------------------------------------------------
Number of
Accumulation Units
(000) 13,416 545 3,242 1,168 1,401 197 153 1,125 1,722
- ----------------------------------------------------------------------------------------------------------------------------------
December 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit
Value $1.082816 $11.785992 $15.432048 $14.314911 $13.844197 - - $14.894774 $14.672583
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11A
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Number of
Accumulation Units
(000) 10,383 430 1,515 692 696 - - 689 1,639
- ----------------------------------------------------------------------------------------------------------------------------------
December 31, 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Accumulation Unit
Value $1.040729 $11.848795 $12.579981 $11.947438 $12.243941 - - $12.543192 $13.095503
- ----------------------------------------------------------------------------------------------------------------------------------
Number of
Accumulation Units
(000) 5,478 89 205 161 86 - - 93 630
- ----------------------------------------------------------------------------------------------------------------------------------
Date of Inception
February 6, 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit
Value* $ 1.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Accumulation Unit Value at date of inception. The date of inception for the
Fund Accounts listed, other than the USAA Life Aggressive Growth Fund and USAA
Life International Fund, was February 6, 1995. The date of inception for the
Aggressive Growth Fund and International Fund was May 1, 1997.
FINANCIAL STATEMENTS
- --------------------
The financial statements for the Separate Account are located in its Annual
Report, and the financial statements for the Company are located in the SAI. See
the cover page of this Prospectus for information on how to obtain a copy of the
Annual Report or SAI. These financial statements have been included in reliance
on the reports thereon of KPMG Peat Marwick, LLP, and the firm's authority as
experts in accounting and auditing. The financial statements of the Company
should be considered only as bearing on the ability of the Company to meet its
contractual obligations under the Contracts; they do not bear on the investment
performance of the Separate Account.
USAA LIFE
- ---------
USAA Life is a stock insurance company incorporated in the State of Texas in
1963. The Company is principally engaged in writing life insurance policies,
annuity contracts and health insurance policies. The Company is authorized to
transact insurance business in all states including the District of Columbia but
excluding New York. The Company on a consolidated statutory basis had total
assets of $6,862,829,054 on December 31, 1997. The Company is a wholly-owned
stock subsidiary of USAA, the parent company of the USAA group of companies.
USAA is a diversified financial services concern providing members and their
families with a wide array of products and services to maintain and enhance
their financial lifestyle. The Home Office of USAA Life is 9800 Fredericksburg
Road, San Antonio, Texas 78288.
As of the date of this Prospectus, USAA and USAA Life both held the highest
ratings from A.M. Best Company (A++ Superior) and Standard & Poor's Corporation
(AAA Superior). USAA and USAA Life also held the highest and second-highest
ratings (Aaa Exceptional and AA1 Excellent), respectively, from Moody's
Investors Service, as of that date. The ratings published by these independent
financial rating agencies serve as measurements of an insurer's financial
condition. The ratings are based on a qualitative as well as quantitative
evaluation of many factors, including an insurer's profitability, asset quality,
adequacy of reserves, capitalization and management practices. These ratings are
not a rating of investment performance that purchasers of insurance products
have experienced or are likely to experience in the future.
THE SEPARATE ACCOUNT
- --------------------
The Separate Account was established under Texas law pursuant to a resolution
of the Board of Directors on February 8, 1994. The Separate Account is
registered with the SEC as a unit investment trust under the Investment Company
Act of 1940, as amended (the "1940 Act"). The assets of the Separate Account
are the property of the Company. However, the assets of the Separate Account not
in excess of the reserves, and other Contract liabilities with respect to the
Separate Account, are not chargeable with liabilities arising out of any other
business the Company may conduct. Income, gains and losses, whether or not
realized, are, in accordance with the Contracts, credited to or charged against
the Separate Account without regard to other income, gains or losses of the
Company. The Company's obligations arising under the Contracts are general
corporate obligations. The Separate Account is divided into twelve Variable Fund
Accounts, each of which invests in a corresponding Fund or Portfolio, described
below.
THE FUNDS
- ---------
THE VARIABLE FUND ACCOUNTS
- ---------------------------
Each of the twelve Fund Accounts of the Separate Account invests solely in a
corresponding Fund. Seven of the Fund Accounts invest in Funds of the Trust;
one Fund Account invests in a Fund of the Scudder Fund; one Fund Account invests
in a Fund of the Alger Fund; and three Fund Accounts invest in Funds of the BT
Funds. The Trust, the Scudder Fund, the Alger Fund and the BT Funds are all
Mutual Funds
12A
<PAGE>
registered under the 1940 Act. A brief description of the Funds is
set out below. More comprehensive information, including a discussion of
potential risks, is found in each Fund Prospectus. Please read each Fund
Prospectus carefully.
INVESTMENT OBJECTIVES OF THE FUNDS
USAA LIFE MONEY MARKET FUND - The Fund's investment objective is to seek the
highest level of current income consistent with preservation of capital and
maintenance of liquidity.
USAA LIFE INCOME FUND - The Fund's investment objective is to seek maximum
current income without undue risk to principal.
USAA LIFE GROWTH AND INCOME FUND - The Fund's investment objective is to seek
capital growth and current income.
USAA LIFE WORLD GROWTH FUND - The Fund's investment objective is to seek long-
term capital appreciation.
USAA LIFE DIVERSIFIED ASSETS FUND - The Fund's investment objective is to seek
long-term capital growth, consistent with preservation of capital and balanced
by current income.
USAA LIFE AGGRESSIVE GROWTH FUND - The Fund's investment objective is
appreciation of capital.
USAA LIFE INTERNATIONAL FUND - The Fund's investment objective is capital
appreciation with current income as a secondary objective.
SCUDDER VLIF CAPITAL GROWTH PORTFOLIO - The Fund's investment objective is to
seek to maximize long-term capital growth.
ALGER AMERICAN GROWTH PORTFOLIO - The Fund's investment objective is to seek
long-term capital appreciation.
BT EQUITY 500 INDEX FUND - The Fund's investment objective is to replicate as
closely as possible (before deduction of Fund expenses) the total return of the
Standard & Poor's 500 Composite Stock Price Index.
BT SMALL CAP INDEX FUND - The Fund's investment objective is to replicate as
closely as possible (before deduction of Fund expenses) the total return of the
Russell 2000 Small Stock Index.
BT EAFE/R/ EQUITY INDEX FUND - The Fund's investment objective is to replicate
as closely as possible (before deduction of Fund expenses) the total return of
the Morgan Stanley Capital International Europe, Australia, Far East ("EAFE")
Index.
MANAGEMENT OF THE FUNDS
USAA Investment Management Company serves as the Trust's Adviser. The
Adviser's mailing address is 9800 Fredericksburg Road, San Antonio, Texas 78288.
The Adviser is a wholly-owned indirect subsidiary of USAA. Scudder Kemper
Investments, Inc., Two International Place, Boston, Massachusetts 02110, serves
as the Adviser to the Scudder VLIF Capital Growth Portfolio. Fred Alger
Management, Inc., 75 Maiden Lane, New York, New York 10038, serves as the
investment manager of the Alger American Growth Portfolio. Bankers Trust
Company, 130 Liberty Street, New York, New York, 10006, serves as the investment
manager of the BT Funds. Neither Scudder Kemper Investments, Inc., Fred Alger
Management, Inc., nor Bankers Trust Company is affiliated with USAA.
SUBSTITUTION OF FUNDS
If the shares of any Fund should no longer be available for investment by the
Separate Account, or if in the judgment of the Company further investment in
such shares would be undesirable in view of the purposes of the Contracts, the
Company may eliminate such Fund and substitute shares of another eligible
investment Fund. In most cases, a substitution of shares of any Fund would
require prior approval of the SEC and be subject to such requirements as it may
impose. In addition, the Company may add new Variable Fund Accounts to permit
investment in additional mutual funds.
13A
<PAGE>
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS
Any dividends or capital gain distributions paid on Fund shares are
automatically reinvested in shares of the Fund from which they are received at
the Fund's net asset value on the date payable. Such dividends and distributions
will have the effect of reducing the net asset value of each share of the
corresponding Fund, other than the Money Market Fund, and increasing, by an
equivalent value, the number of shares outstanding of the Fund. However, the
value of your interest in the corresponding Variable Fund Account will not
change as a result of any such dividends and distributions.
VOTING PRIVILEGES
Based upon its present view of applicable law, the Company will vote the
shares of the Trust, the Scudder VLIF Capital Growth Portfolio, the Alger
American Growth Portfolio, the BT Equity 500 Index Fund, the BT Small Cap Index
Fund and the BT EAFE/R/ Equity Index Fund held directly by it or through the
Separate Account in the Variable Fund Accounts at annual or special meetings,
if any, of the shareholders of such Funds in accordance with instructions
received from persons having the voting interest in the corresponding Variable
Fund Accounts. The person having the voting interest in a Variable Fund Account
will be the Contract Owner. The persons entitled to give voting instructions and
the number of shares which a person has a right to vote will be determined based
on Variable Fund Account Values as of the record date of the meeting.
The Company will vote shares attributable to Contracts for which it has not
received instructions, as well as shares attributable to it, in the same
proportion as it votes shares for which it has received instructions, unless it
determines that it may vote such shares in its own discretion. The Trust, the
Scudder Fund, the Alger Fund and the BT Funds do not hold regular shareholder
meetings.
SPECIAL CONSIDERATIONS
The Scudder Fund, the Alger Fund, and the BT Funds offer shares to separate
accounts of unaffiliated life insurance companies to fund benefits under
variable annuity contracts and variable life insurance policies. The Trust
offers its shares to separate accounts of the Company to fund benefits under the
Contracts and the variable life insurance policies. The Company does not
foresee any disadvantage to Contract Owners arising out of these arrangements.
Nevertheless, differences in treatment under tax and other laws, as well as
other considerations, could cause the interests of various purchasers of
contracts and policies to conflict. For example, violation of the federal tax
laws by one separate account investing in a Mutual Fund could cause the
contracts or policies funded through another separate account to lose their tax-
deferred status, unless remedial action were taken. If a material
irreconcilable conflict arises between separate accounts, a separate account may
be required to withdraw its participation in a Mutual Fund. If it becomes
necessary for any separate account to replace shares of a Mutual Fund with
another investment, the Mutual Fund may have to liquidate portfolio securities
on a disadvantageous basis. At the same time, each Mutual Fund and the Company
are subject to conditions imposed by the Securities and Exchange Commission that
are designed to prevent or remedy any conflict of interest. In this connection,
the Board of Trustees of each Mutual Fund has the obligation to monitor events
in order to identify any material irreconcilable conflict that may possibly
arise and to determine what action, if any, should be taken to remedy or
eliminate the conflict.
FIXED FUND ACCOUNT
- ------------------
THE FIXED FUND ACCOUNT IS NOT AVAILABLE IN ALL STATES. IF YOU ARE A RESIDENT
OF MD, WA, OR, PA OR MA, THE FIXED FUND ACCOUNT IS NOT PART OF THE CONTRACT. THE
FIXED FUND ACCOUNT IS ALSO NOT PART OF THE CONTRACT ISSUED UNDER THE TEXAS
OPTIONAL RETIREMENT PROGRAM. (SEE "TEXAS OPTIONAL RETIREMENT PROGRAM ("ORP").
AMOUNTS ALLOCATED TO THE FIXED FUND ACCOUNT OF THIS CONTRACT, AND AMOUNTS
SUPPORTING FIXED ANNUITY PAYMENTS, BECOME PART OF THE COMPANY'S GENERAL ACCOUNT.
BECAUSE OF EXEMPTIVE AND EXCLUSIONARY PROVISIONS, INTERESTS IN THE GENERAL
ACCOUNT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, NOR IS THE
GENERAL ACCOUNT REGISTERED AS AN INVESTMENT COMPANY UNDER THE 1940 ACT. THE
STAFF OF THE SECURITIES AND EXCHANGE COMMISSION HAS NOT REVIEWED THE DISCLOSURES
IN THIS PROSPECTUS THAT RELATE TO THE FIXED FUND ACCOUNT OR FIXED ANNUITY
PAYMENTS. DISCLOSURES REGARDING THESE MATTERS, HOWEVER, MAY BE SUBJECT TO
CERTAIN GENERALLY-APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES LAWS RELATING
TO THE ACCURACY AND COMPLETENESS OF STATEMENTS IN PROSPECTUSES.
Our obligations with respect to the Fixed Fund Account are legal obligations
of USAA Life and are supported by the assets of the General Account, which also
support obligations incurred by us under other insurance contracts. Investments
purchased with amounts allocated to the Fixed Fund Account are the property of
USAA Life, and Contract Owners have no legal rights in such investments.
14A
<PAGE>
Premium payments that you allocate, as well as amounts that you transfer, to
the Fixed Fund Account during any month ("New Money") will earn interest at the
New Money Interest Rate, which is the rate of interest that USAA Life declares
at the beginning of each month for all New Money received that month. The New
Money Interest Rate is credited through the end of the current calendar year in
which the New Money is allocated to the Fixed Fund Account.
The Contract Value in your Fixed Fund Account that is not attributable to New
Money will earn interest at the Portfolio Interest Rate, which is the rate of
interest that USAA Life declares at the beginning of each calendar year for that
year. USAA Life also may declare, before the beginning of each month, additional
interest on all amounts in the Fixed Fund Account other than New Money.
Both the New Money Interest Rate and the Portfolio Interest Rate are
guaranteed ("Guaranteed Interest Rates"). The Guaranteed Interest Rates under
the Contract will never fall below a minimum effective annual rate of 3% (or
higher rate, if required by state law).
The New Money Interest Rate may be higher or lower than the Portfolio Interest
Rate. As a result, there may be occasions when an Owner could earn a higher rate
of interest by transferring amounts that are no longer subject to a withdrawal
charge out of the Fixed Fund Account to a Variable Fund Account, and then
transferring the amount back into the Fixed Fund Account. By so doing, the
amount transferred would be considered New Money and would earn interest at the
New Money Interest Rate, which could be higher than the Portfolio Interest Rate
previously applicable, for the remainder of the year in which the transfer
occurred. You should be aware, however, that because any amounts transferred in
the foregoing manner would be considered New Money, they would again become
subject to the Fixed Fund Account Withdrawal Charge. (See "The Fixed Fund
Account - Fixed Fund Account Withdrawal Charge," below.)
FIXED FUND ACCOUNT WITHDRAWAL CHARGE
We will deduct a charge from certain premium payments or other payments
withdrawn or transferred from the Fixed Fund Account. In declaring interest
rates for the Fixed Fund Account, USAA Life takes numerous factors into account,
including the length of time that it expects Owners to leave funds in the Fixed
Fund Account. Generally speaking, a high degree of such Owner "persistence" in
the Fixed Fund Account tends to enable us to declare higher rates of interest
than we otherwise could. The Fixed Fund Account Withdrawal Charge is intended to
promote such persistence and to compensate us for costs we may incur if
persistence is less than we estimate.
The Fixed Fund Account Withdrawal Charge is calculated as a percentage of the
net amount of any premium payment or transfer into the Fixed Fund Account
(collectively, "Payments") that is subsequently withdrawn or transferred. The
applicable percentage will depend on how many years have elapsed since the
Payment being withdrawn or transferred was originally credited to the Fixed Fund
Account, according to the following schedule:
FIXED FUND ACCOUNT WITHDRAWAL CHARGE
- --------------------------------------------------------------------------------
NUMBER OF YEARS BETWEEN CHARGE AS A PERCENT OF PAYMENTS
WITHDRAWAL OR TRANSFER AND WITHDRAWN OR TRANSFERRED IN EXCESS
DATE OF PAYMENT INTO THE OF A 15% FREE WITHDRAWAL AMOUNT
FIXED FUND ACCOUNT
- --------------------------------------------------------------------------------
less than 1 7%
- --------------------------------------------------------------------------------
1 6
- --------------------------------------------------------------------------------
2 5
- --------------------------------------------------------------------------------
3 4
- --------------------------------------------------------------------------------
4 3
- --------------------------------------------------------------------------------
5 2
- --------------------------------------------------------------------------------
6 1
- --------------------------------------------------------------------------------
7 or more 0
- --------------------------------------------------------------------------------
THE FIXED FUND ACCOUNT WITHDRAWAL CHARGE DOES NOT APPLY TO THE VARIABLE FUND
ACCOUNTS.
For purposes of determining the applicable charge, a year is considered to be
a period of 365 days unless a leap year is involved. In addition, Payments will
be considered to be withdrawn or transferred on a first in-first out ("FIFO")
basis, that is, the earliest Payments will be considered withdrawn first and
before any earnings are deemed to be withdrawn. The Fixed Fund Account
Withdrawal Charge is calculated separately for Payments that have been made into
the Fixed Fund Account. The calculation of the Fixed Fund Account Withdrawal
Charge will be made in accordance with applicable state law and may vary. Please
refer to your annuity contract for more information.
The following transactions are not considered to be withdrawals for purposes
of assessing the Fixed Fund Account Withdrawal Charge: death of the Annuitant or
Owner prior to the Annuity Date, payment of a lump sum in lieu of a Distribution
Option and termination due to insufficient Contract Value. In addition, the
commencement of a Distribution Option currently is not subject to the Fixed Fund
Account Withdrawal Charge.
15A
<PAGE>
THE FIXED FUND ACCOUNT WITHDRAWAL CHARGE WILL NOT APPLY:
. To any Payment received by the Company at least seven years prior to the
requested date of withdrawal or transfer and that has not been previously
withdrawn or transferred;
. To the amount of any interest earned on the amount of your Payments into the
Fixed Fund Account;
. To withdrawals or transfers during any Contract Year of up to 15% of the value
of the Payments that have been made to the Fixed Fund Account during the seven
years preceding the requested date of a withdrawal or transfer ("15% Free
Withdrawal Amount"). Unused portions of this 15% Free Withdrawal Amount are
not carried forward to further Contract Years.
CONTRACT ISSUANCE AND PREMIUM PAYMENTS
- --------------------------------------
WHO MAY PURCHASE A CONTRACT
Any individual of legal age in the states where the Contracts may be lawfully
sold, who is eligible to participate in any of the Qualified or Nonqualified
Plans for which the Contracts are designed, may apply to purchase a Contract.
The Contract is not available to persons who have attained the age of 85.
HOW TO PURCHASE A CONTRACT
To purchase a Contract, you must complete an application ("Application") and
submit it, along with your initial premium payment, to our Service Office. If we
accept the Application, we will prepare and issue a Contract to you. The
Effective Date of the Contract will appear on the Contract Information Page.
If a premium payment accompanies your Application and the Application is
complete, we will either accept the Application and credit your premium payment,
or reject the Application and return the premium payment, within two Valuation
Dates after the Date of Receipt of the Application at our Service Office.
If your Application is not complete, or is incorrectly completed, we will
request that you provide additional documents or information within five
Valuation Dates after the Date of Receipt of the Application at our Service
Office. If we do not receive a correctly-completed Application within this five-
day period, we will immediately return your premium payment to you, unless you
specifically consent to our retaining the premium payment until the Application
is made complete, in which case we will credit your initial premium payment
within two Valuation Dates after we receive the last information required to
process the Application.
MINIMUM PREMIUM PAYMENTS
The current minimum initial and subsequent premium payments under the
Contracts are set out below.
MINIMUM MINIMUM
TYPE OF PLAN INITIAL PREMIUM SUBSEQUENT PREMIUM
- --------------------------------------------------------------------------------
Nonqualified Annuity $1,000* $100*
- --------------------------------------------------------------------------------
IRA and SEP-IRA $ 100 $ 50*
- --------------------------------------------------------------------------------
SAR-SEP IRA $ 25 $ 25
- --------------------------------------------------------------------------------
TSA or ORP $ 50 $ 50
- --------------------------------------------------------------------------------
* EMPLOYEES OF ANY OF THE USAA GROUP OF COMPANIES WHO PURCHASE THE CONTRACT MAY
MAKE AN INITIAL PREMIUM PAYMENT OF $500 FOR NONQUALIFIED ANNUITIES, AND
MINIMUM SUBSEQUENT PREMIUM PAYMENTS BY PAYROLL DEDUCTION IN AN AMOUNT NOT LESS
THAN $25 FOR NONQUALIFIED ANNUITIES, IRA'S AND SEP-IRA'S.
ALLOCATION OF INITIAL AND SUBSEQUENT PREMIUM PAYMENTS
You may allocate your premium payments among the Fixed and Variable Fund
Accounts under this Contract in amounts no smaller than one tenth of a percent,
provided that the total amount equals an aggregate of 100 percent.
INITIAL PREMIUM PAYMENTS
If you allocate any part of the initial premium payment to the Fixed Fund
Account, we will allocate it to that Account on the Effective Date. If you
allocate any part of the initial premium payment to any of the Variable Fund
Accounts, we will allocate it to the USAA Life Money Market Fund Account on the
Effective Date. That premium will remain in the USAA Life Money Market Fund
Account for the Free Look Period plus five calendar days. On the Valuation Date
immediately following the end of that
16A
<PAGE>
period, the initial premium payment, together with any subsequent premium
payments that have been made, plus the earnings thereon will be allocated among
the Variable Fund Accounts as directed on the Application.
SUBSEQUENT PREMIUM PAYMENTS
So long as your Contract Value does not fall below $1,000 (other than for
Contracts issued in connection with Qualified Plans), you need make no further
premium payments. You may, however, make subsequent premium payments at any time
before the Annuity Date. We will allocate subsequent premium payments among the
various Fixed and Variable Fund Accounts in the same manner as the allocation
of the initial premium payment. We will credit all subsequent premium payments
on the Date of Receipt, using, in the case of Variable Fund Accounts, the
Accumulation Unit Value next computed on the Date of Receipt. You may change the
allocation of subsequent premium payments at any time by sending a Written or
Telephone Request to our Service Office. A request to change subsequent premium
payment allocations will be effective with the first premium payment received on
or after the Date of Receipt of the request.
DISTRIBUTOR
USAA IMCO, an affiliate of USAA Life, serves as the principal underwriter
("Distributor") of the Contracts pursuant to a Distribution and Administration
Agreement ("Agreement"). Under the Agreement, USAA IMCO will offer the
Contracts for sale and distribution through its registered representatives, who
are also qualified life insurance agents employed by USAA Life. USAA IMCO also
will provide certain administrative services to USAA Life.
RETURN PRIVILEGE
You may return your Contract to the Company within the Free Look Period. If
you return your Contract within the Free Look Period, we will refund any premium
payment allocated to the Fixed Fund Account, plus the greater of (1) premium
payments allocated to the Variable Fund Accounts or (2) the Variable Fund
Accounts' Value as of the Date of Receipt of the cancellation request plus any
mortality and expense risk charge, administrative expense charge and any premium
taxes that have been deducted. The Contract will be deemed void as if no
Contract had been issued.
MINIMUM CONTRACT VALUE
If during the Accumulation Phase your Contract Value is less than $1,000 and
we have received no premium payments for a period of two years, we may at our
option cancel your Contract. This minimum does not apply in the case of
Contracts issued in connection with Qualified Plans. We will give the Contract
Owner 30 days written notice of, and an opportunity to satisfy, this requirement
before we cancel the Contract. In the event of a cancellation, we will pay the
Owner the Contract Value in a lump sum and be released of any further
obligations under the Contract.
ACCUMULATION PHASE
- ------------------
The Accumulation Phase of a Contract is the period prior to the Annuity Date
during which you may invest your premium payments in the Fixed and/or Variable
Fund Accounts under the Contract. All premium payments credited to the Fixed
Fund Account or Variable Fund Accounts are net of any applicable premium tax.
Your premium payments will help build Contract Value.
Your Contract Value during the Accumulation Phase will equal the sum of your
Variable Fund Accounts' Value and your Fixed Fund Account Value, as discussed
below.
FIXED FUND ACCOUNT VALUE
The value of your Contract in the Fixed Fund Account ("Fixed Fund Account
Value") on any given Valuation Date will be equal to the sum of premium payments
allocated to the Fixed Fund Account: (1) less any applicable premium tax; (2)
plus accumulated interest; (3) plus any amounts transferred from the Variable
Fund Accounts to the Fixed Fund Account; (4) less the Fixed Fund Account portion
of any Contract Maintenance Charges; and (5) less any withdrawals or transfers
of value.
VARIABLE FUND ACCOUNT VALUE
The value of your Contract in each Variable Fund Account ("Variable Fund
Account Value") on any given Valuation Date will equal the product of the number
of Accumulation Units credited to that Account as of that Valuation Date
multiplied by the value of the Account's Accumulation Unit ("Accumulation Unit
Value") as of that date. A Variable Fund Account's Accumulation Unit Value will
fluctuate and vary with the investment experience of the corresponding Fund.
Accumulation Units are credited to a Variable Fund Account when you allocate
premium payments or transfer amounts from other Variable Fund Accounts or the
Fixed Fund Account to that particular Variable Fund Account. The number of
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Accumulation Units credited to a Variable Fund Account is determined by dividing
the premium or other amount being credited to the Account by the Accumulation
Unit Value for the Valuation Date as of which the premium or other amount is to
be credited. In similar fashion, Accumulation Units are cancelled and your value
in a Variable Fund Account is reduced by any amounts you have withdrawn or
transferred from that Account, and by the portion of the Contract Maintenance
Charge that is allocable to the Account.
You may call our Service Office to receive a quotation of the daily
Accumulation Unit Values credited to your Contract. The Accumulation Unit Value
of each Variable Fund Account will be determined once each Valuation Date at the
close of trading of the New York Stock Exchange, currently 4:00 p.m. New York
time.
Each Variable Fund Account's Accumulation Units are valued separately.
Initially, the Accumulation Unit Value of each Variable Fund Account was set at
$10, except for the Money Market Fund Account, which was set at $1. Thereafter,
the Accumulation Unit Value of a Variable Fund Account as of the end of any
Valuation Period is calculated as one (1) multiplied by two (2) where:
(1) is the Accumulation Unit Value for the Account as of the end of the
immediately preceding Valuation Period and
(2) is the net investment factor for the Valuation Period then ended.
NET INVESTMENT FACTOR
The net investment factor ("NIF") is used to determine how the investment
experience of a Fund affects the Accumulation Unit Value of the corresponding
Variable Fund Account from one Valuation Period to the next Valuation Period.
The NIF for each Variable Fund Account as of the end of any Valuation Period is
determined by dividing (1) by (2) and subtracting (3) from the result where:
(1) Is the net result of:
(a) the net asset value per share of the corresponding Fund as of the end
of the current Valuation Period;
(b) plus the per share amount of any dividend or capital gain distributions
made on the Fund shares held in the corresponding Variable Fund Account
during the current Valuation Period;
(c) plus or minus a per share credit or charge for that current Valuation
Period for any decrease or increase, respectively, in any income taxes
reserved that we determine has resulted from the investment operations
of the particular Variable Fund Account or any other taxes that are
applicable to this Contract;
(2) Is the net asset value per share of the corresponding Fund at the beginning
of the current Valuation Period; and
(3) Is a factor representing the mortality and expense risk and administrative
expense charge. The annual charge is 0.75% (0.65% for the mortality and
expense risk charge and 0.10% for the administrative expense charge).
TRANSFERS AND WITHDRAWALS
- -------------------------
TRANSFERS
Subject to the restrictions below, you may transfer your Contract Value among
the Fixed and Variable Fund Accounts. There is no charge for a transfer from a
Variable Fund Account; however, transfers from the Fixed Fund Account may be
subject to a substantial withdrawal charge. (See "The Fixed Fund Account
Withdrawal Charge," above.) The following restrictions apply to all transfers.
(1) Only six transfers may be made each Contract Year.
(2) The minimum amount of value that may be transferred from one Account to
another Account is $100, or, if less, the total remaining Account balance.
(3) A Written or Telephone Request for a transfer must clearly state the amount
to be transferred, the Fixed or Variable Fund Account from which it is to
be withdrawn, and the Account to which it is to be credited.
(4) A transfer will result in either the redemption or purchase of Accumulation
Units, or both; the transfer will be processed effective at the
Accumulation Unit Value next computed on the Date of Receipt of the
transfer request.
(5) We reserve the right at any time and without prior notice to terminate,
suspend, or modify these transfer privileges.
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FULL AND PARTIAL WITHDRAWALS
You may, at any time during the Accumulation Phase while the Annuitant is
still living, make a full or partial withdrawal from your Contract. A full or
partial withdrawal from a Variable Fund Account is not subject to any charge,
except that the full $30 Contract Maintenance Charge will be deducted upon a
full withdrawal of the Contract during a Contract Year. A full or partial
withdrawal from the Fixed Fund Account, however, may be subject to a substantial
withdrawal charge. (See "The Fixed Fund Account - Fixed Fund Account Withdrawal
Charge," above.) To make full or partial withdrawal from your Contract, you must
submit a Written or Telephone Request to our Service Office. In the case of a
partial withdrawal, you should specify the Fixed and/or Variable Fund Accounts
from which you wish the partial withdrawal to be made. If you do not specify the
Variable Fund Accounts, the withdrawal will be taken pro rata from your
Contract Value in each Variable Fund Account. In connection with a partial
withdrawal, the minimum amount that you may request for withdrawal from the
Fixed Fund Account or a Variable Fund Account is $500, or, if less, the
remaining balance in the Account.
Except as provided under "Postponement of Payments," below, within seven
calendar days of the Date of Receipt of your Written or Telephone Request for
full or partial withdrawal, we will pay you all or part of your Contract Value,
as appropriate, as of the Date of Receipt, less any applicable charges. We
reserve the right to defer the payment of a withdrawal from the Fixed Fund
Account for up to six months from the Date of Receipt of the Written or
Telephone Request at our Service Office.
Certain premature withdrawals may be subject to federal income tax and
penalties. For a discussion of this and other tax implications, see "Tax
Matters," below. The Owner should seek the advice of a tax adviser prior to
making a withdrawal.
CHARGES AND DEDUCTIONS
- ----------------------
Various charges and deductions are made from the Contract Values, the Separate
Account, and the Funds, as described below.
PREMIUM TAXES
Premium taxes or other similar assessments imposed by states, municipalities
or other governmental entities will be charged against the Contracts. Premium
taxes currently imposed by certain states range from 0% to 3.5%. The Company
will deduct such charges from the Owner's Contract Value either when the premium
payment is received or from the amount applied to effect an annuity at the time
annuity payments commence, in accordance with applicable state law. The amount
of any premium tax charge will depend on your state of residence. No amount
charged for premium taxes is deductible by you for federal income tax purposes.
CONTRACT MAINTENANCE CHARGE
Beginning on the first anniversary of the Effective Date, and each Contract
anniversary thereafter, we will deduct a charge of $30 from the Contract Value
for Contract maintenance. This charge will apply only while the Contract is in
the Accumulation Phase. We will pro-rate the charge among the Fixed and Variable
Fund Accounts under the Contract. If the Contract is surrendered for the total
Contract Value on a date other than a Contract anniversary date, the entire
Contract Maintenance Charge for that year will be deducted. This charge will not
be deducted from death benefit proceeds on the death of an Owner or Annuitant,
from a lump sum payment in lieu of annuitization, or upon termination due to
insufficient Contract Value. The Contract Maintenance Charge is waived by the
Company for contracts issued under the Texas Optional Retirement Program.
ADMINISTRATIVE EXPENSE CHARGE
The Company assesses each Variable Fund Account a daily charge at an
annualized rate of 0.10% of the average daily net assets of each Variable Fund
Account. This charge, together with the Contract Maintenance Charge, is to
reimburse the Company for the expenses it incurs in the establishment and
maintenance of the Contracts and each Variable Fund Account. These expenses
include, but are not limited to: preparation of the Contracts, confirmations,
periodic reports and statements, maintenance of the Owner's records, maintenance
of the Separate Account records, administrative personnel costs, mailing costs,
data processing costs, legal fees, accounting fees, filing fees, the costs of
other services necessary for Owner servicing, and all accounting, valuation,
regulatory and reporting requirements. The Company does not intend to profit
from this charge, on average, over the period that the Contracts are in force.
This charge will be reduced to the extent that the amount of this charge is in
excess of that necessary to reimburse the Company for its administrative
expenses. Should this charge prove to be insufficient, the Company will not
increase this charge (or the Contract Maintenance Charge) and will bear the
loss.
The investment advisers or other affiliates of the Alger Fund and the BT
Funds, respectively, certain Mutual Funds reimburse the Company for the cost of
administrative services provided to those Funds as investment options under the
Contracts. Compensation is paid out of fee earnings, based on a percentage of
each of these Mutual Fund's average net assets attributable to a Contract.
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MORTALITY AND EXPENSE RISK CHARGE
To compensate it for assuming mortality and expense risks under the Contracts,
the Company assesses each Variable Fund Account a daily charge at the
annualized rate of 0.65% of the average daily net assets of each Variable Fund
Account attributable to the Contracts. This charge consists of approximately
0.40% for mortality risks and 0.25% for expense risks. The mortality risks
assumed by the Company arise from its contractual obligation to make annuity
payments after the Annuity Date for the life of the Annuitant in accordance with
annuity rates guaranteed in the Contracts under distribution options that
involve life contingencies. USAA Life will also assume a mortality risk by its
contractual obligation to pay a death benefit upon the death of an Annuitant or
Contract Owner prior to the Distribution Phase. The expense risk assumed by the
Company is that all actual expenses involved in administering the Contracts,
including Contract maintenance costs, administrative costs, mailing costs, data
processing costs, legal fees, accounting fees, filing fees and the costs of
other services may exceed the amount recovered from the Contract Maintenance
Charge and the Administrative Expense Charge. The Mortality and Expense Risk
Charge is guaranteed by the Company and cannot be increased.
If the Mortality and Expense Risk Charge is insufficient to cover the actual
costs associated with the Contracts, the loss will be borne by the Company.
Conversely, if the amount deducted proves more than sufficient, the excess will
be a profit to the Company. The Company expects to profit from this charge.
INCOME TAXES
The Company reserves the right to charge for federal income taxes that may be
incurred by the Separate Account. This charge applies only to the Variable Fund
Accounts under this Contract.
EXPENSES OF THE FUNDS
The fees and expenses paid out of the assets of the Funds are described in
detail in the accompanying prospectuses for the Funds.
TRANSFER FEE
The Company does not charge a transfer fee for transfers among the Variable
Fund Accounts, or for transfers from a Variable Annuity Fund Account to the
Fixed Fund Account. Transfers from the Fixed Account to a Variable Fund Account,
however, may be subject to a withdrawal charge. (See "Fixed Fund Account
Withdrawal Charge," above.)
FIXED FUND ACCOUNT WITHDRAWAL CHARGE
This charge is described under "Fixed Fund Account - Fixed Fund Account
Withdrawal Charge." THIS CHARGE DOES NOT APPLY TO THE VARIABLE FUND ACCOUNTS.
SPECIAL SERVICES
- ----------------
DOLLAR COST AVERAGING PROGRAM
During the Accumulation Phase, you may take advantage of our dollar cost
averaging program ("Dollar Cost Averaging Program"). The Dollar Cost Averaging
Program enables you to make regular, approximately equal investments over time
in the Fixed Fund Account and/or one or more of the Variable Fund Accounts, by
transferring a fixed dollar amount or a specified percentage at regular
intervals from one or more Variable Fund Accounts under the Contract. Transfers
from the Fixed Fund Account are not permitted in connection with the Dollar Cost
Averaging Program.
To begin the Dollar Cost Averaging Program, you must have at least $5,000 in
the Variable Fund Account from which you intend to transfer Contract Value. The
minimum amount that may be transferred is $100, or, if less, the remaining value
of the Account. The transfers must be scheduled to occur over a period of at
least 12 months at monthly, quarterly, or semi-annual intervals, as you elect.
You may select this Program by submitting a Written Request to our Service
Office or by Telephone Request. You may cancel your participation in this
Program in the same manner.
Transfers under the Dollar Cost Averaging Program will be processed effective
at the Accumulation Unit Value at the end of the Valuation Period that includes
the date of transfer. The transfers made under the Dollar Cost Averaging
Program do not count toward your limit of six transfers per Contract Year.
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We reserve the right to suspend, terminate or modify the offering of the
Dollar Cost Averaging Program upon providing you written notice 30 days in
advance. Should we suspend or terminate the Program, the suspension or
cancellation will not affect any Contract as to which the Dollar Cost Averaging
Program is already in effect.
SYSTEMATIC WITHDRAWAL PROGRAM
You may participate in a systematic withdrawal program ("Systematic Withdrawal
Program"), under which you may elect to withdraw pre-set amounts on an annual,
semi-annual, quarterly, or monthly basis from the Fixed and/or Variable Fund
Accounts under your Contract.
The minimum amount of Contract Value you must have to begin a Systematic
Withdrawal Program is $20,000. The minimum amount that can be withdrawn from
the Fixed or a Variable Fund Account under this Program is $250, or, if less,
the remainder of the Account. You may change the amount or frequency of the
systematic withdrawal once in each Contract Year by submitting a Written or
Telephone Request to our Service Office.
Withdrawals will be processed effective at the Accumulation Unit Value at the
end of the Valuation Period that includes the date of withdrawal. Withdrawals
may be made pro rata from all Accounts under the Contract or the Owner may
specify the Accounts from which the withdrawal will be made.
You may select this Program by submitting a Written or Telephone Request to
our Service Office. You may cancel your participation in this Program in the
same manner.
Systematic withdrawals from the Fixed Fund Account are subject to any Fixed
Fund Account Withdrawal Charge that would apply to any other Fixed Fund Account
withdrawal. (See "The Fixed Fund Account - Fixed Fund Account Withdrawal
Charge.") We reserve the right to suspend, terminate or modify the offering of
this Program during the Accumulation Phase of the Contract upon providing you
written notice 30 days in advance. Should we suspend or terminate this Program,
the suspension or cancellation will not affect any Contract as to which the
Systematic Withdrawal Program is already in effect.
Systematic withdrawals may be subject to federal income tax and penalties.
(See "Tax Matters.") The Owner should seek the advice of a tax adviser prior to
selecting a Systematic Withdrawal Program.
Currently, there is no charge for systematic withdrawals, but the Company
reserves the right to charge for this Program during the Accumulation Phase of
the Contract. The Company does not intend to profit from any such charge.
AUTOMATIC PAYMENT PLAN
You may establish an automatic payment plan ("Automatic Payment Plan") by
completing the appropriate form. Call our Service Office to obtain the form and
instructions. The Automatic Payment Plan is a program under which you may elect
to pay a pre-set premium amount periodically from a checking or savings account.
Under this Plan you authorize us to withdraw the pre-set premium amount
automatically on a pre-determined periodic basis to invest in the Fixed Fund
Account and/or one or more of the Variable Fund Accounts.
DISTRIBUTION PHASE
- ------------------
The Distribution Phase describes the period under the Contract during which
the Annuitant or other payee will receive annuity payments, based on amounts
accumulated under the Contract during the Accumulation Phase. The Company will
make annuity payments pursuant to the distribution option ("Distribution
Option") selected by the Contract Owner, beginning on the Annuity Date,
described below, and will continue to make such payments for the period
specified in the Distribution Option selected.
ANNUITY DATE
The Annuity Date is the date that the Contract Owner selected on the
Application. If this Contract is used as a Qualified Plan, the Annuity Date must
not be later than the date required by federal income tax law. (See "Tax
Matters.") If this Contract is used as a Nonqualified Plan, the Annuity Date may
not be later than the Annuitant's 95th birthday. The Annuity Date also must be
at least six months after the Effective Date, unless we choose to waive this
requirement. The Contract Owner may change the Annuity Date selected by
submitting a Written Request to our Service Office, which must be received at
least 30 days prior to the Annuity Date.
APPLICATION OF CONTRACT VALUE
We will apply your Contract Value as of the end of the Valuation Period
immediately preceding the tenth day before the Annuity Date to the Distribution
Option that you have selected. You may apply your Contract Value to provide:
(a) Fixed Annuity Payments, (b) Variable Annuity Payments, (c) a combination of
Fixed and Variable Annuity Payments, or (d) systematic withdrawals.
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FIXED AND VARIABLE ANNUITY PAYMENTS
A Fixed Annuity provides monthly payments in an amount guaranteed by the
Company for a specified period of time. A Variable Annuity is similar to a Fixed
Annuity, except that the amount of each payment is not guaranteed and will vary
in accordance with the net investment experience of the Variable Fund Account to
which all or part of the Contract Value has been applied.
Examples of the minimum amount of the first monthly Fixed or Variable Annuity
Payment for each $1,000 of Contract Value applied to a Fixed or Variable
Distribution Option is shown for various ages in the appropriate Annuity Payment
Table in the Contract.
The amount of each subsequent monthly Fixed Annuity Payment is fixed and
specified by the terms of the Distribution Option selected. The amount of each
subsequent Variable Annuity Payment will be equal to the product of (1) the
number of Annuity Units of the Variable Fund Accounts funding the Variable
Annuity Payment multiplied by (2) the values of those Annuity Units ("Annuity
Unit Values"). The payments from each Variable Fund Account are then added to
determine the total Variable Annuity Payment to be made to the Annuitant.
NUMBER OF ANNUITY UNITS - The number of Annuity Units of each Variable Fund
Account under your Contract will depend on the amount of Contract Value that you
have allocated to each Variable Fund Account. The Contract Value allocated to
each Variable Fund Account that is applied to provide Variable Annuity Payments
is converted to a number of Annuity Units for each Variable Fund Account by
dividing the amount of the first Variable Annuity Payment by the Annuity Unit
Value of the relevant Variable Fund Account as of the Valuation Period ending
immediately prior to the tenth day before the Annuity Date. This results in a
number of Annuity Units for each Variable Fund Account which thereafter remains
constant.
ANNUITY UNIT VALUE - The Annuity Unit Value for each Variable Fund Account was
established initially at $10 ($1 in the case of Money Market Fund Account).
Thereafter, the Annuity Unit Value of a Variable Fund Account of the end of any
Valuation Period is calculated by multiplying (1) by (2) and multiplying the
result by (3) where:
(1) is the Annuity Unit Value for the Variable Fund Account as of the end of the
immediately preceding Valuation Period;
(2) is the Net Investment Factor for the Valuation Period then ended (see
"Accumulation Phase - Net Investment Factor); and
(3) is a factor used to adjust for the assumed interest rate of 3% per year used
in the annuity payment tables used in the Contracts (but which is not
applicable because the actual amount earned on the Variable Fund Account is
credited instead).
As a result of the foregoing computations, if the net investment return for a
Variable Fund Account for any month is at an annual rate of more than 3%, any
Variable Annuity Payment based on that Variable Fund Account will be greater
than the Variable Annuity Payment based on that Account for the previous month.
Conversely, if the net investment return for a Variable Fund Account for any
month is at an annual rate of less than 3%, any Variable Annuity Payment based
on that Variable Fund Account will be less than the Variable Annuity Payment
based on that Account for the previous month.
DISTRIBUTION OPTIONS
You may elect to receive annuity payments under any one or more of the
Distribution Options listed below or any other option including a lump sum which
you and the Company mutually agree upon in writing. The Company may, at its
discretion, offer more favorable distribution option values based upon future
interest rate and mortality assumptions.
At least 30 days prior to the Annuity Date, you must inform us in writing
which one of the Distribution Options you want to use to begin annuity payments,
and whether you want your Contract Value to fund a Fixed Annuity, a Variable
Annuity, a combination Fixed and Variable Annuity, or systematic withdrawals.
Your Contract Value will then be applied to determine the amount of the annuity
payment. Variable Annuity Payments can be provided from a maximum of four
Variable Fund Accounts.
Payments on a Fixed Annuity basis are available under Options 1 through 5.
Payments on a Variable Annuity basis are available only under Options 1, 2 and
3. Option 6 provides for systematic withdrawals. You should be aware that,
although Options 1, 2 and 3 are designed to provide annuity payments for life,
electing these Options on a Variable Annuity basis involves investment risks. If
the investment performance of the Funds you select is poor, the amount of future
Annuity Payments could be reduced substantially or possibly altogether.
No full or partial withdrawals are permitted under Options 1 through 5
subsequent to the Annuity Date.
If you have not elected a Distribution Option at least 30 days prior to the
Annuity Date, we will apply the Contract Value, less any applicable premium tax
charge, under Distribution Option 2, with monthly payments guaranteed for 10
years. Fixed Fund Account Value will be applied to effect a Fixed Annuity.
Variable Fund Account Value will be applied to effect a Variable Annuity with
payments funded
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from each Variable Fund Account in the same proportion as each Account's value
has to the total value of all Variable Fund Accounts under your Contract. We
will apply your Contract Value as of the end of the Valuation Period immediately
preceding the tenth day before the Annuity Date.
If the Contract has been assigned, the amount due the assignee must be paid in
a lump sum before any annuity payments can be determined and commence.
OPTION 1. INCOME PAYMENTS FOR LIFE - Under this option, the Company guarantees
periodic payments as long as the Annuitant is alive. It is possible under this
option for the Annuitant or other payee to receive only one annuity payment if
the Annuitant died prior to the second annuity payment, since no minimum number
of payments is guaranteed.
OPTION 2. INCOME PAYMENTS FOR LIFE WITH A CERTAIN PERIOD GUARANTEED - Under this
option, the Company guarantees that payments will be made for a certain period
of time even if the Annuitant dies before that period of time has expired.
OPTION 3. JOINT AND SURVIVOR LIFE INCOME - Under this option, the Company
guarantees periodic payments as long as the Annuitant or the Joint Annuitant is
alive. It is possible under this option for an Annuitant or other payee to
receive only one annuity payment if both Annuitants die prior to the second
annuity payment, since no minimum number of payments is guaranteed. If one of
these persons dies before the Annuity Date, the election of this option is
revoked, and the survivor becomes the sole Annuitant. The surviving Annuitant
may elect to receive any one or more of the other Distribution Options available
under the Contracts.
OPTION 4. INCOME FOR SPECIFIED PERIOD - If this option is selected, the Company
will make periodic payments which are guaranteed for a specified period of time.
This period of time is agreed upon before payments begin. This period of time
cannot be longer than 30 years. The amount of each payment is the same and is
established pursuant to an annuity payment table contained in the Contract.
OPTION 5. INCOME OF FIXED AMOUNT - If this option is selected, a sum of monetary
value is transferred to the Company. In exchange, the Company agrees, pursuant
to an annuity payment table contained in the Contract, to pay the specified
amount of interest on the principal and to make periodic payments of a fixed
dollar amount that is chosen as long as the principal and interest earnings
last.
OPTION 6. SYSTEMATIC WITHDRAWALS - You may elect a series of substantially equal
periodic payments made either monthly, quarterly, semi-annually or annually.
These payments may be made over the life expectancy of the Annuitant or over a
shorter period of time. You may change the amount or frequency of the
systematic withdrawal once in each Contract Year. The minimum amount of Contract
Value you must have to elect systematic withdrawal is $20,000 or $5,000 if the
Contract funds a Qualified Plan. The minimum amount that can be withdrawn from
an Account under this Contract is $250, or, if less, the remaining balance of
the Account. To the extent that this Option 6 is selected, the systematic
withdrawals are subject to the terms and conditions set forth under "Special
Services - Systematic Withdrawal Program," above.
If this Contract is used to fund a Qualified Plan and if distributions are
required under federal income tax law, we offer a service to determine the
minimum amount of distribution that must be taken each year. You may arrange
with us to have this amount distributed by systematic withdrawal.
Once annuity payments have begun, a distribution option may be commuted only
if agreed to by the Company.
TRANSFERS OF ANNUITY UNITS
After the Annuity Date, the Annuitant or other payee may transfer Annuity
Units among the Variable Fund Accounts (up to a maximum of four Variable Fund
Accounts), or from a Variable Fund Account to a Fixed Annuity under the same
Distribution Option previously in effect. There is no charge for such transfers.
Transfers may not be made from a Fixed Annuity to a Variable Annuity or to a new
Distribution Option. The minimum amount that may be transferred from a Variable
Fund Account is $100.
Transfers from a Variable Fund Account to another Variable Fund Account or to
a Fixed Annuity are subject to a limit of three per Contract Year during the
Distribution Phase. There is no charge for such transfers. Once you have
transferred Annuity Unit Value to the Fixed Fund Account, it is locked in and
cannot be transferred out.
We will process transfer requests using the Annuity Unit Value next computed
on the Date of Receipt of the transfer request, which may be by Written or
Telephone Request.
MINIMUM CONTRACT VALUE
If at the time your Contract becomes payable, the Contract Value is less than
$2,000 or would provide a monthly distribution payment of less than $20 per
month, we may at our option cancel this Contract. In this event, we will pay
the Annuitant the Contract Value in a lump sum and be released of any further
obligations under the Contract.
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POSTPONEMENT OF PAYMENTS
- ------------------------
We will normally pay amounts withdrawn from a Contract within seven calendar
days after our Date of Receipt of the Written or Telephone Request for
withdrawal using the Fixed or Variable Fund Account Value as of that Date of
Receipt. In addition, we will normally effect transfers of Contract Value among
the Fixed and Variable Fund Accounts using the Fixed or Variable Fund Account
Values as of the Date of Receipt of the Written or Telephone Request for
transfer.
However, we may not be able to determine the value of assets of the Variable
Fund Accounts if: (1) the New York Stock Exchange is closed for other than
customary weekends and holidays; (2) trading on the New York Stock Exchange is
restricted; or (3) an emergency exists as a result of which it is not reasonably
practicable to dispose of securities held in the Separate Account or determine
their value. In such cases, we may postpone the payment of withdrawal proceeds
or defer acting upon a transfer request or any other transaction pertaining to
the Separate Account. We may also postpone payments or defer such other
transactions where the SEC, by order, permits us to do so for the protection of
Contract Owners. In addition, requests for full or partial withdrawals that
would be derived from a premium payment made to us by a check that has not
cleared the banking system will be deferred, to the extent permitted by
applicable law at the time, until payment of the check has been honored.
DEATH BENEFITS
- --------------
DEATH BENEFITS PRIOR TO THE ANNUITY DATE
If the Annuitant is the Owner and dies before the Annuity Date, we will pay
the death benefit to the Beneficiary. If the Owner is not the Annuitant and the
Owner dies before the Annuity Date, we will pay a death benefit to the
Annuitant, or the Beneficiary if the Annuitant does not survive the Owner. We
must receive Proof of Death and a Written Request specifying the manner of
payment before the death benefit will be paid.
The death benefit is the greater of: (1) the Contract Value on the Date of
Receipt of Proof of Death and any necessary instructions as to any Distribution
Option chosen; or (2) the sum of the premium payments credited to the Contract,
less the amount of any withdrawals and less any applicable premium tax.
In lieu of receiving the death benefit in a lump sum, the Beneficiary or the
Annuitant, if entitled, may choose a Distribution Option.
In accordance with current federal income tax law, if the Owner dies before
the Annuity Date, distribution of the Contract Value is required to be as
follows.
(1) If the Owner and Annuitant are the same person and no Beneficiary was
designated or survived the Owner, full distribution to the Owner's estate
must occur within five years after the Owner's death.
(2) If the Owner and the Annuitant are the same person and the Beneficiary is
the Owner's spouse, or if the Owner and the Annuitant are not the same
person and the Annuitant is the Owner's spouse, the spouse may: (a) assume
ownership as the Annuitant and defer distribution until the Annuity Date, or
(b) receive distributions over a period of time not exceeding the surviving
spouse's life or life expectancy, in which case payments must begin within
one year after the Owner's death.
(3) If the Owner and the Annuitant are the same person and the Beneficiary is
not the Owner's spouse, then distribution must begin within one year after
the Owner's death and must be made over a period of time not exceeding the
life or life expectancy of the Beneficiary, or, in the alternative, full
distribution must occur within five years after the Owner's death.
(4) If the Owner and the Annuitant are not the same person and the Annuitant is
not the Owner's spouse, then distribution must begin within one year after
the Owner's death and must be made over a period of time not exceeding the
life or life expectancy of the Annuitant, or Beneficiary if the Annuitant
does not survive the Owner, or, in the alternative, full distribution must
occur within five years after the Owner's death.
Federal income tax law imposes similar requirements for distributions
following the death of an Owner of a Contract used as part of a Qualified Plan.
DEATH BENEFITS ON OR AFTER THE ANNUITY DATE
In accordance with current federal income tax law, if the Owner is the
Annuitant and dies on or after the Annuity Date, any payment that remains under
the terms of the Contract must continue at least as rapidly as before the
Annuitant's death. To the extent that the Distribution Option then in effect
provides for any benefits following the Annuitant's death, the Beneficiary may:
(1) Continue to receive the same payments as the Annuitant; or
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(2) If permitted under the Distribution Option in effect, receive higher
payments, but over a shorter period of time, than the Annuitant was
receiving; or
(3) If permitted under the Distribution Option in effect, take full distribution
of the remaining value at the Annuitant's death.
OTHER ASPECTS OF THE CONTRACT
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CONTRACT AGREEMENT
The Contract and the Application form the entire agreement between you and the
Company. We will consider statements in the Application to be representations
and not warranties. Only an officer of the Company has authority to: (1) waive a
provision of the Contract or (2) agree with the Owner to changes in the
Contract; and then only in writing.
We reserve the right to change the Contract in order to comply with all
federal and state laws that apply to variable annuity contracts. This right
shall include, but not be limited to, the right to conform the terms of the
Contract to reflect any changes in the federal tax laws so that the Contract
will continue to qualify as an annuity contract thereunder.
CONTRACT OWNER
The rights and privileges of the Contract belong to the Owner during the
Annuitant's lifetime. The Owner is the Annuitant unless the Application
designates a different Owner and we have approved. If the Owner and the
Annuitant are different persons and the Owner dies either before or after the
Annuity Date, then the rights and privileges of ownership will vest in the
Annuitant, or the Beneficiary if the Annuitant does not survive the Owner. If
the Annuitant is the Owner and dies, then the rights and privileges of ownership
will vest in the Beneficiary.
CHANGE OF OWNERSHIP AND ASSIGNMENT
You may transfer or assign ownership of the Contract, subject to legal
restrictions. A request to transfer or assign ownership must be made in writing
and be sent to our Service Office. An assignment is not effective until it is
received by our Service Office. We are not responsible for determining the
validity of an assignment.
ANNUITANT
The Annuitant must be a natural person. The maximum age of the Annuitant on
the Annuity Date is age 95. The Owner, by Written Request, may change the
Annuitant at any time so long as such request is received by our Service Office
at least 15 days prior to the Annuity Date. The change will be effective as of
the Date of Receipt of the Written Request. If an Annuitant who is not the
Owner predeceases the Owner prior to the Annuity Date, then the Beneficiary
becomes the Annuitant, unless the Owner by Written Request designates another
Annuitant. A Non-Owner Annuitant has no rights or privileges prior to the
Annuity Date. When a Distribution Option involving life contingencies is
elected, the amount payable as of the Annuity Date is based on the age and sex
(where permissible) of the Annuitant, as well as the Distribution Option
selected and the Contract Value.
BENEFICIARY
The Beneficiary is the person or persons named in the Application who may be
entitled to receive any Contract benefits that are provided upon the Owner's or
the Annuitant's death. A contingent beneficiary may be named to receive the
Contract benefits in the event the Beneficiary does not survive the Annuitant.
If the Beneficiary dies while receiving annuity payments, any remaining payments
due will be paid to the Beneficiary's estate.
Unless otherwise provided, benefits will be paid as follows:
(1) If two or more Beneficiaries have been named, all benefits will be paid in
equal shares to those living at the time of the Annuitant's death; and
(2) If no Beneficiary survives the Annuitant, payment will be made to the
Annuitant's estate.
CHANGE OF BENEFICIARY
The Owner, during the Annuitant's life, may change the Beneficiary. To make a
change, written notice must be received by our Service Office. The change will
take effect as of the date the Owner signs the request. If we make any payments
before receiving the request to change the Beneficiary, we will receive credit
against our obligations under the Contract.
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TAX MATTERS
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The following is a brief summary of the federal income tax consequences of the
Contract. State and local income tax considerations, as well as estate tax, gift
tax, and inheritance tax considerations may also be material. The United States
Congress has in the past and may again in the future enact legislation changing
the tax treatment of annuities in both Qualified Plans and Nonqualified Plan.
The Treasury Department may issue new or amended regulations or other
interpretations of existing law. Judicial interpretations may also affect the
tax treatment of annuities. It is possible that such changes could have
retroactive effect. This discussion is not intended as tax advice. We recommend
that you consult with a professional adviser for your particular tax situation.
TAX CONSIDERATIONS RELATING TO YOUR ANNUITY
Section 72 of the Internal Revenue Code of 1986, as amended ("Code") governs
the federal income taxation of annuities in general. Taxation of an annuity is
largely dependent upon: (a) whether it is used in a retirement program eligible
for special tax treatment under the Code, referred to as Qualified Plans; and
(b) the status of the beneficial owner as either a natural or non-natural person
when the annuity is used in connection with a Nonqualified Plan.
NATURAL PERSONS
Natural persons are individuals. Increases in the Contract Value of an annuity
when the Owner is a natural person generally are not taxed until a distribution
occurs. Full or partial withdrawals and death benefit payments are examples of
distributions during the Accumulation Phase, and annuity payments and lump sum
distributions are examples of distributions during the Distribution Phase.
Certain other transactions may also be deemed to be a distribution, e.g., loans
and assignments. The provisions of Section 72 of the Code concerning these
distributions are summarized briefly below.
NON-NATURAL PERSONS
Non-natural persons include corporations, trusts and partnerships. Any
increase during a tax year in the Contract Value of an annuity which is not used
in a Qualified Plan eligible for special treatment under the Code is currently
includible in the gross income of a non-natural person that is the Owner. There
are exceptions to this rule if an annuity is held by: (a) a structured
settlement company; (b) an employer with respect to a terminated pension plan;
(c) the estate of a decedent by reason of the death of the decedent; or (d)
certain entities other than employers, such as a trust holding an annuity as an
agent for a natural person.
DISTRIBUTIONS DURING THE ACCUMULATION PHASE FROM NONQUALIFIED PLANS
Distributions received during the Accumulation Phase are treated as being
derived first from "income on the Contract" and includible in gross income. The
amounts of the distribution exceeding income on the Contract are referred to as
"investment in the Contract" and are not included in gross income. Income on the
Contract for an annuity would be income earned on previous premium payments.
Investment in the Contract is an amount equal to total premium payments paid for
any annuity contract, less any previous distributions from such annuity Contract
that were not included in gross income.
DISTRIBUTIONS DURING THE DISTRIBUTION PHASE FROM NONQUALIFIED PLANS
The non-taxable portion of each annuity payment is determined by multiplying
each annuity payment by the ratio that the investment in the Contract bears to
(1) in the case of Fixed Annuity Payments, the total value of expected payments
under the Contract, and (2) in the case of Variable Annuity Payments, the total
number of annuity payments expected to be made for the term of the Distribution
Phase. The balance of each payment is the taxable portion. The taxable portion,
which is the income on the Contract, is taxed at ordinary income rates. Owners,
Annuitants, and Beneficiaries under the Contracts should seek competent
financial advice about the tax consequences of any distribution.
DISTRIBUTIONS FROM QUALIFIED PLANS
Generally, if the employee does not have any cost basis for his or her
interest in the Qualified Plan, each payment, regardless of the amount, is fully
taxable as ordinary income, from both a fixed and variable annuity. An
employee's cost basis in a Qualified Plan consists of any non-deductible
contributions he or she has made to the Qualified Plan and any employer's
contributions that have been taxed to him or her. When the employee has a cost
basis for his or her interest in the Qualified Plan and the variable annuity
starting date is after June 30, 1986, the payments are taxed under the annuity
rules as they are expressly applied to variable payments. Thus, the amount
excludable from the employee's gross income each year is determined by dividing
his or her cost basis (adjusted for any refund or period-certain guaranteed) by
the number of years in the payment period. If the annuity is payable for a life
or lives, the payment period is determined by the use of IRS annuity tables. The
computation for determining the amount excludable from the employee's gross
income is very complex and the advice of competent tax counsel is highly
recommended.
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PENALTY ON DISTRIBUTIONS
Subject to certain exceptions, any distributions either during the
Accumulation or Distribution Phase from Nonqualified Plans are subject to a
penalty equal to 10% of the amount includible in gross income. This penalty is
not applied to certain distributions, including: (a) distributions made on or
after the taxpayer's age 59 1/2 (b) distributions made on or after the death of
the Owner of the Contract, or where the Owner of the Contract is not a natural
person, the death of the Annuitant; (c) distributions attributable to the
taxpayer becoming disabled; (d) distributions which are part of a scheduled
series of substantially equal periodic payments made at least annually for the
life (or life expectancy) of the taxpayer or the joint lives (or life
expectancies) of the taxpayer and the taxpayer's Beneficiary; (e) distributions
of amounts that are allocable to investments in the contract made prior to
August 14, 1982, and (f) payments under an immediate annuity as defined under
Section 72(u)(4) of the Code. Distributions from Qualified Plans are subject to
a similar 10% penalty with similar exceptions. These exceptions include
distributions not in excess of deductible medical expenses and, after December
31, 1996, distributions to eligible unemployed persons not in excess of
deductible health insurance premiums.
Any modification, other than by reason of death or disability, of
distributions that is part of a scheduled series of substantially equal periodic
payments as noted in (d) above, that occurred before the taxpayer's age 59 1/2
or within 5 years of the first of such scheduled payments, will result in
requirements to pay the penalties that would have been due had (d) above not
applied, plus interest for the deferral period. It is our understanding that the
IRS does not consider a scheduled series of distributions to qualify under (d)
above, if (as in the case of our Systematic Withdrawal Program) the owner of the
annuity retains the right to modify such distributions at will, even if such
right is not exercised.
MULTIPLE CONTRACTS
Multiple contracts ("MCs") mean Nonqualified Plan annuity contracts that are
issued within the same calendar year to the same owner by one company or its
affiliates. MCs are treated as a single annuity contract for purposes of
determining the tax consequences of any distribution during the Accumulation
Phase. Such treatment may result in adverse tax consequences, including more
rapid taxation of the distributable amounts from the MCs.
FEDERAL INCOME TAX WITHHOLDING
Section 3405 of the Code provides for federal income tax withholding on the
portion of a distribution which is includible in the gross income of the
recipient. Amounts to be withheld depend upon the nature of the distribution.
However, a recipient may elect not to have income taxes withheld or have income
taxes withheld at a different rate by filing a completed election form with the
Company.
Effective January 1, 1993, certain distributions from Qualified Plans under
Section 401 or Section 403(b) of the Code, which are not directly rolled over or
transferred to another eligible Qualified Plan, are subject to a mandatory 20%
withholding for federal income tax. The 20% withholding requirement does not
apply to: (a) distributions for the life or life expectancy of the participant,
or joint and last survivor expectancy of the participant and a designated
beneficiary; (b) distributions for a specified period of ten years or more; or
(c) distributions which are required as minimum distributions.
ASSIGNMENTS
Any Assignment of all or any portion of the Contract Value before the Annuity
Date is treated as a distribution subject to taxation under the distribution
rules set forth above. Any gain in the Contract Value subsequent to the
assignment while such assignment remains in effect is treated as income on the
Contract in the year in which it is earned.
TAX-FREE EXCHANGES
Section 1035 of the Code provides that no gain or loss will be recognized on
the exchange of an annuity contract for an annuity contract. This Section
applies only if the annuity contracts exchanged relate to the same owner. A
variable annuity contract is included within the meaning of an annuity contract
under this section of the Code. An owner who makes a fully tax-free exchange of
annuity contracts has the same basis in the new annuity contract as in the old
annuity contract.
TRANSFERS BETWEEN INVESTMENT OPTIONS
Currently, transfers between investment options are not subject to federal
income taxation.
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GENERATION-SKIPPING TRANSFERS
Under Section 2601 of the Code, certain taxes may be due when all or part of
an annuity is transferred to, or a death benefit is paid to, an individual two
or more generations younger than the owner. These taxes tend to apply to
transfers of significantly large dollar amounts. We may be required to determine
whether a transaction must be treated as a "direct skip" as defined in the Code
and the amount of the resulting tax. If required, we will deduct from your
Contract, or from any applicable payment to be treated as a direct skip, any
amount we are required to pay as a result of the transaction.
DIVERSIFICATION
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of the Contracts. The Code provides that a Nonqualified Plan
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the Contract
as an annuity contract would result in imposition of federal income tax to the
Owner with respect to the income on the Contract prior to the receipt of
payments under the Contract. The Code contains a safe harbor provision which
provides that annuity contracts meet the diversification requirements if, as of
the end of each quarter, the underlying assets meet diversification standards
for a regulated investment company and no more than 55% of the total assets
consist of cash, cash items, U.S. government securities and securities of other
regulated investment companies.
Treasury Regulation 1.817-5, which established diversification requirements
for the investment funds underlying variable contracts, amplifies the
diversification requirements for variable contracts set forth in the Code and
provides an alternative to the safe harbor provision described above. Under the
regulation, an investment fund will be deemed adequately diversified if: (a) no
more than 55% of the value of the total assets of the fund is represented by any
one investment; (b) no more than 70% of the value of the total assets of the
Fund is represented by any two investments; (c) no more than 80% of the value of
the total assets of the Fund is represented by any three investments; and (d) no
more than 90% of the value of the total assets of the Fund is represented by any
four investments. This test must be met on the last day of each calendar
quarter or within 30 days thereafter.
The Code provides that, for purposes of determining whether or not
diversification standards imposed on the underlying funds of variable contracts
by Section 817(h) of the Code have been met, each United States government
agency or instrumentality shall be treated as a separate issuer.
The Company intends that all Funds of the Trust underlying the Contracts will
be managed by their Adviser in such a manner as to comply with these
diversification requirements. The Advisers to the Scudder Fund, the Alger Fund
and the BT Funds have agreed that those Funds also be managed to comply.
CONTRACT OWNER CONTROL
The Treasury Department has indicated that it may issue guidelines under which
a variable annuity contract will not be treated as an annuity contract for tax
purposes if the Owner of the Contract has excessive control over the investment
funds underlying the Contract. As of the date of this Prospectus, no such
guidelines have been issued, although the Treasury Department has informally
indicated that any such guidelines could limit the number of investment funds or
the frequency of transfers among such funds. The issuance of such guidelines
may require the Company to impose limitations on the Owner's right to control
the investment. Such guidelines may apply only prospectively, although
retroactive application is possible if such guidelines are considered not to
embody a new position.
QUALIFIED PLANS
There are various types of Qualified Plans for which the Contract may be
suitable. Owners, Annuitants and Beneficiaries are cautioned that benefits under
a Qualified Plan may be subject to the terms and conditions of the Qualified
Plan, or of provisions of law applicable to Qualified Plans, regardless of the
terms and conditions of the Contracts issued pursuant to the Qualified Plan.
Set out below is a general description of the types of Qualified Plans with
which the Contracts may be used. Such descriptions are not exhaustive and are
for general informational purposes only. The tax rules regarding Qualified
Plans are very complex and will have different applications, depending on
individual facts and circumstances. Before purchasing a Contract for use in
funding a Qualified Plan, you should obtain competent tax advice, both as to the
tax treatment and suitability of such an investment. Optional annuity benefits
provided under an employer's Qualified Plan may not, under Title VII of the
Civil Rights Act of 1964, vary between men and women. The Contracts sold by the
Company in connection with employer sponsored Qualified Plans will utilize
annuity tables which do not differentiate on the basis of sex.
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TYPES OF QUALIFIED RETIREMENT PLANS
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INDIVIDUAL RETIREMENT ANNUITY ("IRA")
Individuals who are eligible may maintain an IRA. Subject to limitations,
contribution of certain amounts up to $2,000 for an employed individual may be
deductible from gross income. Purchasers of IRAs are to receive a special
disclosure document, which describes in detail the limitations on eligibility,
contributions, transferability and distributions. It also describes the
conditions under which distributions from IRAs and other Qualified Plans may be
rolled over or transferred into an IRA on a tax-deferred basis.
ROTH IRA
Individuals who are eligible may maintain a Roth IRA. Contributions to a Roth
IRA are not tax deductible. However, distributions from a Roth IRA may be tax
free depending on how and when the taxpayer withdraws the money from the Roth
IRA account. Subject to certain income limitations, an individual may make a
rollover contribution from a non-Roth IRA to a Roth IRA. While a rollover
contribution will be taxable currently, any future distributions from a Roth IRA
may be tax free. The maximum non-deductible contribution to a Roth IRA is
$2,000, not counting rollover contributions. Contributions to a Roth IRA may be
made beyond age 70 1/2. The maximum yearly contributions allowed for any
individual to all Roth IRAs and IRAs set forth in the preceding paragraph is
$2,000.
SIMPLIFIED EMPLOYEE PENSION-INDIVIDUAL RETIREMENT ANNUITY ("SEP-IRA")
A SEP-IRA is a type of tax-deductible retirement plan, available to both
incorporated and unincorporated businesses. Ease of administration, a
characteristic not normally associated with qualified retirement plans, sets the
SEP-IRA apart. The SEP-IRA also offers most of the same tax incentives available
through a traditional pension or profit-sharing plan. With a SEP-IRA, each plan
participant establishes an IRA. The employer puts the plan into effect by
completing IRS Form 5305-SEP and makes tax-deductible payments to each
participant's IRA. Currently, the maximum SEP-IRA payment on behalf of any one
employee in a calendar year is 15% of the employee's compensation, or $22,500,
whichever is less. The SEP-IRA is suited for a small business because it is a
simple, economical plan for both the employer and employees.
SALARY REDUCTION SIMPLIFIED EMPLOYEE PENSION-INDIVIDUAL RETIREMENT ANNUITY
("SARSEP-IRA")
A SARSEP-IRA is a tax-deductible retirement plan designed to encourage small
companies and their employees to begin planning for their retirement. It offers
the same tax incentives available through a regular SEP-IRA plan, pension and
profit sharing plans. While SEP-IRA plans allow only employer contributions,
SARSEP-IRA plans also allow voluntary contributions by employees through a
salary reduction plan.
Beginning 1997, employers may no longer establish a new SARSEP-IRA. However,
under pre-1997 rules, employers may continue to make contributions to SARSEP-
IRAs established before 1997, and SARSEP-IRAs may continue to invest their funds
with USAA Life, including the transfer of existing SARSEP-IRA funds to USAA
Life. In addition, employees hired after December 31, 1996, may participate in
SARSEP-IRAs established by their employers before 1997, if otherwise eligible
under existing SARSEP-IRA rules.
SIMPLE RETIREMENT ACCOUNTS
Employees and employers may establish an IRA plan known as a simple retirement
account ("SRA"), if certain requirements are met. Under an SRA, the employer
contributes elective employee compensation deferrals up to a maximum of $6,000 a
year. The employer must, in general, make a fully vested matching contribution
for employee deferrals up to 3% of compensation.
TAX-SHELTERED ANNUITY ("TSA")
Section 403(b) of the Code permits the purchase of TSAs by employees of public
schools and certain charitable, educational and scientific organizations
described in Section 501(c)(3) of the Code. These qualifying employers may make
contributions to the Contracts for the benefit of their employees. Such
contributions are not includible in the gross income of the employee until the
employee receives distributions from the Contract. The amount of contributions
to the TSA is limited to certain maximums imposed by the Code. Furthermore, the
Code sets forth additional restrictions governing such items as transferability,
distributions, non-discrimination and withdrawals. (Information about taking a
loan against a TSA Contract is described in detail in the SAI.)
Distributions of amounts contributed to a TSA contract are restricted. The
restrictions apply to amounts accumulated after December 31, 1988, (including
voluntary contributions after that date and earnings on prior and current
voluntary contributions). These restrictions require that no distributions will
be permitted prior to one of the following events: (1) attainment of age 59
1/2, (2) separation from service, (3) death, (4) disability, or (5) hardship
(hardship distributions will be limited to the amount of salary reduction
contributions exclusive of earnings thereon).
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TEXAS OPTIONAL RETIREMENT PROGRAM ("ORP")
The ORP is a defined contribution plan available to certain employees of Texas
institutions of higher education. An ORP is an individualized plan in which each
participant selects investments through various companies offering a variety of
investment products such as annuity contracts and mutual fund investments. Since
participants manage their own personal investment accounts, ORP entails more
individual risks and responsibility than other Qualified Plans. Benefits are a
direct result of the amounts contributed and the return on investments made by
each participant. Upon termination from Texas public higher education
employment, ORP participants who have more than one year of participation are
vested in the ORP and retain control over all investments, both employee and
employer contributions. Participants with one year or less of participation in
the ORP are not vested and employer contributions must be returned to the
institution. THEREFORE, DURING YOUR FIRST YEAR OF PARTICIPATION IN THE ORP,
YOUR EMPLOYER'S CONTRIBUTIONS WILL BE INVESTED IN THE MONEY MARKET FUND
ACCOUNT. AFTER THE FIRST YEAR, EMPLOYER CONTRIBUTIONS CAN BE MAINTAINED IN THE
MONEY MARKET FUND ACCOUNT OR TRANSFERRED TO ANY OF THE OTHER VARIABLE FUND
ACCOUNTS, SUBJECT TO OUR GENERALLY APPLICABLE RULES FOR TRANSFERS.
Certain redemption restrictions apply to Contracts issued under the ORP. With
respect to Contracts issued under the ORP, state law provides that withdrawal
benefits are available only if the participant obtains the age of 70 1/2 years
or terminates participation in the ORP because of death, retirement, including
disability retirement, or terminating employment in all public institutions of
higher learning in Texas. Under Texas law a participant may not transfer
ownership of an ORP plan unless under a qualified domestic relations order
issued by a court having appropriate jurisdiction. The value of such Contracts
may, however, be transferred to other Contracts or other carriers during
participation in these retirement programs, subject to any charges that would
apply in the case of any other surrender of the Contract. Appropriate
disclosure regarding the restrictions on redemption imposed by the ORP will
also be found in sales materials accompanying this Prospectus. On the
Application, there will be a statement you will be required to sign
acknowledging that you have read the restrictions on redemption imposed by the
ORP.
ALL QUALIFIED PLANS REFERENCED IN THIS PROSPECTUS INCLUDE SPECIAL PROVISIONS
CHANGING OR RESTRICTING CERTAIN RIGHTS AND BENEFITS OTHERWISE AVAILABLE TO
NONQUALIFIED PLANS FUNDED BY THE CONTRACT. IN PARTICULAR, THE FIXED FUND
ACCOUNT IS NOT PART OF THE CONTRACT ISSUED UNDER THE ORP. YOU SHOULD CAREFULLY
READ YOUR CONTRACT, RIDERS AND ENDORSEMENTS TO REVIEW SUCH CHANGES OR
LIMITATIONS. ADDITIONAL CHANGES AND LIMITATIONS MAY APPEAR IN ANY OTHER
QUALIFIED PLAN DOCUMENTS OR IN LAWS OR REGULATIONS APPLICABLE TO QUALIFIED
PLANS. THE CHANGES AND LIMITATIONS MAY INCLUDE: RESTRICTIONS ON OWNERSHIP,
TRANSFERABILITY, ASSIGNABILITY, CONTRIBUTIONS, DISTRIBUTIONS, AS WELL AS
REDUCTIONS TO THE MINIMUM ALLOWABLE PREMIUM PAYMENT FOR AN ANNUITY CONTRACT AND
ANY SUBSEQUENT ANNUITY YOU MAY PURCHASE FOR USE AS A QUALIFIED PLAN.
ADDITIONALLY, VARIOUS PENALTY AND EXCISE TAXES MAY APPLY TO CONTRIBUTIONS OR
DISTRIBUTIONS MADE IN VIOLATION OF APPLICABLE LIMITATIONS.
LEGAL PROCEEDINGS
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As of the date of this Prospectus, there are no legal proceedings to which the
Company, the Separate Account or the Distributor is a party except for routine
litigation which the Company does not believe is relevant to the Contracts
offered by this Prospectus.
ANNUAL STATEMENTS AND REPORTS
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At least once each Contract Year, we will send you a statement for the
Contract, which will provide you with information concerning your Contract
Value. It will include information concerning the number of Accumulation Units
credited to your Contract for each Variable Fund Account and the dollar value
of the Accumulation Units, as of a date not more than two months prior to the
date of mailing of the statement. We may, at our discretion, send you a
statement more frequently. As required by federal and state law, we will also
send you semi-annual reports for the Funds that correspond to the Variable
Fund Accounts, periodic reports for the Separate Account, and any other
information.
ADMINISTRATION OF THE CONTRACTS
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The Company has the responsibility for administration of the Contracts, which
among other things, includes application and premium processing, issuing the
Contracts, and maintaining the required Owner's records.
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TELEPHONE TRANSACTIONS
Requests to change premium payment allocation, requests for withdrawals, and
requests for transfers between Accounts may be made by Telephone Request. We
will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine, and only if we do not, will we be liable for any losses
because of unauthorized or fraudulent instructions. Information will be obtained
prior to any discussion regarding the Contract including: (1) USAA number or
Contract number, (2) the name of the Owner, and (3) social security number of
the Owner. If you are sending a Telephone Request by facsimile, telegraph, or
other electronic transmission device, please include such identification
information on such request. In addition, all telephone communications with an
Owner which concern purchases, redemptions or transfers are recorded, and
confirmations of all transactions are sent to the Owner's address. We may
modify, suspend or discontinue this telephone transaction privilege at any time
without prior notice. The number for telephone transactions is 1-800-531-4265.
In times of heavy usage you may have difficulty making a Telephone Request. You
may assure your transaction by submitting a Written Request. All Written
Requests will be processed on the Date of Receipt.
OWNER INQUIRIES
- ---------------
Inquiries concerning your Contract should be addressed to USAA Life at our
Service Office, 9800 Fredericksburg Road, San Antonio, Texas 78288, or made by
calling 1-800-531-4265.
PERFORMANCE INFORMATION
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YIELD AND TOTAL RETURN
From time to time, the Separate Account may advertise the yields and total
returns of its Variable Fund Accounts. These figures will be based on
historical results and are not intended to indicate future performance. The
"yield" of a Variable Fund Account refers to the income generated by an
investment in the Variable Fund Account over the period specified in the
advertisement, excluding realized and unrealized capital gains and losses in
the corresponding Fund's investments. This income is then "annualized" and
shown as a percentage of the investment. The Separate Account also may
advertise the "effective yield" of the USAA Life Money Market Fund Account,
which is calculated similarly but, when annualized, the income earned by an
investment in the Variable Fund Account is assumed to be reinvested. The
"effective yield" will be slightly higher than the "yield" because of the
compounding effect of this assumed reinvestment.
The "total return" of a Variable Fund Account is the total change in value of
an investment in the Variable Fund Account over a period of time specified in
the advertisement. "Average annual total return" is the rate of return that
would produce that change in value over the specified period, if compounded
annually. "Cumulative total return" is the total return over the entire
specified period, expressed as a percentage.
Neither yield nor total return figures reflect deductions for premium taxes,
since most states do not impose such taxes.
PERFORMANCE COMPARISONS
The Separate Account's performance reported from time to time in
advertisements and sales literature may be compared to generally accepted
indices or analysis such as those provided by Lipper Analytical Services, Inc.,
Standard & Poor's Corporation and Dow Jones. Performance ratings reported
periodically in financial publications such as Money Magazine, Forbes, Business
Week, Fortune, Financial Planning and The Wall Street Journal may also be used.
For more information, see the Statement of Additional Information.
VARIABLE FUND ACCOUNT PERFORMANCE
The investment performance information for each Variable Fund Account will
generally reflect the investment performance of the corresponding Fund. Table I
below shows the average annual total return of each Variable Fund Account for
the periods indicated. The average annual total return figures are computed in
accordance with a formula prescribed by the SEC. Table II shows the cumulative
total returns of each Variable Fund Account for the periods indicated.
31A
<PAGE>
EFFECT OF TAX-DEFERRED ACCUMULATIONS
Unlike taxable investments, contributions to tax-favored Qualified Plans and
Nonqualified Plan Contracts provide tax-deferred treatment on earnings. In
addition, contributions to tax-favored Qualified Plans ordinarily are not
subject to income tax until withdrawn. As shown in the chart below, investing
in a tax-favored program increases the accumulation power of savings over time.
The more taxes saved and reinvested in the program, the more the accumulation
power effectively grows over the years. The Variable Annuity Surrender Value as
indicated in the charts below represent the lump-sum withdrawal remaining
after payment of federal income taxes.
To further illustrate the advantages of tax-deferred savings using a 28%
federal tax bracket, an annual fixed yield (before the deduction of any fees or
charges) of 10% under a tax-favored Qualified Plan in which tax savings were
reinvested has an equivalent annual fixed yield of 13.9% under a conventional
savings program. The 10% yield on the tax-favored Qualified Plans would be
reduced by the assumed impact of income taxes upon withdrawal. The amount of
this reduction in yield will vary depending upon the timing of withdrawals. The
first chart below shows the actual after-tax amounts that would be received upon
full withdrawal at the end of the periods shown.
As indicated above, contributions to tax-favored Qualified Plans are not
subject to federal income tax unless and until withdrawn. Accumulation under
tax-favored Qualified Plans are generally not required to be withdrawn until
age 70 1/2. There may be restrictions on withdrawals of certain types of
contributions until age 59 1/2, separation from service, death, disability or
hardship. Withdrawals before age 59 1/2 generally are subject to a 10% penalty
tax in addition to regular income tax, but withdrawals may be eligible for total
or partial rollover to an IRA or another retirement program.
By taking into account the current deferral of taxes, these contributions to
tax-favored Qualified Plans increase the amount available for savings by
decreasing the relative current out-of-pocket cost of the investment.
VARIABLE FUND ACCOUNT PERFORMANCE TABLE I
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (THROUGH DECEMBER 31, 1997)
<TABLE>
<CAPTION>
YEAR ENDED
NAME OF VARIABLE FUND ACCOUNT SINCE INCEPTION* DECEMBER 31, 1997
<S> <C> <C>
USAA Life Money Market Fund Account 4.13 3.95
USAA Life Income Fund Account 9.36 10.14
USAA Life Growth and Income Fund Account 25.23 24.83
USAA Life World Growth Fund Account 17.82 12.62
USAA Life Diversified Assets Fund Account 18.74 19.15
USAA Life Aggressive Growth Fund Account - -
USAA Life International Fund Account - -
Scudder VLIF Capital Growth Portfolio Fund Account 26.78 34.05
Alger American Growth Portfolio Fund Account 22.86 24.15
</TABLE>
TABLE II
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN (THROUGH DECEMBER 31, 1997)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED
NAME OF VARIABLE FUND ACCOUNT SINCE INCEPTION* DECEMBER 31, 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
USAA Life Money Market Fund Account 12.45 3.95
USAA Life Income Fund Account 29.70 10.14
USAA Life Growth and Income Fund Account 92.49 24.83
USAA Life World Growth Fund Account 61.09 12.62
USAA Life Diversified Assets Fund Account 64.81 19.15
</TABLE>
32A
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
USAA Life Aggressive Growth Fund Account 17.24 -
USAA International Fund Account 1.03 -
Scudder VLIF Capital Growth Portfolio Fund Account 99.51 34.05
Alger American Growth Portfolio Fund Account 82.03 24.15
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Each of the Variable Fund Accounts, indicated above (with the exception of
the USAA Life Aggressive Growth and International Fund Accounts) commenced
operations on February 6, 1995. The Aggressive Growth and International Fund
Accounts commenced operations on May 1, 1997. Average Annual Total Return
figures for the Aggressive Growth and International Fund Accounts are not
annualized.
EFFECT OF TAX-DEFERRED ACCUMULATIONS
The charts below compare accumulations attributable to premium payments to (1)
Contracts purchased with pre-tax dollars under a tax-favored Qualified Plan and
(2) Nonqualified Contracts purchased with after-tax dollars to taxable
investments. Variable Annuity values shown in both tables reflect the deduction
of all Contract charges (mortality and expense risk, administrative expense and
annual maintenance). The taxable investment values do not reflect the deduction
of any charges, which, if applied, would lower the values shown. These examples
assume that no money was allocated to the Fixed Fund Account, and, therefore, do
not reflect any Fixed Fund Account withdrawal charges that may apply.
33A
<PAGE>
QUALIFIED VARIABLE ANNUITY
[A CHART IN THE FORM OF A LINE GRAPH APPEARS HERE. THE DATA POINTS FROM THE
GRAPH ARE AS FOLLOWS:
BEFORE TAX VARIABLE VARIABLE ANNUITY
ANNUITY PLAN SURRENDER VALUE TAXABLE INVESTMENT
------------ --------------- ------------------
10 years $ 33,134 $ 23,856 $ 21,531
20 years $113,392 $ 81,642 $ 64,683
30 years $307,795 $221,612 $151,171]
This hypothetical chart compares the results of investing an initial pre-tax
premium of $2,000 and additional pre-tax contributions of $2,000 each year
thereafter during the Accumulation Period. It also assumes a 28% tax rate and a
10% rate of return and reflects the deduction of fees and charges under
Qualified Plan Contracts. However, because premium payments to a taxable
investment are first taxed at a rate of 28%, each $2,000 premium payment is
reduced to $1,440. An additional 10% tax penalty may apply to withdrawals before
age 59 1/2. If different tax rates apply to each investment, comparative values
will differ.
NONQUALIFIED VARIABLE ANNUITY
[A CHART IN THE FORM OF A LINE GRAPH APPEARS HERE. THE DATA POINTS FROM THE
GRAPH ARE AS FOLLOWS:]
BEFORE TAX VARIABLE VARIABLE ANNUITY
ANNUITY PLAN SURRENDER VALUE TAXABLE INVESTMENT
------------ --------------- ------------------
10 years $ 88,131 $ 78,182 $ 78,741
20 years $290,461 $237,300 $227,337
30 years $780,550 $603,604 $525,158]
This hypothetical chart compares the results of investing an initial after-tax
premium of $5,000 and additional after-tax contributions of $400 made at the
beginning of each month during the Accumulation Period. It also assumes a 28%
tax rate and a 10% rate of return and reflects the deduction of fees and charges
under Nonqualified Plan Contracts. An additional 10% tax penalty may apply to
withdrawals before age 59 1/2. If different tax rates apply to each investment
comparative values will differ.
34A
<PAGE>
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information (the "SAI"), dated May 1, 1998, is
incorporated by reference into this Prospectus and will be provided on request
and without charge.
FOR A COPY CALL 1-800-531-2923 OR WRITE THE COMPANY AT:
USAA Life Insurance Company
9800 Fredericksburg Road
San Antonio, Texas 78288
- --------------------------------------------------------------------------------
THE FOLLOWING ARE THE CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION:
GENERAL INFORMATION
DISTRIBUTOR
SAFEKEEPING OF THE ASSETS OF THE SEPARATE ACCOUNT
REGULATION AND RESERVES SERVICES
TAX-SHELTERED ANNUITY LOANS
INDEPENDENT AUDITORS
LEGAL MATTERS
CALCULATION OF PERFORMANCE INFORMATION
Money Market Fund Account
Other Variable Fund Accounts
ANNUITY PAYMENTS
Gender of Annuitant
Misstatement of Age or Sex and Other Errors
Annuity Unit Value
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
35A
<PAGE>
VARIABLE ANNUITY
FLEXIBLE PREMIUM DEFERRED COMBINATION
FIXED AND VARIABLE ANNUITY CONTRACT
OFFERED BY: STATEMENT OF ADDITIONAL
INFORMATION
USAA LIFE INSURANCE COMPANY
9800 FREDERICKSBURG ROAD Dated May 1, 1998
SAN ANTONIO, TEXAS 78288
This Statement of Additional Information ("SAI") is not a prospectus, but
should be read in conjunction with the Prospectus, dated May 1, 1998 for the
Separate Account of USAA Life Insurance Company ("USAA Life"). Capitalized terms
used in this SAI that are not otherwise defined herein have the same meanings
given to them in the Prospectus. A copy of the Prospectus may be obtained by
writing USAA Life at the address above, or by calling 1-800-531-2923.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
GENERAL INFORMATION................................ 3
DISTRIBUTOR........................................ 3
SAFEKEEPING OF THE ASSETS OF THE SEPARATE ACCOUNT.. 3
REGULATION AND RESERVES............................ 3
SERVICES........................................... 4
TAX SHELTERED ANNUITY LOANS........................ 4
INDEPENDENT AUDITORS............................... 5
LEGAL MATTERS...................................... 5
CALCULATION OF PERFORMANCE INFORMATION............. 5
USAA Life Money Market Fund Account............ 5
Other Variable Fund Accounts................... 6
ANNUITY PAYMENTS................................... 8
Gender of Annuitant............................. 8
Misstatement of Age or Sex and Other Errors..... 8
Annuity Unit Value.............................. 8
FINANCIAL STATEMENTS............................... 10
</TABLE>
2
<PAGE>
GENERAL INFORMATION
USAA Life is a stock insurance company incorporated in the State of Texas in
1963. USAA Life is principally engaged in writing life insurance policies,
fixed annuity contracts and health insurance policies. USAA Life is authorized
to transact insurance business in all states, including the District of
Columbia, except New York. USAA Life is a wholly-owned stock subsidiary of the
United Services Automobile Association ("USAA"), the parent company of the USAA
group of companies (a large diversified financial services conglomerate).
DISTRIBUTOR
The Contracts are primarily sold in a continuous offering by direct response
through salaried sales account representatives employed by USAA Life. These
individuals are appropriately licensed at the state level to sell variable
annuity contracts and are registered with the National Association of Securities
Dealers, Inc. (the "NASD") as registered representatives or principals with USAA
Investment Management Company ("USAA IMCO"). USAA IMCO, an affiliate of USAA
Life, is registered as a broker-dealer with the SEC and the NASD.
SAFEKEEPING OF THE ASSETS OF THE SEPARATE ACCOUNT
All assets of the Separate Account are held in the custody and safekeeping of
USAA Life. The assets are kept physically segregated and held separate and
apart from the assets of USAA Life's General Account. USAA Life maintains
records of all purchases and redemptions of shares of the Funds by each of the
Variable Fund Accounts.
REGULATION AND RESERVES
USAA Life is subject to regulation by the Texas Department of Insurance and by
insurance departments of other states and jurisdictions in which it is licensed
to do business. This regulation covers a variety of areas, including benefit
reserve requirements, adequacy of insurance company capital and surplus, various
operational standards, and accounting and financial reporting procedures. USAA
Life's operations and accounts are subject to periodic examination by insurance
regulatory authorities. The Contracts described in the Prospectus are filed
with and (where required) approved by insurance officials in each state and
jurisdiction in which Contracts are sold.
Although the federal government generally has not directly regulated the
business of insurance, federal initiatives often have an impact on the insurance
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 insurance
business. Also, both the executive and legislative branches of the federal
government periodically have under consideration various insurance regulatory
matters, that could ultimately result in direct federal regulation of some
aspects of the insurance business. It is not possible to predict whether this
will occur or, if so, what the effect on USAA Life would be.
Pursuant to state insurance laws and regulations, USAA Life is obligated to
carry on its books, as liabilities, reserves to meet its obligations under
outstanding insurance contracts. These reserves are based on assumptions about,
among other things, future claims experience and investment returns. Neither
the reserve requirements nor the other aspects of state insurance regulation
provide absolute protection to holders of insurance contracts, including the
Contracts, if USAA Life were to incur claims or expenses at rates significantly
higher than expected, or significant unexpected losses on its investments.
3
<PAGE>
SERVICES
USAA Life has entered into a Service Agreement with USAA Transfer Agency
Company d/b/a USAA Shareholder Account Services ("USAA SAS"), pursuant to which
USAA SAS will receive and forward to USAA Life applications and premium payments
for certain Tax Sheltered Annuity Contracts.
TAX SHELTERED ANNUITY LOANS
Loans are not currently available under the Contract. USAA Life may in the
future, at its discretion, permit loans in connection with Contracts that fund
section 403(b) Tax Sheltered Annuities ("TSAs"). Any such loans must conform to
the requirements mandated by Section 72(p) of the Internal Revenue Code. If you
borrow against the Fixed Fund Account and/or Variable Fund Account(s), the
portion equal to the loan amount will be transferred from the particular
Account(s) to a "Loan Collateral Account." The "Loan Collateral Account" is part
of the Company's general assets and liabilities.
Loans are not available on TSA Contracts where the TSA plan is subject to the
Title I of the Employee Retirement Income Security Act (ERISA). Also, loans are
not permitted when the Systematic Withdrawal Program has been elected or when
the Contract has been annuitized. If you have taken a loan in the past which is
still outstanding, limits for any subsequent loans will be reduced by the amount
of the outstanding loan plus accrued interest. Any renegotiation of an existing
loan becomes a new loan for tax purposes.
The amount of the loan you may obtain depends upon your Contract Value as
shown below. The maximum loan amount may not exceed an aggregate of $50,000 on
all TSA accounts. The minimum loan amount is $2,500.
CONTRACT VALUE MAXIMUM LOAN AMOUNT
-------------- -------------------
$0 - $99,999 50% of Account Balance*
$100,000 or more $50,000*
* Internal Revenue Code requirements may be subject to change.
Only one TSA loan may be requested in any twelve month period. A TSA loan
must be repaid within a maximum of five years. Because the amount of the loan
may be removed from both the Fixed Fund Account and/or Variable Fund
Account(s), a loan will have a permanent effect on the Contract Value. The
longer the loan is outstanding the greater the effect is likely to be.
The loan must be repaid on a monthly schedule amortized over the term of the
loan. The loan may be prepaid in full or in part at any time. Loan payments
will be due as agreed upon at the time of the loan approval. An amount equal to
the amount of loan repayment will be transferred from the Loan Collateral
Account to the Fixed Fund Account and the Variable Fund Account(s) in the same
proportion as purchase payments are currently allocated, unless the Owner
requests otherwise.
The entire loan balance must be repaid before a withdrawal from the Contract
or before annuitization begins. If the loan is repaid in full before the end of
the loan term, loan interest due will be prorated and an appropriate credit will
be
4
<PAGE>
provided. Upon the death of the Owner, the death benefit will be reduced by
the outstanding loan balance and loan interest.
A TSA loan is not a taxable distribution if the loan does not exceed the
maximum limitations and repayment does not become overdue. If a default in loan
repayment occurs, USAA Life Insurance Company may declare the entire outstanding
loan balance, plus interest plus any Fixed Fund Account Withdrawal Charge stated
in the Contract also immediately due and payable. Please note that a default as
to any installment payment under your loan amortization schedule may have
adverse tax consequences possibly subjecting you to tax on the defaulted payment
or possibly the entire value of the amount of the loan, plus payment of the 10%
distribution penalty if prior to age 59-1/2. Such a distribution will include
any applicable federal income tax withholding and state taxes, if any. We
recommend that you consult with a professional advisor regarding your particular
tax situation.
Before a loan can be made under a TSA Contract, a properly completed Written
Request and Loan Agreement must be signed. A Loan Agreement can be obtained by
calling our toll free number 1-800-531-4265 and requesting a copy from a
representative at our Service Office.
INDEPENDENT AUDITORS
The audited financial statements of the Separate Account included in its
Annual Report and the audited consolidated financial statements and schedules of
USAA Life Insurance Company and its subsidiary as of December 31, 1997 and 1996
and for each of the years in the three-year period ended December 31, 1997 have
been included in the registration statement in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, through their
offices located at 112 East Pecan, Suite 2400, San Antonio, Texas 78205, and
upon the authority of said firm as experts in accounting and auditing.
LEGAL MATTERS
The legal validity of the Contracts has been passed upon by Richard T.
Halinski, Jr., Esq., of the legal department of USAA Life. Freedman, Levy,
Kroll & Simonds, Washington D.C., has advised USAA Life on certain federal
securities law matters.
CALCULATION OF PERFORMANCE INFORMATION
From time to time, the Separate Account may include in advertisements, sales
literature, and reports to contract owners or prospective investors information
relating to the performance of its Variable Fund Accounts. The performance
information that may be presented is not an estimate or guarantee of future
investment performance and does not represent the actual experience of amounts
invested by a particular Owner. Set out below is a description of the
standardized and non-standardized methods used in calculating the performance
information for the Variable Fund Accounts. All standardized performance
quotations will reflect the deduction of the Mortality and Expense Risk Charge,
the Administrative Expense Charge and the Contract Maintenance Charge, based on
an estimated average Contract size of $32,325 and Fund operating expenses (net
of reimbursements), but will not reflect charges for any state premium taxes.
The Contracts are not subject to a charge for withdrawals from any Variable
Fund Account.
USAA LIFE MONEY MARKET FUND ACCOUNT
- ------------------------------------
YIELD and EFFECTIVE YIELD quotations for the USAA Life Money Market Fund
Account are computed in accordance with standard methods prescribed by the SEC.
Under these methods, the USAA Life Money Market Fund Account's yield is
calculated based on a hypothetical Contract having a beginning balance of one
Accumulation Unit in the USAA Life Money Market Fund Account for a specified
seven-day period. Yield is determined by dividing the net change in the
Accumulation Unit Value during the seven-day period, reduced by the estimated
daily equivalent of the Contract Maintenance Charge, by its beginning value to
obtain the base
5
<PAGE>
period return, then multiplying the base period return by the fraction 365/7.
The net change in Accumulation Unit Value will reflect the value of additional
shares purchased with the dividends paid by the Trust, but will not reflect any
realized capital gains or losses or unrealized appreciation or depreciation in
the assets of the Variable Fund Account.
The effective yield of the USAA Life Money Market Fund Account reflects the
effects of compounding, and is computed according to the following formula
prescribed by the SEC:
Effective Yield = [(Base Period Return + 1)365/7] - 1
For the seven day period ended December 31, 1997, the current yield of the
USAA Life Money Market Fund Account was 4.29%.
OTHER VARIABLE FUND ACCOUNTS
- -----------------------------
Each Variable Fund Account may state its TOTAL RETURN or YIELD in sales
literature and advertisements. Any statements of total return, yield, or other
performance data of a Variable Fund Account, other than yield quotations of the
USAA Life Money Market Fund Account, will be accompanied by information on that
Variable Fund Account's standardized average annual total return for the most
recent 1, 5, or 10 year periods or, if less, the period from the Variable Fund
Account's inception of operation.
AVERAGE ANNUAL TOTAL RETURN. Standardized average annual total return is
computed according to the following formula prescribed by the SEC, based on a
hypothetical $1,000 Contract Value:
n
P (1 + T) = ERV
Where:
P = A hypothetical initial premium payment of $1,000.
T = Average annual total return.
n = Number of years.
ERV = Ending redeemable value of a hypothetical $1,000 Contract Value at the
end of the period.
Non-standardized average annual total return is computed in a similar manner,
except that different time periods and hypothetical initial payments may be
used, and certain charges may not be reflected.
CUMULATIVE TOTAL RETURN. Cumulative total return is calculated in a manner
similar to standardized average annual total return, except that the results are
not annualized. The SEC has not prescribed a standard formula for calculating
cumulative total return. Cumulative total return is calculated by finding the
cumulative rates of return of a hypothetical initial investment of $1,000 over
various periods, according to the following formula, and then expressing that as
a percentage:
C = (ERV/P) - 1
Where:
P = A hypothetical initial payment of $1,000.
C = Cumulative total return.
ERV= Ending redeemable value of a hypothetical $1,000 payment made at the
beginning of the applicable period.
6
<PAGE>
The standardized average annual and cumulative total returns for each Variable
Fund Account for periods ended December 31, 1997 were as follows:
<TABLE>
<CAPTION>
STANDARDIZED AVERAGE
ANNUAL TOTAL RETURN CUMULATIVE TOTAL RETURN
---------------------------- ---------------------------
VARIABLE FUND ACCOUNT SINCE INCEPTION* ONE YEAR SINCE INCEPTION* ONE YEAR
- --------------------------------------- ----------------- --------- ----------------- ---------
<S> <C> <C> <C> <C>
USAA Life Money Market 4.13% 3.95% 12.45% 3.95%
USAA Life Income 9.36% 10.14% 29.70% 10.14%
USAA Life Growth and Income 25.23% 24.83% 92.49% 24.83%
USAA Life World Growth 17.82% 12.62% 61.09% 12.62%
USAA Life Diversified Assets 18.74 19.15% 64.81% 19.15%
USAA Life Aggressive Growth - - 17.24 -
USAA Life International - - 1.03 -
Scudder VLIF Capital Growth Portfolio 26.78% 34.05% 99.51% 34.05%
Alger American Growth Portfolio 22.86% 24.15% 82.03% 24.15%
</TABLE>
* Each of the Variable Fund Accounts indicated above (with the exception of the
USAA Life Aggressive Growth and International Fund Accounts) commenced
operations on February 6, 1995. The Aggressive Growth and International Fund
Accounts commenced operation on May 1, 1997. Average Annual Total Return
Figures for the Aggressive Growth and International Fund Accounts are not
annualized.
The three year average annual total return* and cumulative total return* for
certain Variable Fund Accounts for the period ended March 31, 1998 were as
follows:
<TABLE>
<CAPTION>
Three Year Three Year
Average Annual Cumulative
Variable Fund Account Total Return Total Return
- ---------------------- ------------ ------------
<S> <C> <C>
USAA Life Money Market 4.11% 12.84%
USAA Life Income 8.92% 29.21%
USAA Life Growth and Income 27.70% 108.23%
USAA Life World Growth 21.38% 78.84%
USAA Life Diversified Assets 19.82% 72.04%
USAA Life Aggressive Growth - -
USAA Life International - -
Scudder VLIF Capital Growth Portfolio 30.28% 121.10%
Alger American Growth Portfolio 26.80% 103.87%
</TABLE>
* The three year average annual total return and three year cumulative total
return are calculated using the applicable formulas described above.
30-DAY YIELD. Each Variable Fund Account, other than the USAA Life Money
Market Fund Account, may also advertise its yield based on a specified 30-day
period. Yield is determined by dividing the net investment income per
Accumulation Unit earned during the 30-day period by the Accumulation Unit
Value on the last day of the period and annualizing the resulting figure,
according to the following formula prescribed by the SEC, which assumes a semi-
annual reinvestment of income:
6
YIELD =2 [(a-b +1) -1]
---
[(cd ) ]
7
<PAGE>
Where:
a = Net investment income earned during the period by the Fund whose shares
are owned by the Variable Fund Account.
b = Expenses accrued for the period.
c = The average daily number of Accumulation Units outstanding during the
period.
d = The maximum offering price per Accumulation Unit on the last day of the
period.
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 Contract, because,
statistically, females tend to have longer life expectancies than males.
However, there will be no differences between males and females in any
jurisdiction, including Montana, where such differences are not permitted. We
may also make available Contracts with no such differences in connection with
certain employer-sponsored benefit plans. Employers should be aware that under
most such plans, Contracts that make distinctions based on gender are prohibited
by law.
MISSTATEMENT OF AGE OR SEX AND OTHER ERRORS
- -------------------------------------------
If the age or sex of an Annuitant has been misstated to us, any amount payable
will be that which the premium payments paid would have purchased at the correct
age and sex. If we made any overpayments because of incorrect information about
age or sex, 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. The amount of any adjustment will be credited or charged with interest
at the effective annual rate of 3% per year.
ANNUITY UNIT VALUE
- ------------------
Annuity Unit Value is calculated at the same time that Accumulation Unit Value
is calculated and is based on the same values for shares of the Funds. The
following illustrations show, by use of hypothetical examples, the methods of
determining the Annuity Unit Value and the amount of Variable Annuity Payments.
Illustration of Calculation of Annuity Unit Value
- -------------------------------------------------
Annuity at age 65: Life with 120 payments certain:
<TABLE>
<S> <C> <C>
1. Annuity Unit Value, beginning of period....................................................... $ .980000
2. Assume Net Investment Factor for period equal to.............................................. 1.001046
3. Daily adjustment for 3.0% Assumed Investment Rate............................................. .999919
4. (2) x (3)..................................................................................... 1.000965
5. Annuity Unit Value, end of period............................................................. $ .980946
(1) x (4)
</TABLE>
8
<PAGE>
Illustration of Annuity Payments
- --------------------------------
Annuity at age 65: Life with 120 payments certain:
<TABLE>
<S> <C> <C>
1. Number of Accumulation Units at Annuity Date.................................................. 10,000.00
2. Assume Accumulation Unit Value (as of the end of the Valuation Period immediately prior to the
tenth day before the first monthly payment) equal to.......................................... 1.800000
3. Contract Value (1) x (2)...................................................................... $18,000.00
4. First monthly annuity payment per $1,000 of Contract Value.................................... $ 5.48
5. First monthly annuity payment (3) x (4) /$ 1,000.............................................. $ 98.64
6. Annuity Unit Value (as of the end of the Valuation Period immediately prior to the tenth day
before the first month payment)............................................................... $ .980000
7. Number of Annuity Units (5) / (6)............................................................. 100.653
8. Assume Annuity Unit Value for second month equal to........................................... $ .997000
9. Second monthly annuity payment (7) x (8)...................................................... $ 100.35
10. Assume annuity unit value for third month equal to............................................ $ .953000
11. Third monthly annuity payment (7) x (10)...................................................... $ 95.92
</TABLE>
9
<PAGE>
FINANCIAL STATEMENTS
The financial statements for the Company as of December 31, 1997 and 1996, and
for each of the years in the three-year period ended December 31, 1997, and the
accompanying Report of Independent Auditors are set out below. The financial
statements for the Company included herein should be considered only as bearing
upon the ability of the Company to meet its obligations under the Contracts,
which include death benefits and its assumption of mortality and expense risks.
The most recent audited financial statements for the Separate Account and the
accompanying Report of Independent Auditors are incorporated into this SAI by
reference to the Separate Account's Annual Report, dated December 31, 1997,
which accompanies this SAI.
10
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Directors
USAA LIFE INSURANCE COMPANY:
We have audited the accompanying consolidated balance sheets of USAA LIFE
INSURANCE COMPANY as of December 31, 1997, and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of USAA LIFE INSURANCE
COMPANY as of December 31, 1997, and 1996, and the results of their operations
and their cash flows for each of the years in the three-year period ended
December 31, 1997 in conformity with generally accepted accounting principles.
March 20, 1998
KPMG PEAT MARWICK LLP
<PAGE>
USAA LIFE INSURANCE COMPANY
Consolidated Balance Sheets
December 31, 1997 and 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
Assets 1997 1996
- ------ ---------- ---------
<S> <C> <C>
Investments:
Debt securities, at amortized cost $1,245,257 1,471,707
Debt securities, at fair value 4,869,912 4,119,664
Equity securities, at fair value 352,863 313,068
Mortgage loans 4,462 4,746
Policy loans 130,246 118,683
---------- ---------
Total investments 6,602,740 6,027,868
Cash and cash equivalents 39,642 9,444
Premium balances receivable 2,899 1,655
Accounts receivable - affiliates 50 20
Furniture and equipment 1,403 1,156
Accrued investment income 78,929 71,636
Deferred policy acquisition costs 207,090 189,298
Deferred tax 22,230 28,244
Other assets 34,631 20,712
Separate account assets 184,797 93,804
---------- ---------
Total assets $7,174,411 6,443,837
========== =========
Liabilities
- -----------
Insurance reserves $ 992,983 811,413
Funds on deposit 5,097,272 4,763,093
Accounts payable and accrued expenses 87,315 34,295
Accounts payable - affiliates 12,072 13,441
Other liabilities 55,099 57,107
Separate account liabilities 184,797 93,804
---------- ---------
Total liabilities 6,429,538 5,773,153
---------- ---------
Stockholders' Equity
- --------------------
Preferred capital stock, $100 par value;
1,200,000 shares authorized (600,000
in 1996); 600,000 shares issued and
outstanding 60,000 60,000
Common capital stock, $100 par value;
30,000 shares authorized; 25,000 shares
issued and outstanding 2,500 2,500
Additional paid-in capital 51,408 51,408
Net unrealized gains on investments 33,403 22,300
Retained earnings 597,562 534,476
---------- ---------
Total stockholders' equity 744,873 670,684
---------- ---------
Total liabilities
and stockholders' equity $7,174,411 6,443,837
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
USAA LIFE INSURANCE COMPANY
Consolidated Statements of Income
Years ended December 31, 1997, 1996, and 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Revenues
Premiums $355,825 337,442 305,898
Investment income, net 452,104 428,161 406,922
Fees, sales and loan income 9,403 8,752 8,345
Net realized investment gains 43,524 13,773 1,748
Other revenues 31,315 13,335 14,587
-------- ------- -------
Total revenues 892,171 801,463 737,500
-------- ------- -------
Benefits and expenses
Losses, benefits and settlement expenses 542,880 498,341 462,032
Deferred policy acquisition costs 11,898 6,071 3,915
Dividends to policyholders 53,082 53,691 45,588
Other operating expenses 117,354 122,474 124,318
-------- ------- -------
Total benefits and expenses 725,214 680,577 635,853
-------- ------- -------
Income before income taxes 166,957 120,886 101,647
-------- ------- -------
Federal income tax expense (benefit):
Current 57,799 37,090 38,447
Deferred (1,674) (1,494) (3,107)
-------- ------- -------
Total Federal income tax expense 56,125 35,596 35,340
-------- ------- -------
Net income $110,832 85,290 66,307
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
USAA LIFE INSURANCE COMPANY
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1997, 1996, and 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Capital
Balance at beginning of year $113,908 93,908 93,908
Issuance of preferred stock - 20,000 -
-------- ------- -------
End of year 113,908 113,908 93,908
-------- ------- -------
Retained Earnings
Beginning of year 534,476 465,016 418,310
Net income 110,832 85,290 66,307
Dividends to stockholders (47,746) (15,830) (19,601)
-------- ------- --------
End of year 597,562 534,476 465,016
-------- ------- -------
Net unrealized gains (losses) on investments
Beginning of year 22,300 16,446 (38,607)
Increase (decrease) in net unrealized
gains (losses) on investments 11,103 (398) 55,053
Transfer of unrealized capital gains on
separate account - 6,252 -
End of year 33,403 22,300 16,446
-------- ------- -------
Net unrealized gains on separate account
Beginning of year - 13,072 -
Increase (decrease) in net unrealized
gains on separate account - (6,820) 13,072
Transfer of unrealized capital gains on
separate account - (6,252) -
End of year - - 13,072
-------- ------- -------
Total stockholders' equity $744,873 670,684 588,442
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
USAA LIFE INSURANCE COMPANY
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996, and 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996 1995
--------- ------- -------
<S> <C> <C> <C>
Cash from operating activities:
Net income $110,832 85,290 66,307
Adjustments to reconcile net income to net
cash provided by operating activities:
Net realized investment gains (43,524) (13,773) (1,748)
Non-cash investment income (13,148) (5,185) -
(Increase) in deferred policy acquisition costs (19,938) (17,728) (18,993)
Depreciation and amortization (7,951) (5,442) (5,298)
Deferred income tax benefit (1,974) (1,494) (3,107)
(Increase) in premium balances receivable (1,244) (44) (346)
(Increase) in accounts receivable-affiliate (30) (20) -
(Increase) in accrued investment income (7,292) (12,213) (7,171)
(Increase) Decrease in other assets (14,583) (8,495) 6,197
Increase in insurance reserves 102,790 78,926 65,721
Increase (Decrease) in accounts payable and
accrued expense 53,022 (20,126) 8,852
Increase (Decrease) in accounts payable-affiliates (1,370) 3,379 3,394
Increase (Decrease) in other liabilities 432 7,089 (4,712)
Other (3,016) 759 40
-------- ------- -------
Net cash provided by operating activities 153,306 90,923 109,136
-------- ------- -------
Cash flows from investing activities:
Proceeds from sales and maturities of
available-for-sale securities 370,972 587,945 420,818
Proceeds from maturities of held-to-maturity
securities 117,667 106,504 184,729
Proceeds from principal collections on
investments 271,471 351,540 292,673
Other investments sold 948 1,123 934
Retirement of notes receivable - - 30,000
Securities purchased - available-for-sale (1,181,564) (1,460,349) (1,313,784)
Other investments purchased (165) (451) (1,382)
Investment in variable annuity separate account - 87,280 (81,000)
---------- ---------- ----------
Net cash used in investing activities (420,671) (326,408) (467,012)
---------- ---------- -----------
Cash flows from financing activities:
Deposits and interest credited to funds
on deposit 742,374 571,941 655,626
Withdrawals from funds on deposit (419,611) (362,658) (344,774)
Proceeds from issuance of preferred stock - 20,000 -
Dividends to stockholders (25,200) (15,830) (19,601)
-------- -------- --------
Net cash provided by financing activities 297,563 213,453 291,251
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents 30,198 (22,032) (66,625)
Cash and cash equivalents at beginning of year 9,444 31,476 98,101
--------- -------- --------
Cash and cash equivalents at end of year $ 39,642 9,444 31,476
========= ======== ========
</TABLE>
Significant Non-Cash Financing Activities:
In 1997, the Company declared and paid a dividend to stockholders by
transferring equity securities with a fair value of $22,546, a cost of $11,560,
and recognized a gain of $10,986.
See accompanying notes to consolidated financial statements.
5
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
(1) Summary of significant accounting policies
------------------------------------------
(a) Organization
------------
USAA LIFE INSURANCE COMPANY (the Company) is a wholly-owned subsidiary
of UNITED SERVICES AUTOMOBILE ASSOCIATION (USAA). The Company markets
individual life insurance policies, annuity contracts, and individual
and group accident and health policies primarily to individuals eligible
for membership in USAA. The Company is licensed to do business in all
states including the District of Columbia but excluding New York. The
Company has a subsidiary company (USAA Life Insurance Company of New
York) licensed to sell Life and Annuity contracts in that state. The
Company's other business (USAA Life General Agency) offers additional
products of other insurance companies requested by USAA membership,
which are not sold by the Company. The consolidated financial
statements include the accounts of the Company and its subsidiaries.
All significant intercompany balances and transactions have been
eliminated in consolidation.
(b) Investments
-----------
Debt securities, including bonds, mortgage-backed securities (MBS's),
and redeemable preferred stocks, have been classified as either held-to-
maturity or available-for-sale. Debt securities classified as held-to-
maturity are carried at amortized cost. Securities classified as
available-for-sale are carried at fair value with unrealized gains or
losses (net of related deferred income taxes, deferred policy
acquisition costs, and future policyholder benefits) reflected in
stockholders' equity.
Bonds, at amortized cost of approximately $281,206, and $2,876 were on
deposit with various state governmental agencies at December 31, 1997,
and 1996 respectively. When the New York subsidiary was formed in 1997,
the Company withdrew its license in the State of New York. To be in
compliance with the New York Regulation 109, the 1997 deposits include
$278,333 held for the security of the New York policyholders.
Mortgage-backed securities held represent participating interests in
pools of long term first mortgage loans originated and serviced by the
issuers of the securities. Market interest rate fluctuations can affect
the prepayment speed of principal and the yield on the securities.
All equity securities, which include common and nonredeemable preferred
stocks, have been classified as available-for-sale. Equity securities
are carried at fair value with unrealized gains or losses (net of
related deferred income taxes, deferred policy acquisition costs, and
future policyholder benefits) reflected in stockholders' equity.
Real estate mortgages and policy loans are carried at their unpaid
principal balances with interest rates ranging from 4.80% to 10.0% at
December 31, 1997.
Short-term securities are carried at cost.
Interest is not accrued on debt securities or mortgage loans for which
principal or interest payments are determined to be uncollectible.
Realized gains and losses are included in net income based upon specific
identification of the investment sold. When impairment of the value of
an investment is considered to be other than temporary, a provision for
the writedown to estimated net realizable value is recorded.
6
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
(c) Cash and cash equivalents
-------------------------
For purposes of the consolidated statement of cash flows, all highly
liquid marketable securities that have a maturity at purchase of three
months or less and money market mutual funds are considered to be cash
equivalents. At December 31, 1997 and 1996, cash and cash equivalents
include $268, and $362, respectively, of separate account purchases
awaiting reinvestment. These funds are restricted from the Company's
use.
(d) Federal income taxes
--------------------
The Company and its subsidiaries are included in the consolidated
Federal income tax return filed by USAA. Taxes are allocated to the
separate companies of USAA based on a tax allocation agreement, whereby
companies receive a current benefit to the extent their losses are
utilized by the consolidated group. Separate company current taxes are
the higher of taxes computed at a 35% rate on regular taxable income or
taxes computed at a 20% rate on alternative minimum taxable income,
adjusted for any consolidated benefits allocated to the companies based
on the use of separate company losses within the group.
Deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates
applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and
liabilities. The effect on deferred income taxes of a change in tax
rates is recognized in income in the period that includes the enactment
date.
(e) Fair value of financial instruments
-----------------------------------
The fair value estimates of the Company's financial instruments were
made at a point in time, based on relevant market information about the
related financial instrument. These estimates do not reflect any premium
or discount that could result from offering for sale at one time the
Company's entire holding of a particular financial instrument. In
addition, the tax ramifications related to the effect of fair market
value estimates have not been considered in the estimates.
(f) Use of estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
(g) Deferred policy acquisition costs
---------------------------------
Policy acquisition costs, consisting primarily of certain underwriting
and selling expenses, are deferred and amortized. Traditional
individual life and health acquisition costs are amortized in proportion
to anticipated premium income after allowing for lapses and terminations
(20 years; but not to exceed the life of the policy). Acquisition costs
for universal life and annuities are amortized in relation to the
present value of estimated gross profits from surrender charges and
investment, mortality and expense margins (20 years).
Deferred policy acquisition costs are reviewed to determine that the
unamortized portion does not exceed expected future income or gross
profits.
7
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
(h) Insurance reserves
------------------
Included in reserves are traditional life and health products and payout
annuities with life contingencies. Payout annuities without life
contingencies, deferred annuities, and universal life products are
classified as funds on deposit. Traditional life and individual health
reserves are computed using a net level premium method and are based on
assumed or guaranteed investment yields and assumed rates of mortality,
morbidity, withdrawals, expenses and anticipated future policyholder
dividends. These assumptions vary by such characteristics as plan, year
of issue, policy duration, date of receipt of funds, and may include
provisions for adverse deviation.
(i) Insurance revenues and expenses
-------------------------------
Premiums on traditional life insurance products are recognized as
revenues as they become due. Benefits and expenses are matched with
premiums in arriving at profits by providing for policy benefits over
the lives of the policies and by amortizing acquisition costs. For
universal life and investment annuity contracts, revenues consist of
investment earnings and policy charges for the cost of insurance, policy
administration, and surrender charges assessed during the period.
Expenses for these policies include interest credited to policy account
balances, benefit claims incurred in excess of policy account balances,
and administrative expenses. The related deferred policy acquisition
costs are amortized in relation to the present value of expected gross
profits from surrender charges and investment, mortality, and expense
margins.
(j) Funds on deposit
----------------
Funds on deposit are liabilities for universal life and investment-
related products. These liabilities are determined following the
"retrospective deposit" method and consist principally of policy account
balances before applicable surrender charges.
(k) Participating business
----------------------
Certain life insurance policies contain dividend payment provisions
which enable the policyholder to participate in the earnings of the life
insurance operations. The participating insurance in force accounted
for 8% of the total life insurance in force at December 31, 1997, and 9%
of life insurance in force at December 31, 1996. Participating policies
accounted for 13% of the premium income in 1997, and 15% of the premium
income in 1996. The provision for policyholders' dividends is based on
current dividend scales.
The Company guarantees to pay dividends in aggregate, on all policies
issued after December 31, 1983, in the total amount of $15,092 in 1998.
Income attributable to participating policies in excess of policyholder
dividends is restricted by several states for participating
policyholders of those states, otherwise income in excess of
policyholder dividends is accounted for as belonging to the
stockholders.
(l) Reclassifications
-----------------
Certain reclassifications of prior period amounts have been made to
conform with the current year's presentation.
8
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
(2) Basis of accounting
-------------------
The Company prepares separate statutory financial statements in accordance
with accounting practices prescribed or permitted by the Insurance
Department of Texas. Prescribed statutory accounting practices include a
variety of publications of the NAIC as well as state laws, regulations, and
general administrative rules. Permitted statutory accounting practices
encompass all accounting practices not so prescribed. The NAIC is currently
undergoing a codification project whereby a comprehensive accounting and
reporting basis may be adopted which is intended to replace prescribed or
permitted accounting practices.
These consolidated financial statements have been prepared on the basis of
generally accepted accounting principles (GAAP), which differs from the
basis of accounting followed in reporting to insurance regulatory
authorities. Reconciliations of statutory net income and capital and
surplus, as determined using statutory accounting principles, to the amounts
included in the accompanying consolidated financial statements are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory net income $ 97,588 62,998 55,213
Gain(loss) on sale of investments 980 (6,422) (1,719)
Deferred policy acquisition costs 19,938 17,728 18,993
Tax adjustment 7,253 8,386 397
Participating policyholder earnings 3,294 (787) (40)
Insurance reserves and other (18,221) 3,387 (6,537)
--------- ------- --------
GAAP net income $ 110,832 85,290 66,307
========= ======= ========
Statutory capital and surplus 540,053 470,263 396,676
Increases (decreases):
Deferred policy acquisition costs 207,090 189,298 164,831
Federal income taxes 22,354 28,236 19,974
Asset valuation reserve 99,651 103,482 96,742
Interest maintenance reserve - - 4,894
Participating policyholder liability (4,143) (6,583) (5,398)
Policyholder reserve and funds (91,468) (69,279) (75,052)
Investment unrealized gain (loss) adjustments:
Investment valuation difference 150,686 56,285 145,352
Policyholder accounts and other assets (175,607) (96,828) (155,588)
Other adjustments (3,743) (4,190) (3,989)
--------- ------- --------
GAAP capital and surplus $ 744,873 670,684 588,442
========= ======= ========
</TABLE>
(3) Investments
-----------
The amortized cost, estimated fair values and carrying values of investments
in debt and equity securities as of December 31, 1997 were as follows:
9
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
<TABLE>
<CAPTION>
Held-to-Maturity
---------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair Carrying
cost gains losses value value
----------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Debt securities
- ---------------
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 11,060 1,912 - 12,972 11,060
Obligations of states and
political subdivisions 5,525 373 (2) 5,896 5,525
Debt securities issued by
foreign governments and
corporations 41,153 1,051 (13) 42,191 41,153
Mortgage backed securities 759,916 26,262 (1,546) 784,632 759,916
Corporate securities 427,603 16,220 (713) 443,110 427,603
---------- ------ ------ --------- ---------
Total debt securities $1,245,257 45,818 (2,274) 1,288,801 1,245,257
========== ====== ====== ========= =========
Available-for-Sale
-------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair Carrying
cost gains losses value value
----------- ---------- ---------- --------- --------
Debt securities
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 301,875 2,500 (994) 303,381 303,381
Obligations of states and
political subdivisions 66,443 2,933 - 69,376 69,376
Debt securities issued by
foreign governments and
corporations 128,144 4,866 (19) 132,991 132,991
Mortgage backed securities 1,230,196 54,906 (37) 1,285,065 1,285,065
Corporate securities 2,995,524 85,527 (1,952) 3,079,099 3,079,099
---------- ------- ------ --------- ---------
Total debt securities $4,722,182 150,732 (3,002) 4,869,912 4,869,912
========== ======= ====== ========= =========
Equity Securities
Common stock $ 216,508 82,854 (1,678) 297,684 297,684
Nonredeemable preferred stock 51,696 3,610 (127) 55,179 55,179
---------- ------- ------ --------- ---------
Total equity securities $ 268,204 86,464 (1,805) 352,863 352,863
========== ======= ====== ========= =========
</TABLE>
10
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
The amortized cost, estimated fair values and carrying values of investments in
debt and equity securities as of December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Held-to-Maturity
---------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair Carrying
cost gains losses value value
----------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Debt securities
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 21,132 1,530 (4) 22,658 21,132
Obligations of states and
political subdivisions 42,844 807 - 43,651 42,844
Debt securities issued by
foreign governments and
corporations 53,333 280 (893) 52,720 53,333
Mortgage backed securities 870,583 24,443 (9,694) 885,332 870,583
Corporate securities 481,906 517,374 (3,517) 495,763 481,906
Redeemable preferred stock 1,909 - - 1,909 1,909
---------- ------- ------- --------- ---------
Total debt securities $1,471,707 44,434 (14,108) 1,502,033 1,471,707
========== ======= ======= ========= =========
Available-for-Sale
---------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair Carrying
cost gains losses value value
----------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Debt securities
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 327,091 885 (4,372) 323,604 323,604
Obligations of states and
political subdivisions 7,848 723 (66) 8,505 8,505
Debt securities issued by
foreign governments and
corporations 127,213 3,619 (425) 130,407 130,407
Mortgage backed securities 1,232,769 38,654 (3,982) 1,267,441 1,267,441
Corporate securities 2,372,767 35,073 (18,133) 2,389,707 2,389,707
---------- ------ ------- --------- ---------
Total debt securities $4,067,688 78,954 (26,978) 4,119,664 4,119,664
========== ====== ======= ========= =========
Equity Securities
Common stock $ 202,313 70,095 (1,481) 270,927 270,927
Nonredeemable preferred stock 37,298 4,872 (29) 42,141 42,141
---------- ------ ------- --------- ---------
Total equity securities $ 239,611 74,967 (1,510) 313,068 313,068
========== ====== ======= ========= =========
</TABLE>
The amortized cost and estimated fair values of debt securities classified as
held to maturity and available for sale at December 31, 1997, by contractual
maturity, are shown by category below. Expected maturities may differ from
contractual maturities because borrowers may have the right to prepay
obligations.
11
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
<TABLE>
<CAPTION>
Held-to-Maturity
----------------------------
Estimated
Amortized fair
cost value
----------- ----------
<S> <C> <C>
Due in one year or less $ 108,753 109,699
Due after one year through five years 147,757 153,194
Due after five years through ten years 180,975 187,965
Due after ten years 47,856 53,311
--------- -------
485,341 504,169
Mortgage-backed securities 759,916 784,632
---------- --------
$1,245,257 1,288,801
========== =========
Available-for-Sale
----------------------------
Estimated
Amortized fair
cost value
----------- ----------
<S> <C> <C>
Due in one year or less $ 58,514 58,809
Due after one year through five years 1,666,587 1,694,623
Due after five years through ten years 1,562,265 1,616,995
Due after ten years 204,620 214,420
---------- ---------
3,491,986 3,584,847
Mortgage-backed securities 1,230,196 1,285,065
---------- ---------
$4,722,182 4,869,912
========== =========
</TABLE>
Proceeds from sales of available-for-sale securities during 1997, 1996, and 1995
were $317,851, $495,039, and $416,071, respectively. Gross gains and losses of
$29,049 and $2,913 respectively for 1997, and $25,566 and $18,317 respectively
for 1996, and $7,820 and $9,268 respectively for 1995, were realized on those
sales.
Gross investment income during 1997, 1996, and 1995 was $456,322, $431,893, and
$410,912, respectively and consists primarily of interest income on fixed
maturity securities. Investment expenses were $4,218, $3,732, and $3,990 for
1997, 1996, and 1995, respectively.
(4) Federal income taxes
---------------------
The expected statutory Federal income tax amounts for the years ended
December 31, 1997, 1996, and 1995 differ from the effective tax amounts as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income before income taxes $166,957 120,886 101,647
======== ======= =======
Federal income tax expense at 35% statutory rate 58,435 42,310 35,577
Increase (decrease) in tax resulting from:
Dividends received deduction (604) (660) (536)
Tax credits - R&E (548) (6,188) -
Other, net (1,158) 134 299
-------- ------- -------
Federal income tax expense $ 56,125 35,596 35,340
======== ======= =======
</TABLE>
12
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
Deferred income tax benefit for the years ended December 31, 1997, 1996, and
1995 was primarily attributable to differences between the valuation of
assets and insurance liabilities for financial reporting and tax purposes.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31 are presented below:
<TABLE>
<CAPTION>
1997 1996
-------- ------
<S> <C> <C>
Deferred tax assets:
Insurance reserves $ 70,361 62,358
Accounts payable and accrued expenses 1,497 1,612
Policyholder dividends 6,778 6,738
Other, net 3,686 6,929
-------- ------
Total gross deferred tax assets 82,322 77,637
-------- ------
Deferred tax liabilities:
Investments 7,590 2,641
Depreciable assets 39 1
Deferred policy acquisition costs 34,517 37,025
Other, net 9 331
-------- ------
Total gross deferred tax liabilities 42,155 39,998
-------- ------
Deferred tax liability on net
unrealized gains on investments (17,937) (9,395)
-------- ------
Net deferred tax asset $ 22,230 28,244
======== ======
</TABLE>
Management believes that the realization of the deferred tax asset is more
likely than not based on the expectation that such benefits will be utilized
in the future consolidated tax returns of the USAA group.
At December 31, 1997, and 1996, the Company had the following Federal income
tax payable/receivable amounts:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current Net Federal income taxes payable (receivable) $ (1,552) 3,157
</TABLE>
Aggregate cash payments to (receipts from) USAA for income taxes were
$62,345, $38,064, and $44,965 for USAA Life Insurance Company and $163,
$(155), and $126 for its subsidiaries during the years ended December 31,
1997, 1996, and 1995, respectively.
(5) Fair value of financial instruments
-----------------------------------
The following tables present the carrying amounts and estimated fair values
of the Company's financial instruments at December 31. Financial Accounting
Statement No. 107, "Disclosures about Fair Value of Financial Instruments",
defines the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing
parties.
13
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996
--------------------- --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 39,642 39,642 9,444 9,444
Debt securities 6,115,169 6,158,713 5,591,371 5,621,697
Equity securities 352,863 352,863 313,068 313,068
Mortgage loans 4,462 5,114 4,746 5,232
Other invested assets 2,352 2,736 2,373 2,828
Policy loans 130,246 130,246 118,683 118,683
Premium balances receivable 2,899 2,899 1,655 1,655
Accrued investment income 78,929 78,929 71,636 71,636
Separate Account 184,797 184,797 93,804 93,804
Financial liabilities:
Deferred annuities and annuities without
life contingencies 3,787,507 3,787,507 3,720,373 3,720,373
Policyholder dividend accumulations 28,593 28,593 23,191 23,191
Policy dividends declared but unpaid 31,081 31,081 29,415 29,415
Accounts payable and accrued expenses 87,315 87,315 34,295 34,295
Separate Account 184,797 184,797 93,804 93,804
</TABLE>
The carrying amounts of financial assets and liabilities shown in the above
table are included in the balance sheet under the indicated captions with
the following exceptions: other invested assets are included in other
assets, deferred annuities and annuities without life contingencies are
included in funds on deposit, policyholder dividend accumulations are
included in funds on deposit, and policy dividends declared and unpaid are
included in other liabilities.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and cash equivalents: Cash and cash equivalents approximate fair value
because of the short maturity of these instruments.
Debt and equity securities: Fair market values for bonds and stocks are
determined using quoted market prices from Merrill Lynch Pricing Services,
Bloomberg Services or individual brokers.
Mortgage loans: The fair value of mortgage loans and the mortgage loan
component of other assets are estimated by discounting the future cash flows
using interest rates currently being offered for mortgage loans with similar
characteristics and maturities.
Policy loans: In the Company's opinion, the book value of the policy loans
approximates their fair value. Policy loans are shown on the financial
statements at face value, and carry interest rates ranging from 4.8% to 7.4%
in advance.
Premiums receivable: The recorded amount for premiums receivable
approximates fair value because only a slight percentage of total policies
issued by the Company lapse.
Accrued investment income: The accrued amount of investment income
approximates its fair value because of the quality of the Company's
investment portfolio combined with the short term nature of the collection
period.
Deferred annuities and annuities without life contingencies: The fair value
of the deferred annuities is estimated as the aggregate cash value of the
annuity, which approximates the carrying value. The fair value of annuities
without life contingencies is estimated as the commuted value of the
annuity.
14
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
Policyholder dividend accumulations: The fair value of policyholder
dividend accumulations is estimated using the book value less a percentage
of accrued interest anticipated to be forfeited as a result of policy
cancellations. Estimated annual interest to be forfeited is not
significant.
Policy dividends declared but unpaid: The carrying value of policy
dividends declared but unpaid approximates the fair value because the
carrying value reflects anticipated forfeitures as a result of policy
cancellations. Estimated annual interest to be forfeited is not
significant.
Accounts payable and accrued expenses: The fair value of accounts payable
and accrued expenses approximates its carrying value because of the short
term nature of the obligations.
Separate account assets and liabilities: The separate account assets
reflect the net asset value of the underlying mutual funds, therefore
carrying value is considered fair value. The separate account liabilities
are reflected at the underlying balances due to the contract holders,
excluding seed money, without consideration for applicable surrender
charges, if any.
(6) Borrowings
----------
The Company has no borrowing activity outside of the agreements described in
Note 7 "Transactions with affiliates."
(7) Transactions with affiliates
----------------------------
Certain services have been contracted from USAA and its affiliates, such as
rental of office space, utilities, mail processing, data processing,
printing, and employee benefits. The Company allocates these and other
expenses to affiliates for administrative services performed by the Company.
The contracted services and allocations are based upon various formulas or
agreements with the net amounts included in expenses. The aggregate amount
of such contracted services was $73,136, $70,713, and $66,787 for 1997,
1996, and 1995, respectively. The aggregate amount of the Company's
allocations to affiliates was $4,376, $4,742, and $3,910 for 1997, 1996, and
1995, respectively.
The Company has an agreement with USAA Investment Management Company
regarding the reimbursement of costs for investment services provided. The
aggregate amount of the USAA Investment Management Company contracted
services was $3,037, $2,793, and $2,941 for 1997, 1996 and 1995,
respectively.
The Company also received premium and annuity considerations from USAA of
$4,201, $4,093, and $6,145 in 1997, 1996, and 1995, respectively,
representing amounts received for structured settlements issued to claimants
of USAA and for group insurance on USAA employees.
The Company has intercompany funding agreements with USAA Capital
Corporation (CAPCO) and USAA Funding Company (FUNDCO) for unsecured
borrowings up to $150,000 in the aggregate, at an interest rate based upon
CAPCO's or FUNDCO's cost of funding. As of December 31, 1997, 1996, and
1995 the Company had no liability for borrowed money. The Company borrowed
$3,598,125 during 1997, $2,566,042 during 1996, and $1,809,466 during 1995,
through the use of these funding agreements. The interest associated with
these intercompany funding agreements was $855, $660, and $898 in 1997,
1996, and 1995, respectively.
In 1996, the Company exercised a put option on a $20,000 medium term note
from CAPCO.
15
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
(8) Reinsurance
-----------
The Company is party to several reinsurance agreements. The Company's
general policy is to reinsure that portion of any risk in excess of $600
with a $100 corridor on the life of any one individual. However in 1997 the
Company entered into certain reinsurance treaties which are based on a first
dollar quota share pool. The Company retains 10% of the risk on each life
up to the normal $600 retention and the remaining 90% goes to a coinsurance
pool which is placed with a number of reinsurers on a quota share basis.
Additionally, the Company's entry into the Bank Owned Life Insurance (BOLI)
business resulted in two reinsurance treaties, one Yearly Renewable Term
(YRT) and one Coinsurance treaty, both of which are with one reinsurer on a
first dollar basis, with the Company retaining 50% of the business in the
coinsurance arrangement.
Although the ceding of reinsurance does not discharge the Company from its
primary legal liability to a policyholder, the reinsuring company assumes
the related liability.
Life insurance in force in the amounts of $4,077,094, $3,595,801 and
$3,690,040 is ceded on a yearly renewable term basis; $4,684,726, $939,290,
and $716,596 is ceded on a coinsurance basis; and $957,267, $952,599, and
$1,000,581 is ceded in accordance with a stop loss agreement at December 31,
1997, 1996, and 1995, respectively. Reinsurance amounts related to insurance
reserves, funds on deposit, and paid losses totaled $204,607, and $13,023 at
December 31, 1997 and 1996, respectively. Premium revenues and interest
credited to policyholders were reduced by $204,109, $11,837, and $11,072 for
reinsurance premiums ceded during the years ended December 31, 1997, 1996,
and 1995, respectively. Benefits were reduced by $196,062, $7,838, and
$7,435 for reinsurance recoverables during the years ended December 31,
1997, 1996, and 1995, respectively. One reinsurer accounts for 90% of the
amount recoverable from reinsurers at December 31, 1997.
Reinsurance amounts related to accident and health insurance reserves and
paid losses totaled $17,981 and $15,786 at December 31, 1997 and 1996,
respectively. Premium revenues were reduced by $3,297, $3,117, and $3,134
for reinsurance premiums ceded during the years ended December 31, 1997,
1996, and 1995, respectively. Benefits were reduced by $3,268, $3,604, and
$3,299 for reinsurance recoverables during the years ended December 31,
1997, 1996, and 1995, respectively.
(9) Deferred policy acquisition costs and future policy benefits
------------------------------------------------------------
Deferred policy acquisitions costs and premiums are summarized below:
<TABLE>
<CAPTION>
Accident
Life Annuity and health Total
------ ------- ---------- -------
<S> <C> <C> <C> <C>
Balance at
January 1, 1995 $ 122,138 28,115 11,608 161,861
Additions 15,676 4,498 2,658 22,832
Amortization (4,375) 1,926 (1,466) (3,915)
FAS 115 DAC (2,051) (13,896) - (15,947)
------ ------- ------ -------
Net change 9,250 (7,472) 1,192 2,970
------ ------- ------ -------
Balance at
December 31, 1995 $ 131,388 20,643 12,800 164,831
Additions 18,436 2,999 2,364 23,799
Amortization (5,006) 634 (1,699) (6,071)
FAS 115 DAC 141 6,598 - 6,739
------ ------ ------ ------
Net change 13,571 10,231 665 24,467
------ ------ ------ ------
</TABLE>
16
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
<TABLE>
<S> <C> <C> <C> <C>
Balance at
December 31, 1996 $144,959 30,874 13,465 189,298
Additions 24,674 3,942 3,073 31,689
Amortization (7,764) (2,373 (1,761) (11,898)
FAS 115 DAC 1,201 (3,200) - (1,999)
Net change 18,111 (1,631) 1,312 17,792
Balance at
December 31, 1997 $163,070 29,243 14,777 207,090
1997 Premiums $277,631 8,143 70,051 355,825
1996 Premiums $264,382 7,792 65,268 337,442
1995 Premiums $240,234 4,630 61,034 305,898
</TABLE>
The liabilities for future policy benefits and related insurance in force at
December 31, 1997, and 1996 are summarized below:
<TABLE>
<CAPTION>
Future Policy
Benefits
---------------
1997 1996
---- ----
<S> <C> <C>
Life and annuity:
Individual $948,565 775,659
Group 2,792 1,449
-------- -------
Total life and annuity 951,357 777,108
======== =======
Accident and health $ 41,626 34,305
======== ========
Insurance in force
-----------------------
1997 1996
---- ----
<S> <C> <C>
Life and annuity:
Individual $69,540,314 67,650,451
Group 1,870,085 1,659,106
----------- ----------
Total life and annuity $71,410,399 69,309,557
=========== ==========
</TABLE>
Life Insurance and Annuities:
Interest assumptions used in the calculation of future policy benefits for
Traditional Life policies are as follows:
Participating term 9.28%
Participating permanent 8.68% to 9.28%
Non - Participating term 6.00% to 8.91%
Future policy benefits for Universal Life and Deferred Annuities are equal
to the current account value without anticipation of any applicable
surrender charges.
Future policy benefits for Payout Annuities use the original pricing
interest rates.
17
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
Mortality and withdrawal assumptions are based on the Company's experience.
Health Insurance:
Interest assumptions used for future policy benefits on health policies are
calculated using a level interest rate of 6%.
Morbidity for Income Replacement policies are based on the 1985 CIDA table.
Morbidity for In Hospital Cash policies are based on 1966-67 Intercompany
Experience table.
Termination assumptions are based on the Company and industry experience.
(10) Capital stock
-------------
The Company has outstanding 600,000 shares of Annually Adjustable
Cumulative Perpetual Preferred Stock; 100,000 shares each of Series A,
Series B, Series C, Series D, Series E, and Series F. All preferred stock
is owned by FUNDCO. No other stock ranks Senior to the Series A-F preferred
stock. The dividend rate will be 65% of the cost of the funds for CAPCO on
Commercial paper having a 180-day maturity on the first business day of
each Dividend Period. The preferred stock has a par value of $100 and a
liquidation value of $100 per share. The preferred stock shares are
redeemable at the option of the Company for cash, in whole or in part, on
the 15th day of each December for Series A and Series B and on the 15th day
of each June for Series C, Series D, Series E, and Series F at par value
plus accrued and unpaid dividends. Preferred stock dividends of $2,200,
$1,830, and $1,601 were paid in 1997, 1996, and 1995 respectively, and $94
has accrued since the last payment on December 15, 1997.
The Company has authorized 30,000 shares of common capital stock, $100 par
value, of which 25,000 shares were issued and outstanding at December 31,
1997, 1996, and 1995. Dividends of $45,546, $14,000, and $18,000 were paid
on the common stock during 1997, 1996, and 1995, respectively. The 1997
dividend was paid in cash and equity securities. The equity securities
transferred had an original cost of $11,560, a fair value of $22,546, and
the Company recognized gain of $10,986.
(11) Unassigned surplus and dividend restrictions
--------------------------------------------
Texas law limits the payment of dividends to shareholders. The maximum
dividend that may be paid without prior approval of the Insurance
Commissioner is limited to the greater of net gain from operations of the
preceding calendar year or 10% of capital and surplus as of the prior
December 31. As a result, dividend payments to shareholders were limited to
approximately $47,976 in 1997 and are limited to $66,872 in 1998. Dividends
are paid as determined by the Board of Directors and at its discretion.
The Texas Department of Insurance imposes minimum risk-based capital
requirements on insurance companies that were developed by the National
Association of Insurance Commissioners (NAIC). The formulas for determining
the amount of risk-based capital (RBC) specify various weighting factors
that are applied to statutory financial balances or various levels of
activity based on the perceived degree of risk. Regulatory compliance is
determined by a ratio of the Company's regulatory total adjusted capital to
its authorized control level RBC, as defined by the NAIC. Companies below
specific trigger points or ratios are classified within certain levels, each
of which requires specified corrective action. The Company's current
statutory capital and surplus is significantly in excess of the threshold
RBC requirements.
18
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
(12) Employee benefit plans
----------------------
(a) Pension plan
------------
Substantially all employees are covered under a pension plan
administered by USAA which is accounted for on a group basis. The
benefits are determined based on years of service and the employee's
salary at date of retirement. The total net pension cost allocated to
the Company on the basis of salary expense was $3,746, $4,847, and
$1,913 in 1997, 1996 and 1995, respectively. At December 31, 1997 and
1996, a liability of $899 and $1,612, respectively, has been recorded
which represents the excess of net periodic pension cost allocated to
the Company over its allocated funding requirements.
(b) Postretirement benefit plan
---------------------------
Substantially all employees may become eligible for certain medical and
life insurance benefits provided for retired employees under a plan
administered by USAA, if they meet minimum age and service requirements
and retire while working for USAA. The total postretirement benefit
cost allocated to the Company was approximately $737, $682, and $843 in
1997, 1996, and 1995, respectively. At December 31, 1997 and 1996, a
liability of $974 and $186, respectively, was recorded which represents
the excess of the net periodic postretirement benefit cost allocated to
the Company over its allocated funding requirements.
(c) Postemployment benefits
-----------------------
All employees of the Company who suffer total disability as a result of
illness or injury are eligible for long-term disability benefits under
a plan administered by USAA.
The postemployment benefit cost allocated to the Company is not
significant.
(13) Separate account
----------------
The Separate Account is a segregated asset account established under Texas
law through which USAA Life Insurance Company invests the premium payments
received from Contract Owners. The assets of the Separate Account are the
property of the Company. However, only the assets of the Separate Account
in excess of the reserves, and other Contract liabilities with respect to
the Separate Account, are chargeable with liabilities arising out of any
other business the Company may conduct. Income, gains and losses, whether
or not realized, are, in accordance with the Contracts, credited to or
charged against the Separate Account without regard to other income, gains
or losses of the Company. The Company's obligations arising under the
Contracts are general corporate obligations.
The Separate Account currently is divided into nine Variable Annuity Fund
Accounts, each of which invests in a corresponding Fund. The Funds that are
available under this Contract include seven funds of USAA Life Investment
Trust, the Capital Growth Portfolio of the Scudder Variable Life Investment
Fund, and the Growth Portfolio of The Alger American Fund. The Accumulated
Unit Value of the Contract in a Variable Fund Account will vary, primarily
based on the investment experience of the Fund in whose shares the Variable
Fund Account invests. The value of the Funds' securities are carried at
market value, or, in the case of the USAA Life Variable Annuity Money
Market Fund, at amortized cost, which approximates market value.
The Company incurs mortality and administrative expenses on behalf of
Separate Account contract holders. The Company collects fees for these
expenses from contract holders at set amounts. In addition, the Company
incurs various expenses related to conducting the business or operations of
the USAA Life Investment Trust (Trust) as outlined by an underwriting and
administrative services agreement. The Company, out of its general account,
has agreed to pay directly or reimburse the Trust for Trust expenses
exceeding established limits. Such reimbursements were not significant in
1997 and 1996.
19
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
(14) Commitments and contingencies
-----------------------------
The Company is required by law to participate in the guaranty associations
of the various states in which it does business. The state guaranty
associations ensure payment of guaranteed benefits, with certain
restrictions to policyholders of impaired or insolvent insurance companies,
by assessing all other companies involved in similar lines of business.
There are currently several insurance companies which had substantial
amounts of annuity business, in the process of liquidation or
rehabilitation. The Company paid $1,953, $2,437 and $4,823 to various state
guaranty associations during the years ended December 31, 1997, 1996, and
1995, respectively. The Company accrues its best estimate for known
insolvencies. At December 31, 1997 and 1996 accounts payable and accrued
expenses include $8,931 and $9,292, respectively, related to estimated
assessments.
(15) Subsequent Event
----------------
In January 1998, the Company declared and paid a dividend to stockholders
of $33,928. The dividend was paid in equity securities with an original
cost of $21,951, resulting in a realized gain of $11,977.
20
<PAGE>
PART C - OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) List of Financial Statements
1. Part A. Condensed financial information reflecting the results of the
Separate Account's operations for its fiscal years ended December 31, 1997,
and December 31, 1996, respectively, and for its first fiscal period of
operations (commencing February 6, 1995 and ended December 31, 1995) is
included in Part A of this Registration Statement.
2. Part B. The most recent audited Financial statements of the Separate
Account are incorporated into Part B of this Registration Statement by
reference to the Separate Account's Annual Report, dated December 31, 1997.
3. Part B. The following financial statements of USAA Life Insurance Company
("USAA Life") are included in Part B of the Registration Statement:
Consolidated Financial Statements as of December 31, 1997 and 1996, and
each of the years in the three-year period ended December 31, 1997:
Independent Auditors' Report
Consolidated Balance Sheet
Consolidated Statement of Income
Consolidated Statement of Stockholders' Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Consolidated Financial Statement Schedules
1
<PAGE>
(b) Exhibits
1. Copies of the Resolution of the Board of Directors of USAA Life Insurance
Company, effective February 8, 1994, establishing the Separate Account of
USAA Life Insurance Company, and Amendment thereto, dated July 29, 1994.
(The resolution is filed in lieu of a trust or indenture creating a unit
investment trust.) (Filed herewith.)
2. Not Applicable.
3. Amended and Restated Distribution and Administration Agreement by and
between USAA Life Insurance Company and USAA Investment Management Company,
dated December 16, 1994, and amended and restated, to encompass variable
universal life insurance, March 30, 1998. (Filed herewith.)
4. (a) Form of Flexible Premium Deferred Combination Fixed and Variable
Annuity Contract, including endorsements. (Filed herewith.)
(b) TSA Loan Endorsement. (Filed herewith.)
5. (a) Forms of Applications for Flexible Premium Deferred Combination
Fixed and Variable Annuity Contract. (Filed herewith.)
(b) Telephone Authorization Form. (Filed herewith.)
(c) Section 1035 Exchange Form. (Filed herewith.)
6. (a) Articles of Incorporation of USAA Life Insurance Company, as amended.
(Filed herewith.)
(b) Bylaws of USAA Life Insurance Company. (Filed herewith.)
7. Not Applicable.
8. (b) Servicing Agreement by and between USAA Life Insurance Company and
USAA Transfer Agency Co. d/b/a USAA Shareholder Account Services, dated
February 3, 1995. (Filed herewith.)
(c) Amended and Restated Underwriting and Administrative Services Agreement
by and between USAA Life Insurance Company, USAA Life Investment Trust
and USAA Investment Management Company, dated December 14, 1994, amended
February 7, 1997, and amended and restated to encompass variable
universal life insurance, February 26, 1998. (Filed herewith.)
2
<PAGE>
(d) (i) Form of Amended Participation Agreement by and between Scudder
Variable Life Investment Fund and USAA Life Insurance Company, dated
February 3, 1995, as amended. (Filed herewith.)
(ii) Form of Amended Participating Contract and Policy Agreement by
and between Scudder Investor Services, Inc. and USAA Investment
Management Company, dated February 3, 1995, as amended. (Filed
herewith.)
(iii) Form of Amended Reimbursement Agreement by and between Scudder
Kemper Investments, Inc. and USAA Life Insurance Company, dated
February 3, 1995, as amended. (Filed herewith.)
(iv) Form of Amended Letter Agreement by and between Scudder Kemper
Investments, Inc., Scudder Investor Services, Inc., Scudder Variable
Life Investment Fund, USAA Life Insurance Company and USAA Investment
Management Company, dated February 3, 1995, as amended. (Filed
herewith.)
(e) (i) Amended Participation Agreement by and between The Alger
American Fund, Fred Alger Management, Inc., Fred Alger & Company,
Incorporated and USAA Life Insurance Company, dated December 16, 1994,
as amended March 16, 1998. (Filed herewith.)
(ii) Amended Expense Allocation Agreement by and between Fred Alger
Management, Inc., Fred Alger & Company, Incorporated, and USAA Life
Insurance Company, dated December 16, 1994, as amended March 16, 1998.
(Filed herewith.)
(f) (i) Form of Participation Agreement by and between BT Insurance
Funds Trust, Bankers Trust Company and USAA Life Insurance Company.
(Filed herewith.)
(ii) Form of Expense Allocation Agreement by and between Bankers Trust
Company and USAA Life Insurance Company. (Filed herewith.)
9. Opinion and Consent of Counsel concerning the legality of the securities
being registered. (Filed herewith.)
10. Consent of KPMG Peat Marwick LLP, Independent Auditors. (Filed
herewith.)
11. Not Applicable.
12. (a) Subscription Agreement by and between USAA Life Insurance Company
and USAA Life Investment Trust, dated December 16, 1994. (Filed
herewith.)
(b) Subscription Agreement by and between USAA Life Insurance Company and
USAA Life Investment Trust, with respect to the Aggressive Growth and
International Funds, dated February 7, 1997, incorporated by reference to
Exhibit 13(c) to Post-Effective Amendment No. 3 to the USAA Life
Investment Trust's Registration Statement on Form N-1A (File No. 33-
82270).
13. (b) Schedules showing computation of yield quotation for USAA Life
Variable Annuity Money Market Fund Account for the seven days ended
December 31, 1995, and average annual and cumulative total returns for
the fiscal period ended December 31, 1995 for each Variable Annuity Fund
Account. /1/
14. Financial Data Schedule, (See Exhibit 27 below.).
3
<PAGE>
16. (a) Powers of Attorney for: Robert T. Herres, Edwin L. Rosane, Michael
J.C. Roth, and James A. Robinson (Filed herewith.)
(b) Power of Attorney for Josue Robles, Jr. (Filed herewith.)
(c) Power of Attorney for Bradford W. Rich. /1/
(d) Power of Attorney for Robert G. Davis./2/
(e) Powers of Attorney for: Janice E. Marshall, William B. Tracy, and
Donald R. Walker. (Filed herewith.)
27. Financial Data Schedule. (Inapplicable, because, not withstanding Item
24(b)(4) of Form N-4, the Commission staff has advised that no such
schedule is required).
4
<PAGE>
- ------------
/1/ Previously filed on April 30, 1996 in Post-Effective Amendment No. 2 to
this Registration Statement.
/2/ Previously filed on April 29, 1997 in Post-Effective Amendment No. 3 to
this Registration Statement.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The Directors and officers of USAA Life, the depositor of the Separate
Account, are set out below. The principal business address for all of the
following Directors and officers of USAA Life is 9800 Fredericksburg Road, San
Antonio, Texas 78288.
DIRECTORS: POSITIONS ON THE BOARD:
---------- -----------------------
Robert G. Davis Chairman
Edwin L. Rosane Vice Chairman
Bradford W. Rich Director
Michael J. C. Roth Director
Josue Robles, Jr. Director
Janice E. Marshall Director
William B. Tracy Director
Donald R. Walker Director
OFFICERS: POSITIONS WITH USAA LIFE:
--------- -------------------------
Edwin L. Rosane Chief Executive Officer and President
John W. Douglas Senior Vice President
Kenneth A. McClure Senior Vice President
James A. Robinson Senior Vice President and Treasurer
Edward R. Dinstel Vice President
Larkin W. Fields Vice President
Robert J. Flannery Vice President
Richard T. Halinski, Jr. Vice President and
Assistant Secretary
Ronald W. Holtkamp Vice President and
Assistant Treasurer
King Mawhinney Vice President
Bradford W. Rich Vice President and Secretary
Pattie S. McWilliams Vice President
James M. Middleton Vice President
Stephen N. Patzman Vice President
Leldon W. (Jack) Ward Vice President
Dwain A. Akins Assistant Vice President and
Assistant Secretary
Bruce W. Clements Assistant Vice President and
Assistant Secretary
Allen R. Pierce Assistant Vice President
Gary D. Younglove Assistant Vice President
5
<PAGE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
Information in response to this Item is incorporated by reference to Exhibit
20 to Post-Effective Amendment No. 6 to the USAA Life Investment Trust's
Registration Statement on Form N-1A (File No. 33-82270).
ITEM 27. NUMBER OF CONTRACT OWNERS
As of April 15, 1998, there were 6,210 owners of Contracts covered by this
Registration Statement.
ITEM 28. INDEMNIFICATION
The information called for by this Item is incorporated herein by reference to
Article IX of the By-Laws of USAA Life, filed as Exhibit 6(b) to this
Registration Statement; to Section 9 of the Amended and Restated Underwriting
and Administrative Services Agreement, filed as Exhibit 8(c) to this
Registration Statement; to Section 14 of the Amended and Restated Distribution
and Administration Agreement, filed as Exhibit 3 to this Registration Statement;
to paragraph 8(b) of the Participating Contract and Policy Agreement, as
amended, filed as Exhibit 8(d)(ii) to this Registration Statement; and to
Section 14 of the Transfer Agent Agreement, as amended, filed as Exhibit 8(c) of
Pre-Effective Amendment No. 1 to the Form N-1A Registration Statement of USAA
Life Investment Trust (File No. 33-82270 and No. 811-8672).
Insofar as indemnification for liability arising under the Securities Act of
1933 (the "1933 Act") may be permitted for Directors, Officers and controlling
persons of USAA Life pursuant to the foregoing, or otherwise, USAA Life has been
advised that in the opinion of the Securities and Exchange Commission (the
"Commission"), such indemnification is against public policy as expressed in the
1933 Act and, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by USAA Life of
expenses incurred or paid by a Director, officer or controlling person of USAA
Life 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, USAA Life will, unless in the opinion of its counsel this
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 1933 Act and will be governed by the
final adjudication of such issue.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) USAA Investment Management Company ("USAA IMCO") is the principal
underwriter for the Contracts. USAA IMCO also serves as the investment
adviser and principal underwriter to USAA Life Investment Trust, USAA
Investment Trust, USAA State Tax-Free Trust, USAA Mutual Fund, Inc., and
USAA Tax Exempt Fund, Inc.
(b) The following are the Directors and officers of USAA IMCO:
DIRECTORS: POSITIONS WITH USAA IMCO:
---------- -------------------------
Robert G. Davis Chairman
Michael J. C. Roth Vice Chairman
Harry W. Miller Director
John W. Saunders, Jr. Director
OFFICERS: POSITIONS WITH USAA IMCO:
--------- -------------------------
Michael J.C. Roth CEO and President
John J. Dallahan Senior Vice President
Harry W. Miller Senior Vice President
6
<PAGE>
John W. Saunders, Jr. Senior Vice President
Carl (Bill) W. Shirley Senior Vice President
Patricia P. Cavazos Vice President
Alex M. Ciccone Vice President & Assistant Secretary
Christopher W. Claus Vice President
Sherron A. Kirk Vice President and Controller
David G. Miller Vice President
William R. Pedersen Vice President
David G. Peebles Vice President
Thomas Ramos Vice President
Michael D. Wagner Vice President & Secretary
Kenneth E. Willmann Vice President
R. Matthew Freund Assistant Vice President
Clifford A. Gladson Assistant Vice President
Mark W. Johnson Assistant Vice President
Robert R. Pariseau Assistant Vice President
David G. Parsons Assistant Vice President
R. David Ullom Assistant Vice President
John K. Cabell Assistant Vice President
Eric M. Efron Assistant Vice President
Stephen J. Klaffke Assistant Vice President
Paul H. Lundmark Assistant Vice President
Curt Rohrman Assistant Vice President
Albert C. Sebastian Assistant Vice President
W. Travis Selmier, II Assistant Vice President
Terri L. Luensmann Assistant Vice President
Patrick O'Hare Assistant Vice President
The principal business address for all of the above Directors and officers of
USAA IMCO is 9800 Fredericksburg Rd., San Antonio, Texas 78288.
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The accounts and records of Registrant are located at the offices of its
depositor, USAA Life, located at 9800 Fredericksburg Road, San Antonio, Texas,
78288; the offices of the principal underwriter of the Contracts, USAA IMCO,
located at 10750 Robert F. McDermott Freeway, San Antonio, Texas, 78288.
ITEM 31. MANAGEMENT SERVICES
None.
ITEM 32. UNDERTAKINGS
(a) Registrant hereby undertakes 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 Variable Annuity
Contracts may be accepted;
(b) Registrant hereby undertakes to include either (1) as part of any
Application to purchase a Contract offered by the Prospectus, a space that
an applicant can check to request a Statement of Additional Information
("SAI"), or (2) a toll-free number that an applicant can call or a
postcard or similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a SAI;
7
<PAGE>
(c) Registrant undertakes to deliver any SAI and any financial statements
required to be made available under this Form promptly upon written or
oral request; and
(d) USAA Life represents that the fees and charges deducted under the
Contracts described in this Registration Statement, in the aggregate, are
reasonable in relation to the services rendered, the expenses expected to
be incurred, and the risks assumed by USAA Life under the Contracts. USAA
Life bases its representation on its assessment of all of the facts and
circumstances, including such relevant factors as: the nature and extent
of such services, expenses and risks; the need for USAA Life to earn a
profit; the degree to which the Contracts include innovative features; and
the regulatory standards for exemptive relief under the Investment Company
Act of 1940 used prior to October 1996, including the range of industry
practice. This representation applies to all Contracts sold pursuant to
this Registration Statement, including those sold on the terms
specifically described in the prospectus contained herein, or any
variations therein, based on supplements, endorsements, or riders to any
Contracts or prospectus, or otherwise.
Registrant hereby represents that it is relying upon the letter, dated
November 28, 1988, from the Commission staff to the American Council of Life
Insurance, regarding Sections 22(e), 27(c)(1) and 27(d) of the Investment
Company Act of 1940 and the redeemability of variable annuity contracts offered
as funding vehicles for retirement plans meeting the requirements of Section
403(b) of the Internal Revenue Code. Registrant further represents that it
intends to comply with the provisions of paragraphs (1)-(4) of that letter.
8
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, as amended, Registrant certifies that it meets the requirements of
Securities Act Rule 485 for effectiveness of this amended Registration Statement
and has duly caused this amended Registration Statement to be signed on its
behalf by the undersigned thereunto duly authorized, in the City of San Antonio
and State of Texas on this 28th day of April, 1998.
THE SEPARATE ACCOUNT
OF USAA LIFE INSURANCE COMPANY
(Registrant)
By: USAA LIFE INSURANCE COMPANY
(On behalf of Registrant and itself)
By: /s/ EDWIN L. ROSANE
--------------------------------------
Edwin L. Rosane
President and Chief Executive Officer
Attest: /s/ DWAIN A. AKINS
------------------------------------
Dwain A. Akins
Assistant Secretary
9
<PAGE>
As Required by the Securities Act of 1933, this amended Registration Statement
has been signed by the following Directors and officers of the Depositor on the
dates indicated:
<TABLE>
<CAPTION>
NAME POSITION DATE
- ---- -------- ----
<S> <C> <C>
Robert G. Davis Chairman April 24, 1998
Edwin L. Rosane Vice Chairman, Chief April 28, 1998
Executive Officer
and President
Bradford W. Rich Director April 15, 1998
Josue Robles, Jr. Director April 17, 1998
Michael J.C. Roth Director April 20, 1998
Janice E. Marshall Director April 28, 1998
William B. Tracy Director April 28, 1998
Donald R. Walker Director April 14, 1998
James A. Robinson Senior Vice President April 28, 1998
and Treasurer
(Principal Financial and
Accounting Officer)
</TABLE>
10
<PAGE>
EXHIBIT INDEX
EXHIBIT
- -------
1 Copies of the Resolution of the Board of Directors of USAA Life
Insurance Company, effective February 8, 1994, establishing the
Separate Account of USAA Life Insurance Company, and Amendment
thereto, dated July 29, 1994. (The resolution is filed in lieu of a
trust or indenture creating a unit investment trust.)
3 Amended and Restated Distribution and Administration Agreement by and
between USAA Life Insurance Company and USAA Investment Management
Company, dated December 16, 1994, and amended and restated, to
encompass variable universal life insurance, March 30, 1998.
4(a) Form of Flexible Premium Deferred Combination Fixed and Variable
Annuity Contract, including endorsements.
4(b) TSA Loan Endorsement.
5(a) Forms of Applications for Flexible Premium Deferred Combination Fixed
and Variable Annuity Contract.
5(b) Telephone Authorization Form.
5(c) Section 1035 Exchange Form.
6(a) Articles of Incorporation of USAA Life Insurance Company, as amended.
6(b) Bylaws of USAA Life Insurance Company
8(b) Servicing Agreement by and between USAA Life Insurance Company and
USAA Transfer Agency Co. d/b/a USAA Shareholder Account Services,
dated February 3, 1995.
8(c) Amended and Restated Underwriting and Administrative Services
Agreement by and between USAA Life Insurance Company, USAA Life
Investment Trust and USAA Investment Management Company, dated
December 14, 1994, amended February 7, 1997, and amended and restated
to encompass variable universal life insurance, February 26, 1998.
8(d)(i) Form of Amended Participation Agreement by and between Scudder
Variable Life Investment Fund and USAA Life Insurance Company, dated
February 3, 1995, as amended.
8(d)(ii) Form of Amended Participating Contract and Policy Agreement by and
between Scudder Investor Services, Inc. and USAA Investment Management
Company, dated February 3, 1995, as amended.
8(d)(iii) Form of Amended Reimbursement Agreement by and between Scudder Kemper
Investments, Inc. and USAA Life Insurance Company, dated February 3,
1995, as amended.
8(d)(iv) Form of Amended Letter Agreement by and between Scudder Kemper
Investments, Inc., Scudder Investor Services, Inc., Scudder Variable
Life Investment Fund, USAA Life Insurance Company and USAA Investment
Management Company, dated February 3, 1995, as amended.
8(e)(i) Amended Participation Agreement by and between the Alger American
Fund, Fred Alger Management, Inc., Fred Alger & Company, Incorporated
and USAA Life Insurance Company, dated December 16, 1994, as amended
March 16, 1998.
11
<PAGE>
8(e)(ii) Amended Expense Allocation Agreement by and between Fred Alger
Management, Inc., Fred Alger & Company, Incorporated, and USAA Life
Insurance Company, dated December 16, 1994, as amended March 16, 1998.
8(f)(i) Form of Participation Agreement by and between BT Insurance Funds
Trust, Bankers Trust Company and USAA Life Insurance Company.
8(f)(ii) Form of Expense Allocation Agreement by and between Bankers Trust
Company and USAA Life Insurance Company.
9 Opinion and Consent of Counsel concerning the legality of the
securities being registered.
10 Consent of KPMG Peat Marwick LLP, Independent Auditors
12(a) Subscription Agreement by and between USAA Life Insurance Company and
USAA Life Investment Trust, dated December 16, 1994.
16(a) Powers of Attorney for: Robert T. Herres, Edwin L. Rosane, Michael
J.C. Roth, and James A. Robinson.
16(b) Power of Attorney for Josue Robles, Jr.
16(e) Powers of Attorney for Janice E. Marshall, William B. Tracy, and
Donald R. Walker
12
<PAGE>
EXHIBIT 1
The following resolution was adopted at a Meeting of the Board of Directors on
February 7, 1994:
USAA LIFE INSURANCE COMPANY
WHEREAS, the Board of Directors (the "Board") has determined, after
presentation by USAA Life Insurance Company (the "Company"), that it is
desirable for the Company to provide variable annuity contracts to its customers
and prospective customers;
NOW THEREFORE, The Board resolves as follows:
RESOLVED, that the Company will amend its Certificate of Authority in those
states where required in order to authorize it to sell variable annuity
contracts. The Company will file the variable annuity contract form in all
fifty states and any other legal documents, affidavits, exhibits or any other
information required by the various State Insurance Departments.
RESOLVED, that a Separate Account of USAA Life Insurance Company (the
"Separate Account") be established in accordance with the provisions of Chapter
3, Article 3.75 of the Texas Insurance Code, and the Regulations promulgated
thereunder, for the purpose of providing a funding medium to support reserves
under such variable annuity contracts as may be issued by the Company.
RESOLVED, that the Company and its Directors, Officers, employees, and
affiliates with respect to the purchase or sale of investments of the Separate
Account will adhere to standards of conduct that comply with 15 United States
Code (S) 80a-17, as amended, and applicable rules and regulations thereunder and
the Officers are directed to adopt and implement a Code of Ethics to assure
compliance with these legal requirements.
RESOLVED, that the Officers of the Company are authorized to take all
actions which they deem necessary or appropriate to issue and sell variable
annuity contracts. Such authority shall include, without limitation, registering
the product in an amount (which may be in an indefinite amount) from time to
time under the Securities Act of 1933, as amended, registering the Separate
Account as a unit investment trust under the Investment Company Act of 1940, as
amended, and filing any exemptive application or applications, and any amendment
thereto with respect to the product or the Separate Account, under the
Investment Company Act of 1940, as amended, and taking all other actions
necessary or appropriate in order that such proposed issue and sale of the
variable annuity contracts and operation of the Separate Account may comply with
the requirements of the Securities Act of 1933, as amended, the Investment
Company Act of 1940, as amended, the Securities Exchange Act of 1934, as
amended, the Investment Advisers Act of 1940, as amended, and all other
applicable federal and state laws and regulations.
1
<PAGE>
RESOLVED, that the Separate Account may have amounts allocated thereto
(including proceeds applied under optional modes of settlement) to provide for
variable annuity contracts (and benefits incidental thereto) payable in variable
amounts. The Separate Account shall be established and maintained pursuant to
the laws of Texas under which income, gains and losses, whether or not realized,
from assets allocated to the Separate Account, are, in accordance with the
applicable contract, credited to or charged against the Separate Account without
regard to other income, gains or losses of the Company. The Separate Account
shall be legally segregated, the assets of the Separate Account shall, at the
time during the year that adjustments in the reserves are made, have a value at
least equal to the reserves and other contract liabilities with respect to the
Separate Account, and pursuant to Securities and Exchange Commission Regulation
17 CFR (S)270.0-1 at all other times, shall have a value approximately equal to
or in excess of such reserves and liabilities, and that portion of such assets
having a value equal to, or approximately equal to, such reserves and contract
liabilities shall not be chargeable with liabilities arising out of any other
business which the Company may conduct.
RESOLVED, that the variable annuity contract will provide a fixed interest
rate option through which contract owners may allocate premium to the Company's
General Account in addition to the Separate Account.
RESOLVED, that the fundamental investment policy of the Separate Account
shall be to invest or reinvest the assets of the Separate Account in securities
issued by such investment company or investment companies registered under the
Investment Company Act of 1940, as amended, as the Officers may select and
designate, consistent with the terms of the variable annuity contract and
applicable laws.
RESOLVED, that one or more Sub-Accounts be established within the Separate
Account to which net premiums from variable annuity contracts will be allocated
in accordance with instructions received from contract owners, and that the
Officers are authorized to increase or decrease the number of Sub-Accounts in
the Separate Account, or consolidate or otherwise modify the Sub-Accounts in the
Separate Account, as they deem necessary or appropriate, subject to applicable
law.
RESOLVED, that each Sub-Account shall invest only in the shares of a single
investment company or a single portfolio of an investment company organized as a
series fund pursuant to the Investment Company Act of 1940.
RESOLVED, that each Sub-Account may be comprised of two subdivisions, one
to hold the amounts contributed to the variable annuity contracts issued to
retirement plans qualifying for a favorable tax treatment under the provisions
of the Internal Revenue Code (the "Code"), as amended, and the other to hold
amounts contributed to variable annuity contracts not issued pursuant to such
qualified plans.
RESOLVED, that the President and Senior Vice President, Finance are
authorized to initially deposit in the Separate Account an amount not to exceed
thirty million dollars ($30,000,000.00) to facilitate the Separate Account's
operation and are further authorized to distribute this sum among the initial
Sub-Accounts of the Separate Account as deemed appropriate.
2
<PAGE>
RESOLVED, that the President and Senior Vice President, Finance are
authorized to transfer additional funds in an amount not to exceed five million
dollars ($5,000,000.00) from the Company's General Account to the Separate
Account for extraordinary purposes or expenses associated with the sale and
administration of variable annuity contracts as deemed necessary or appropriate
and consistent with applicable laws. If any funds are expended pursuant to this
authorization the Officers shall report and explain to the Board the reasons for
the expenditure.
RESOLVED, that the President and Senior Vice President, Finance are
authorized to transfer funds from the Separate Account to the General Account as
deemed appropriate and consistent with the terms of the Variable Annuity
Contract and applicable laws.
RESOLVED, that the Officers are authorized to establish criteria by which
the Company shall institute procedures to provide for a pass-through of voting
rights to the owners of any variable annuity contracts issued by the Company as
required by applicable laws, or otherwise appropriate, with respect to the
shares of any investment company or companies whose shares are held in the
Separate Account.
RESOLVED, that Dwain A. Akins and James P. Brennan, Sr., Counsel for the
Company are constituted and appointed agents to receive service of process and
notices and communications from the Securities and Exchange Commission with
respect to such registration statements or exemptive applications as may be
filed on behalf of the Company concerning the Separate Account, and to exercise
the powers given to such agent in the rules and regulations of the Securities
and Exchange Commission under the Securities Act of 1933, as amended, the
Investment Company Act of 1940, as amended, the Securities Exchange Act of 1934,
as amended, and the Investment Advisers Act of 1940, as amended, and all other
applicable federal and state laws and regulations.
RESOLVED, that the Officers are authorized to do or cause to be done all
things necessary or appropriate, as may be advised by Counsel, to comply with,
or obtain exemptions from, federal or state statutes or regulations that may be
applicable to the issuance and sale of variable annuity contracts through the
Separate Account of the Company, including without limitation, applying for
exemptions with respect to contracts to be issued in the future through existing
Separate Accounts or Separate Accounts to be established either by the Company
or an affiliate of the Company.
RESOLVED, that the Company will act as the Depositor for the Separate
Account and, further, that the Company will provide all or some administrative
services in connection with the establishment and maintenance of the Separate
Account and other administrative services in connection with the issuance and
sale of such variable annuity contracts, all on such terms and subject to such
modifications as the Officers deem necessary or appropriate.
RESOLVED, that the Officers are authorized to organize and incorporate a
suitable investment company or companies under state corporate law and the
Investment Company Act of 1940, or to take steps to have an existing investment
company or companies organize one or more suitable series or portfolios under
the Act, as deemed appropriate by the Officers, the shares of which shall be
purchased by the
3
<PAGE>
Company in order to serve as an investment vehicle for the Separate Account,
and, further, that the Officers are authorized to do all things they deem
necessary or appropriate to carry out the foregoing.
RESOLVED, that in order for the Company to have an efficient administration
system for the variable annuity contract, the Board of Directors of the Company
may enter into agreements to secure such services for a reasonable fee,
compensation or remuneration with a Subsidiary, Affiliate or Independent
Contractor, all on such terms and subject to such conditions as the Officers
deem necessary or appropriate to effectuate the foregoing.
RESOLVED, that in order for a suitable distribution system to be in effect
in connection with the sale of variable annuity contracts, the Officers are
authorized to enter into a distribution agreement with a subsidiary, affiliate,
or independent contractor, all on such terms and such conditions as the Officers
deem necessary or appropriate.
/s/ R. T. Halinski, Jr.
-------------------------------
R. T. Halinski, Jr.
Assistant Vice President
Assistant Secretary
USAA Life Insurance Company
(COMPANY SEAL)
Dated: February 8, 1994
4
<PAGE>
WRITTEN CONSENT TO ACTION
BY THE BOARD OF DIRECTORS OF
USAA LIFE INSURANCE COMPANY
The undersigned, being and constituting the Board of Directors of USAA Life
Insurance Company, a Texas Corporation, do hereby consent in writing,
without a meeting, to the adoption of the following resolution:
Amendment to Resolution Establishing Separate Account
WHEREAS, the Board of Directors, on February 7, 1994 and pursuant to a
Special Meeting of the Board, adopted a resolution which, among other
things, authorized the creation of a Separate Account of the Company;
authorized the President and Senior Vice-President, Finance to
initially deposit, on behalf of the Company, an amount not to exceed
thirty million dollars ($30,000,000.00) to facilitate the Separate
Account's operation; authorized the same officials to transfer an
additional five million dollars ($5,000,000.00) from the Company's
General Account (the "Discretionary amount") under certain conditions;
appointed certain individuals as agents to receive service of process
and certain notices and communications on behalf of the Company
concerning the Separate Account; and, authorized the officers of the
Company to organize and incorporate a suitable investment company
under state law to serve as an investment vehicle for the Separate
Account; and
WHEREAS, the management of the Company, in order to show a stronger
financial commitment to the Separate Account as well as, ultimately,
the variable annuity contractholders purchasing said product, to
defray expenses not anticipated or briefed to the Board of the Special
Meeting, and to attempt to maintain the projected "break-even" or
"profitability" target of five (5) years, has recommended
authorization for an additional fifty-one million dollars
($51,000,000.00) to be invested by the Company in the Separate
Account; and
WHEREAS, the management of the Company, in order to keep a relative
proportion to the above-mentioned additional funding and the
aforementioned Discretionary amount, recommends authorization to
increase said Discretionary amount by eleven million dollars
($11,000,000.00); and
WHEREAS, the management of the Company, in order to have at least one
officer of the Board serve as agent for service of process for the
purposes stated above herein, recommends the Assistant Secretary
thereof to be so named; and
5
<PAGE>
WHEREAS, the management of the Company finds it desirable and,
therefore, recommends that a Business Trust organization be an option
available to it for creating the underlying investment company to
serve as an investment vehicle to the Separate Account;
NOW, THEREFORE, the Board resolves as follows:
RESOLVED, that only the eleventh, twelfth, fifteenth and eighteenth
resolutions of the Board, as adopted at the Special Meeting of
February 7, 1994 relative to the creation of the Separate Account
(refer to pages 12 and 13 of the Minutes of said Special Meeting) be,
and they are hereby, deleted in their entirety and are now adopted as
follows:
RESOLVED, that the President and Senior Vice President, Finance are
authorized to initially deposit in the Separate Account an amount not
to exceed eighty-one million dollars ($81,000,000.00) to facilitate
the Separate Account's operation and are further authorized to
distribute this sum among the initial Sub-Accounts of the Separate
Account as deemed appropriate
RESOLVED, that the President and Senior Vice President, Finance are
authorized to transfer additional funds in an amount not to exceed
sixteen million dollars ($16,000,000.00) from the Company's General
Account to the Separate Account for extraordinary purposes or expenses
associated with the sale and administration of variable annuity
contracts as deemed necessary or appropriate and consistent with
applicable laws. If any funds are expended pursuant to this
authorization the Officers shall report and explain to the Board the
reasons for the expenditure.
RESOLVED, that R. T. Halinski, Jr., Assistant Secretary, and Dwain A.
Akins, Counsel for the Company, are constituted and appointed agents
to receive service of process and notices and communications from the
Securities and Exchange Commission with respect to such registration
statements or exemptive applications as may be filed on behalf of the
Company concerning the Separate Account, and to exercise the powers
given to such agent in the rules and regulations of the Securities and
Exchange Commission under the Securities Act of 1933, as amended, the
Investment Company Act of 1940, as amended, and all other applicable
federal and state laws and regulations.
6
<PAGE>
RESOLVED, that the officers are authorized to organize and incorporate
or to organize and create a suitable investment company or companies
or business trust or trusts under state corporate or business trust
law and the Investment Company Act of 1940, or to take steps to have
an existing investment company or companies organize one or more
suitable series or portfolios under the Act, as deemed appropriate by
the Officers, the shares of which shall be purchased by the Company in
order to serve as an investment vehicle for the Separate Account, and,
further, that the Officers are authorized to do all things they deem
necessary or appropriate to carry out the foregoing.
This consent shall be filed with the Minutes of the Corporation.
Dated: July 29, 1994
/s/ Robert T. Herres /s/ H. T. Johnson
---------------------- -------------------------
Robert T. Herres H. T. Johnson
/s/ Edwin L. Rosane /s/ William McCrae
---------------------- -------------------------
Edwin L. Rosane William McCrae
/s/ H. L. Emanuel /s/ A. Ray Otte
---------------------- -------------------------
H. L. Emanuel A. Ray Otte
/s/ M. Staser Holcomb /s/ Michael J.C. Roth
---------------------- -------------------------
M. Staser Holcomb Michael J.C. Roth
7
<PAGE>
EXHIBIT 3
AMENDED AND RESTATED
DISTRIBUTION AND ADMINISTRATION AGREEMENT
BY AND BETWEEN
USAA LIFE INSURANCE COMPANY
AND
USAA INVESTMENT MANAGEMENT COMPANY
<PAGE>
AMENDED AND RESTATED
DISTRIBUTION AND ADMINISTRATION AGREEMENT
This Distribution and Administration Agreement (the "Agreement") made on the
16th day of December, 1994, and amended March 30, 1998, by and between USAA Life
Insurance Company, ("USAA LIFE" or the "Company"), a Texas insurance corporation
on its own behalf and on behalf of the Separate Account of USAA Life Insurance
Company (the "Separate Account") and The Life Insurance Separate Account of USAA
Life Insurance Company (the "Life Insurance Separate Account") as to each of
which the Company is the depositor, and USAA Investment Management Company, a
registered broker-dealer and registered investment adviser organized as a
corporation under the laws of Delaware ("USAA IMCO" or the "Distributor").
RECITALS
WHEREAS, the Company has established and maintains the Separate Account, a
separate investment account pursuant to the laws of Texas, for the purpose of
funding flexible premium variable annuity contracts (the "Contract" or
1
<PAGE>
"Contracts") offered pursuant to a Registration Statement relating thereto filed
with the Securities and Exchange Commission (the "SEC" or the "Commission")
pursuant to the Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, the Company also has established and maintains the Life Insurance
Separate Account, a separate investment account pursuant to the laws of Texas,
for the purposes of funding flexible premium variable universal life insurance
policies (the "Policy" or "Policies") to be offered after the effectiveness of
the Registration Statement relating thereto filed with the SEC pursuant to the
1933 Act; and
WHEREAS, the Separate Account will be registered as a unit investment trust
under the Investment Company Act of 1940 (the "1940 Act"); and
WHEREAS, the Life Insurance Separate Account will be registered as a unit
investment trust under the Investment Company Act of 1940 (the "1940 Act"); and
WHEREAS, the Distributor is an affiliate of the Company, is registered as a
broker-dealer under the Securities Exchange Act of 1934 (the "1934 Act") and
under
2
<PAGE>
the securities laws in all 50 states, is a member of the National Association of
Securities Dealers, Inc. ("NASD") and is authorized to offer and sell mutual
funds and variable insurance products, and is the principal underwriter and
distributor of the USAA Life Investment Trust (the "Trust"), a Delaware business
trust registered as an investment company under the 1940 Act; and
WHEREAS, the Company has extensive experience in the operation of its
insurance business and has trained personnel, equipment, and facilities for
conducting its present and future insurance operations; and
WHEREAS, the Distributor has extensive experience in the operation of its
business as registered broker-dealer and has trained (and NASD-registered)
personnel, equipment, and facilities for conducting its present and future
broker-dealer operations (the term "broker-dealer" as hereinafter used shall
include the offering, solicitation, and sale of registered securities, broker-
dealer compliance monitoring activities, and procedures associated therewith and
all activities incidental, ancillary, or complementary to the business of a
securities broker-dealer); and
3
<PAGE>
WHEREAS, premiums received from owners of Contracts ("Contractowners") will be
deposited at the Contractowner's designation in the Separate Account and/or in
the Company's general account, and the Separate Account will invest in shares
of the Trust; and
WHEREAS, premiums received from owners of Policies ("Policyowners") will be
deposited at the Policyowner's designation in the Life Insurance Separate
Account, and the Separate Account will invest in shares of the Trust; and
WHEREAS, certain personnel of the Company or its affiliates may engage, or be
deemed to be engaged, directly or indirectly, in the offering, selling,
advertising or marketing of Contracts and Policies, including without
limitation, such activities as confirming transactions as required by 1934 Act
Rule 10b-10 and maintenance of records required by 1934 Act Rules 17a-3 and
17a-4 or other SEC or NASD rules applicable to registered broker-dealers (all
Company personnel engaged in these activities, as well as all other persons whom
Section 3(a)(18) of the 1934 Act defines as associated persons of the
Distributor, are referred to herein as "Associated Persons"); and
4
<PAGE>
WHEREAS, USAA IMCO also serves as the Investment Adviser (the "Adviser") to
the Trust, the Trust is the investment medium for the Separate Account and the
Life Insurance Separate Account, USAA Life is the depositor and administrator of
the Separate Account and the Life Insurance Separate Account, and USAA IMCO
receives, as Adviser to the Trust, an advisory fee that is detailed in a
separate Investment Advisory Agreement between the Trust and USAA IMCO; and
WHEREAS, the Company and the Distributor desire to enter into an agreement to
have the Distributor, which shall at all times function and be deemed to be an
independent contractor, act as the Company's principal underwriter for the sale
of the Contracts and Policies funded through the Separate Account and the Life
Insurance Separate Account, respectively; and
WHEREAS, the Distributor and the Company acknowledge the Company's operations
as being the best-suited to provide certain administrative functions in
connection with the Contracts and Policies, subject at all times to the control
and direction of the Distributor with respect to broker-dealer operations.
5
<PAGE>
NOW, THEREFORE, in consideration of the mutual covenants herein contained, and
of the mutual expectations of benefit occurring from the activities herein
contemplated, the parties hereto agree as follows:
1. Appointment of the Distributor
The Company shall during the term of this Agreement take all action which is
required to cause the Contracts and Policies to comply as insurance products,
interests thereunder to comply as registered securities, and the Separate
Account and the Life Insurance Separate Account to qualify as registered
investment companies, under all applicable federal and state laws and
regulations. The Company shall immediately notify the Distributor of any
failure to comply or qualify or of any order or instruction of any regulatory,
judicial or governmental authority to cease or limit the offer or sale of the
Contracts or Policies or any of the Company's operations related thereto.
The Company appoints the Distributor and the Distributor shall act as the
exclusive principal underwriter for the sale of the Contracts and Policies to
the public, during the term of this Agreement, in each state and other
jurisdictions in which such Contracts and Policies may lawfully be sold. The
Distributor shall offer the
6
<PAGE>
Contracts and Policies for sale and distribution, but shall be under no
obligation to effectuate any particular amount of sales of Contracts or
Policies. In this connection, the Distributor shall distribute prospectuses of
the Trust together with prospectuses of the Separate Account for the Contracts
and the prospectuses of the Life Insurance Separate Account, as required by the
SEC.
The Distributor in its capacity as broker-dealer will be solely responsible
for monitoring and controlling the activities of all Associated Persons involved
in the distribution and sale of the Contracts and Policies. Applications for
the Contracts and Policies shall be solicited only by Associated Persons who are
registered with the NASD as representatives of the Distributor ("Registered
Representatives"), and who are duly and appropriately licensed or otherwise
qualified to sell such Contracts and Policies in each state or other
jurisdiction. The Company shall undertake to appoint the Distributor's
Registered Representatives as life insurance agents of the Company, which agents
will be salaried employees of the Company. Completed applications for the
Contracts or Policies shall be transmitted directly to the Company or to an
appointed Third Party Administrator or other designated agent (each a "TPA").
Initial and subsequent premium payments under the Contracts or Policies
7
<PAGE>
shall be made payable to the Company or its designee and any such payments which
come into the possession of the Distributor shall be immediately delivered to
the Company or its designee. The Company and any TPA shall provide all Contract
and Policy issue services at their own expense. Anything in this Agreement to
the contrary notwithstanding, the Company retains the ultimate right to control
the sale of the Contracts and Policies, including the right to suspend sales in
any jurisdiction or jurisdictions, and to appoint and discharge insurance agents
of the Company. The Company shall, however, cooperate with and assist USAA IMCO
to insure that USAA IMCO as broker-dealer controls the manner and whether or not
the Contracts and Policies are sold for purposes of compliance with federal and
state securities law. The Distributor and the Company shall be held to the
exercise of reasonable care in carrying out the provisions of this Agreement.
2. Registration of Representatives
The Distributor shall be responsible for ensuring that the individual
Registered Representatives offering or selling the Contracts and Policies are
duly registered and qualified pursuant to the 1934 Act, NASD regulations, and
any other required securities regulatory body.
8
<PAGE>
3. Life Insurance Licensing
The Company shall be responsible for ensuring that the Registered
Representatives are duly qualified, under the insurance laws of the applicable
jurisdictions, to sell the Contracts and Policies.
4. Suitability
The Company desires to ensure that Contracts and Policies sold by the
Distributor will be issued to purchasers for whom the Contracts or Policies will
be suitable. The Distributor shall establish written procedures which will
require Registered Representatives to review all applications to determine that
the Contracts or Policies are a "suitable" investment vehicle for the applicant.
While not limited to the following, a determination of suitability shall be
based on information furnished to a Registered Representative after reasonable
inquiry of such applicant concerning the applicant's investment objectives and
financial situation and needs, including the likelihood that the applicant will
make sufficient premium payments to derive the benefits thereof. Registered
Representatives of USAA IMCO will review every application for the Contracts or
Policies to insure that it meets the "suitability requirement" detailed in the
NASD's Conduct Rules.
9
<PAGE>
5. Sales Aids; Promotional Material
The Company shall have responsibility for furnishing to the Distributor's
Registered Representatives all sales aids, and promotional material related to
the solicitation and sale of the Contracts and Policies, all at the Company's
expense, and the Distributor shall not use any other such aids, or material
without the specific advance approval of the Company. Such material shall have
been approved in advance by the Distributor. The Distributor, at its
discretion, directly or through the Company as its agent, shall cause such
material to be filed with and reviewed by the NASD, the SEC, or any other
required securities regulatory body, as appropriate. The Company, at its
expense, shall make timely filings of all such aids, material, or proposals with
any insurance regulatory authorities, as required.
No person shall, in connection with the offer or sale of the Contracts or
Policies, make any representations or communicate any information regarding the
Contracts, Policies or the Company which are not contained in materials approved
pursuant to this Section 5 or in the then-effective 1933 Act Registration
Statement for the Separate Account and the Life Insurance Separate Account,
respectively.
10
<PAGE>
6. Compensation
The Company shall pay the salaries and employee fringe benefits of the
Registered Representatives of the Distributor. Such salaries and benefits shall
be their sole compensation and shall not be related to the volume of the sales
of the Contracts or Policies made during a specified time period.
The Company will receive all amounts charged as the Fixed Fund Account
Withdrawal Charge under the Contracts. The parties understand that the Company
is charging the Fixed Fund Account Withdrawal Charge to help enable the Company
to declare higher rates of interest than it could otherwise declare, is
deducting no specific charge for the cost of distributing the Contracts, and is
assuming the risk that the charges under the Contract may be insufficient to
cover the Company's actual expenses and costs assumed in connection with the
Contracts.
7. Administration, Records and Confirmations
The Company shall be primarily responsible for the internal record-keeping and
general office administration necessary for the sale of the Contracts and
Policies subject to the Distributor's review and approval. The Company in its
discretion and
11
<PAGE>
with the understanding of the Distributor, may delegate some or all of its
record-keeping functions to a TPA pursuant to a separate written agreement. The
books and records maintained by the Company or TPA as agent for the benefit of
the Distributor will conform to the requirements of Rule 17a-3 and Rule 17a-4
under the 1934 Act, and as further amplified in SEC Release 34-8389.
Furthermore, such books and records shall remain the property of the
Distributor, shall be surrendered promptly to the Distributor at its request
without charge, and shall at all times be subject to inspection by the
Distributor, the SEC pursuant to Section 17(a) of the 1934 Act and any other
appropriate governmental agency.
The Distributor shall have responsibility for maintaining the records required
of it by applicable law or regulations with respect to broker-dealer operations,
although, in the Distributor's discretion and at the Company's expense, the
Distributor may use the Company or any TPA as its agent for this purpose, as
described in the preceding paragraph.
Any and all books, accounts, and records of the Company, the Separate Account,
the Life Insurance Separate Account, and the Distributor as may pertain to the
Contracts, Policies and this Agreement shall be maintained so as to clearly and
12
<PAGE>
accurately disclose the nature and details of Contract and Policy transactions
or any transactions related thereto. The Distributor shall keep confidential
any information obtained pursuant to this Agreement and shall disclose such
information only if the Company has authorized such disclosure, or if such
disclosure is expressly required by applicable federal or state authorities.
The Distributor, directly or through the Company or any TPA as the
Distributor's agent (at the Company's expense), shall, upon or prior to the
completion of each Contract or Policy transaction for which a confirmation is
legally required, send a written confirmation to the Contractowner or
Policyowner for each such respective transaction, in a form and manner that
complies with the requirements of the 1934 Act, state laws and regulations, and
the disclosure requirements of the NASD. Such confirmations will be furnished
to all Contractowners or Policyowners in accordance with securities laws, will
reflect the facts of the transaction, and will show that they are being sent by
the Company on behalf of the Distributor. The parties agree that the form and
the manner of use of confirmations in connection with transactions occurring in
Contract or Policy accounts shall be supervised by the Distributor. The Company
shall prepare and distribute such confirmations in accordance with the
Distributor's instructions. The Company shall make no changes
13
<PAGE>
or variations in either the form or the manner of distribution of such
confirmations without the written approval of the Distributor and shall cause
such confirmations to be issued as directed by the Distributor and on behalf of
the Distributor.
8. Examination and Proceedings
The Distributor and the Company shall cooperate fully in any insurance
regulatory examination, investigation, or proceeding or any judicial proceeding
arising in connection with the Contracts and Policies distributed under this
Agreement. The Distributor and the Company shall cooperate fully in any
securities regulatory examination, investigation or proceeding or any judicial
proceeding with respect to the Company, the Distributor, and their respective
affiliates, agents and representatives to the extent that such examination,
investigation, or proceeding is in connection with Contracts and Policies
distributed under this Agreement. The Distributor shall furnish applicable
federal and state regulatory authorities with any information or reports in
connection with its services under this Agreement, which authorities may request
in order to ascertain whether the Company's operations are being conducted in a
manner consistent with any applicable law or regulations.
14
<PAGE>
In the case of an oral or written consumer or regulatory agency complaint, the
Distributor and the Company shall promptly notify the other and shall coordinate
and fully cooperate in responding to such complaints. The Distributor and the
Company shall develop procedures to coordinate, investigate and respond to such
complaints.
9. Other Compliance Requirements
The Distributor shall be responsible for the securities activities of, and
for securities law compliance by, any Associated Person engaged directly or
indirectly in the flexible premium variable annuity operation or the flexible
premium variable universal life insurance operation. This shall include (i)
compliance with NASD Conduct Rules and with federal and state laws and
regulations, and (ii) the appropriate training and qualification of Associated
Persons, at the Company's expense. The Distributor, in order to discharge its
duties under this provision of the Agreement, shall be authorized to and shall
designate such Company personnel as it deems necessary to qualify as limited or
general securities principals ("Limited Principals" or "General Principals"),
which individuals shall supervise the securities activities of, and securities
law compliance by, those Registered Representatives selling the Contracts and
Policies, all in accordance with applicable laws, regulations
15
<PAGE>
and NASD requirements. Further, the Distributor shall have the authority to
require such written compliance procedures as it deems advisable to be
established by the Company with respect to any aspect of the Company's business
that affects broker-dealer operations with respect to the Contracts and Policies
and, through the Limited and General Principals, monitor and enforce compliance
with said procedures. The Company shall cooperate and provide any assistance
required by the Distributor in order to insure that the Distributor and
Associated Persons engaged directly or indirectly in the sale of the Contracts
and Policies remain in compliance with any such compliance procedures and
appropriate securities laws, regulations and the NASD`s General Rules and
Conduct Rules.
The Distributor will execute such papers and do such acts and things as shall
from time to time be reasonably requested by the Company for the purpose of (a)
maintaining the registration of the Contracts interests and Policy interests
under the 1933 Act and the Separate Account and the Life Insurance Separate
Account under the 1940 Act, and (b) qualifying and maintaining qualification of
the Contracts and Policies for sale under the applicable laws of any state.
Upon the completion of each transaction for which a confirmation is legally
16
<PAGE>
required, the Company or a TPA shall, on behalf of the Distributor, send a
written confirmation of such transaction reflecting the facts of the
transaction.
10. Contract Payments
The Company shall provide payment services, with respect to the Contracts and
Policies, including payments representing Contract or Policy loans, full and
partial surrenders, and amounts paid under Contract or Policy settlement
options.
11. Company Services
The Company shall provide or arrange to provide, at its expense, all necessary
services in connection with the operational aspects of the Contracts and
Policies. These services shall include, but are not limited to, actuarial,
accounting, data processing, legal, regulatory, Contractowner and Policyowner
service and any other actions required by the Company in its discretion. In
addition to these services, or other services provided hereunder, the Company
shall provide such executive, clerical, and other personnel related services as
may be required to carry out the Company's obligations under this Agreement,
including its obligation to perform certain functions on the Distributor's
behalf.
17
<PAGE>
12. Expense Allocation
Expenses under this Agreement are allocated in this Section 12. If, at a
later time, the Agreement gives rise to other expenses, they shall be allocated
as the parties may decide in writing at that time. The Company hereby agrees
that it will bear the cost of the Associated Persons' salaries and securities
licensing fees; securities registration expenses and filing fees with respect to
the Contracts and the Separate Account and the Policies and the Life Insurance
Separate Account; costs of preparing, printing and distributing all
prospectuses, statements of additional information, notices, periodic reports,
and proxy solicitation material with respect to the Contracts and Policies,
costs of sales literature and other promotional material, applications for
exemptions, requests for no-action letters, and all amendments to any of the
above; costs of preparing, printing, and filing Contract and Policy forms; and
direct legal and accounting expenses in connection with any of the foregoing.
Any of these expenses which may be initially assumed by the Distributor will be
reimbursed to it by the Company upon presentation of the appropriate
documentation in writing evidencing such expenditures. Nothing in this
Agreement shall be deemed to allocate any operational or organizational expense
of the Trust, or the offer and sale of its shares, which expense shall be
allocated pursuant to a separate agreement or agreements pertaining to that
entity
18
<PAGE>
13. Indemnification
a) Whenever the Company is referred to in this Section (13), it is to be
construed to specifically also refer to and include the Separate Account and the
Life Insurance Separate Account.
b) The Company shall indemnify and hold harmless the Distributor, its agents,
employees and each person, if any, who controls the Distributor against any
loss, liability, claim, damage or expense (including the reasonable cost of
investigating or defending any alleged loss, liability, claim, damage or expense
and reasonable counsel fees incurred in connection therewith) arising by reason
of any person's acquiring any Contract or Policy, which may be based upon any
federal or state securities act, or on any other statute or at common law, (i)
on the ground that the registration statement or related prospectus, as from
time to time amended and supplemented, or the annual or interim reports to
Contractowners or Policyowners, any published marketing materials or
communications with any Contractowner or Policyowners or prospective
Contractowner or Policyowner concerning the Contract or Policy, respectively,
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading, unless such statement or omission was made in reliance
upon, and in conformity with, information furnished to the Company in
19
<PAGE>
connection therewith by or on behalf of the Distributor; or (ii) on the ground
that a TPA (other than a TPA controlled by Distributor) failed to comply with
any applicable securities law and regulations in connection with its rendering
of Contract or Policy issue, recordkeeping, or confirmation services under this
Agreement; provided, however, that in no case (a) is the indemnity of the
Company in favor of the Distributor and any such controlling persons to be
deemed to protect the Distributor or any such controlling persons thereof
against any liability to the Company or its Contractowners or Policyowners to
which the Distributor or any such controlling persons would otherwise be subject
by reason of willful misfeasance, bad faith or gross negligence in the
performance of its duties or by reason of reckless disregard of its obligations
and duties under this Agreement, or (b) is the Company to be liable under its
indemnity agreement contained in this paragraph with respect to any claim made
against the Distributor or any such controlling persons, unless the Distributor
or such controlling persons, as the case may be shall have notified the Company
in writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon the Distributor or such controlling persons (or after the Distributor or
such controlling persons shall have received notice of such service on any
designated agent), but failure to notify the Company of any such claim shall not
relieve the Company from any liability which
20
<PAGE>
the Company may have to the person against whom such action is brought otherwise
than on account of the Company indemnity agreement contained in this paragraph.
The Company will be entitled to participate at its own expense in the defense,
or, if it so elects, to assume the defense of any suit brought to enforce any
such liability, but if the Company elects to assume the defense, such defense
shall be conducted by counsel chosen by it and satisfactory to the Distributor
or such controlling person or persons, defendant or defendants in the suit. In
the event the Company elects to assume the defense of any such suit and retain
such counsel, the Distributor or such controlling person or persons, defendant
or defendants in the suit, shall bear the fees and expense of any additional
counsel retained by the Distributor or such controlling person or persons, but,
in case the Company does not elect to assume the defense of any such suit, it
will reimburse the Distributor or such controlling person or persons, defendant
or defendants in the suit, for the reasonable fees and expense of any counsel
retained by them. The Company shall promptly notify the Distributor of the
commencement of any litigation or proceedings against the Company or any of its
officers, directors, employees or agents in connection with the issuance or sale
of the Contracts or Policies.
c) The Distributor shall indemnify and hold harmless the Company, its agents,
employees and each person, if any, who controls the Company against any
21
<PAGE>
loss, liability, claim, damage or expense (including the reasonable cost of
investigating or defending any alleged loss, liability, claim, damage or expense
and reasonable counsel fees incurred in connection therewith) arising by reason
of any person's acquiring any Contract or Policy, which may be based upon any
federal or state securities act, or on any other statute or at common law, on
the ground that the registration statement or related prospectus, as from time
to time amended and supplemented, or the annual or interim reports to
Contractowners or Policyowners, any published marketing materials or
communications with any Contractowner or Policyowner or prospective
Contractowner or Policyowner concerning the Contract or Policy, respectively,
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading, unless such statement or omission was made in reliance
upon, and in conformity with, information furnished in connection therewith by
or on behalf of the Company; provided, however, that in no case (a) is the
indemnity of the Distributor in favor of the Company and any such controlling
persons to be deemed to protect the Company or any such controlling persons
thereof against any liability to the Distributor to which the Company or any
such controlling persons would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its duties or
by reason of reckless disregard of
22
<PAGE>
its obligations and duties under this Agreement, or (b) is the Distributor to be
liable under its indemnity agreement contained in this paragraph with respect to
any claim made against the Company or any such controlling persons, unless the
Company or such controlling persons, as the case may be shall have notified the
Distributor in writing within a reasonable time after the summons or other first
legal process giving information of the nature of the claim shall have been
served upon the Company or such controlling persons (or after the Company or
such controlling persons shall have received notice of such service on any
designated agent), but failure to notify the Distributor of any such claim shall
not relieve the Distributor from any liability which the Distributor may have to
the person against whom such action is brought otherwise than on account of the
Distributor indemnity agreement contained in this paragraph. The Distributor
will be entitled to participate at its own expense in the defense, or, if it so
elects, to assume the defense of any suit brought to enforce any such liability,
but if the Distributor elects to assume the defense, such defense shall be
conducted by counsel chosen by it and satisfactory to the Company or such
controlling person or persons, defendant or defendants in the suit. In the event
the Distributor elects to assume the defense of any such suit and retain such
counsel, the Company or such controlling person or persons, defendant or
defendants in the suit, shall bear the fees and expense of any additional
counsel retained by the Company or such controlling
23
<PAGE>
person or persons, but, in case the Distributor does not elect to assume the
defense of any such suit, it will reimburse the Company or such controlling
person or persons, defendant or defendants in the suit, for the reasonable fees
and expense of any counsel retained by them. The Distributor shall promptly
notify the Company of the commencement of any litigation or proceedings against
the Distributor or any of its officers, directors, employees or agents in
connection with the issuance or sale of the Contracts or Policies.
14. Termination
This Agreement shall be effective as of the date first above written and shall
remain in full force and effect thereafter, provided, however, that either party
may terminate this Agreement without penalty, with or without cause, on not less
than sixty (60) days' written notice to the other party.
15. Amendment
This Agreement may be amended at any time by a writing executed by the
parties.
24
<PAGE>
16. Non-Assignment
This Agreement shall not be assigned by either party without the prior written
consent of the other party.
17. Governing Law
This Agreement shall be interpreted in accordance with and governed by the
laws of the State of Texas.
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first written above.
USAA LIFE INSURANCE COMPANY, USAA INVESTMENT
on its own behalf and on behalf of MANAGEMENT COMPANY
SEPARATE ACCOUNT OF
USAA LIFE INSURANCE COMPANY
BY: /s/ EDWIN L. ROSANE BY: /s/ MICHAEL J.C. ROTH
----------------------- -------------------------
EDWIN L. ROSANE MICHAEL J.C. ROTH
President & CEO President
ATTEST: /s/ DWAIN A. AKINS ATTEST: /s/ MICHAEL D. WAGNER
------------------- ---------------------
DWAIN A. AKINS MICHAEL D. WAGNER
Assistant Secretary Secretary
26
<PAGE>
EXHIBIT 4(A)
[USAA logo]
USAA LIFE INSURANCE COMPANY
9800 Fredericksburg Road - San Antonio, Texas 78288
(A Stock Company)
VARIABLE ANNUITY
FLEXIBLE PREMIUM DEFERRED
COMBINATION FIXED AND VARIABLE ANNUITY CONTRACT
(For Use in Connection with Either Qualified or
Nonqualified Retirement Plans)
THE ANNUITY AGREEMENT
USAA LIFE INSURANCE COMPANY, in exchange for the completion of the application
and the payment of premium(s), agrees as provided in this contract to:
1) allocate and invest premium as directed by the Owner;
2) pay annuity benefits starting on the Annuity Date;
3) pay death benefits upon the death of the Annuitant; and
4) provide the Owner the rights and privileges of this contract.
This contract is issued by USAA LIFE INSURANCE COMPANY on the Effective Date
shown on the Contract Information Page.
THIS IS A NONPARTICIPATING CONTRACT THAT DOES NOT PROVIDE DIVIDENDS. THE
CONTRACT DOES NOT SHARE IN THE COMPANY'S DIVISIBLE SURPLUS. CONTRACT VALUE AND
ANNUITY PAYMENTS PROVIDED BY THIS CONTRACT, WHEN BASED ON THE INVESTMENT
EXPERIENCE OF THE SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY, WILL
FLUCTUATE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNTS.
FREE LOOK PERIOD-
RIGHT TO CANCEL
You may cancel this contract within 10 days* after you receive it by returning
it to the Company or the representative who sold you the contract with your
written request for cancellation. With respect to the Fixed Fund Account, we
will refund all premium payments. With respect to the Variable Fund Accounts,
we will refund the greater of the premium payment made or the value of the
Variable Fund Accounts as of the Date of Receipt of the request to cancel plus
any mortality and expense risk charge, administrative expense charge and any
premium tax which had been deducted. No deduction for contract maintenance will
be made. The contract will be deemed void as if it had never been issued.
*A longer Free Look Period is required by law in some states. The exact number
of days in your Free Look Period is shown on the Contract Information Page.
/s/ EDWIN L. ROSANE
-------------------
Edwin L. Rosane
President
/s/ BRADFORD W. RICH
--------------------
Bradford W. Rich
Secretary
THIS IS A LEGAL CONTRACT BETWEEN THE
COMPANY AND THE OWNER.
ENDORSEMENTS MAY BE ATTACHED AND
BE PART OF THIS CONTRACT.
READ YOUR ENTIRE CONTRACT CAREFULLY
23979-0797
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LVA23979ST 7-94 LVA200ST
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<PAGE>
- -----------------------------------------------------------
TABLE OF CONTENTS
- -----------------------------------------------------------
FACE PAGE PAGE 1
TABLE OF CONTENTS 2
CONTRACT INFORMATION PAGE 4
INTRODUCTION 5
DEFINITIONS OF SPECIAL TERMS 6
OWNERSHIP AND BENEFICIARY PROVISIONS 9
Contract Agreement And Changes
Contract Owner
Change Of Ownership And Assignment
Annuitant
Beneficiary
Change Of Beneficiary
GENERAL PROVISIONS 10
Incontestability
Misstatement Of Age Or Sex
Protection of Contract Value and Annuity Payments
Proof Of Survival
Conformity To Law
Annual Statement And Reports
Service And Adminstration Of Contract
PREMIUM PROVISIONS 11
Initial Payment
Flexible Payments
Minimum Payments
Premium Payment Allocations
Premium Tax
Date Subsequent Premium Payments Credited
ACCUMULATION PHASE 13
Introduction
I. Fixed Fund Account
General Description
Crediting Of Interest
Withdrawals
Minimum Withdrawal Amount
Free Withdrawal Or Transfer Privilege
Withdrawal Or Transfer Charges
Income Tax
II. Variable Fund Accounts
General Description
The Separate Account
Your Value In Variable Fund Accounts
Net Investment Factor
Voting Right
23979-0797
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LVA23979ST 7-94 LVA200ST
Page 2
<PAGE>
- --------------------------------------------------------------
TABLE OF CONTENTS - CONTINUED
- --------------------------------------------------------------
Withdrawals
Withdrawal Or Transfer Charges
Minimum Withdrawal Amount
Income Tax
III. Miscellaneous Provisions
Contract Value
Minimum Required Contract Value
Transfers
Dollar Cost Averaging
Systematic Withdrawals
Death Benefit
Distribution Requirements
CHARGES ASSESSED AGAINST THIS CONTRACT DURING
THE ACCUMULATION AND DISTRIBUTION PHASES 20
General
Contract Maintenance Charge
Mortality And Expense Risk Charge
Administrative Expense Charge
Tax Charge
Withdrawal Or Transfer Charge
DISTRIBUTION PHASE 22
Introduction
Annuity Date
Minimum Contract Value For Distribution Options
Election Of Distribution Option And Fixed Or Variable Annuity
Payments
Fixed Annuity Distribution
Variable Annuity Distribution
Determination Of The First Variable Annuity Distribution Payment
Determination Of Variable Annuity Distribution Payments After
The First Payment
Annuity Unit Value
Transfer Of Annuity Units
Owner/Annuitant's Death
DISTRIBUTION OPTIONS 24
General
Option 1. Income Payments For Life
Option 2. Income Payments For Life With A Certain Period Guaranteed
Option 3. Joint And Survivor Life Income
Option 4. Income For Specified Period
Option 5. Income Of Fixed Smount
Option 6. Systematic Withdrawals
POSTPONEMENT OF PAYMENTS 26
ANNUITY PAYMENT TABLES 27
23979-0797
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LVA23979ST 7-94 LVA200ST
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<PAGE>
.
CONTRACT INFORMATION PAGE
MINIMUM INITIAL PREMIUM REQUIREMENT - $1,000
MINIMUM SUBSEQUENT PREMIUM - $100
MINIMUM REQUIRED CONTRACT VALUE - $1,000
LVA23979ST 7-94 FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY
ANNUITY IDENTIFICATION INFORMATION
ANNUITANT ZADM0006 CONTRACT NUMBER ZADM0002
OWNER ZADM0007 USAA NUMBER ZADM0916
EFFECTIVE DATE ZADM0005 AGE OF ANNUITANT ZADM0010
FIRST PREMIUM ZADM0910 ANNUITY DATE ZADM0768
FREE LOOK PERIOD - 10 DAYS
LOCATION AND TOLL-FREE TELEPHONE NUMBER OF SERVICE OFFICE: 9800 FREDERICKSBURG
ROAD, SAN ANTONIO, TX 78288-0156
(1-800-531-4265)
LVA23979ST 7-94
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<PAGE>
INTRODUCTION
------------
THIS IS A COMBINATION FIXED AND VARIABLE ANNUITY. THE CONTRACT HAS TWO
PHASES, THE ACCUMULATION (OR PAY IN) PHASE AND THE DISTRIBUTION (OR PAY OUT)
PHASE. DURING THE ACCUMULATION PHASE, YOU CONTRIBUTE MONEY WHICH IS CALLED
PREMIUM. YOUR PREMIUM WILL BE ALLOCATED AND INVESTED AS DIRECTED BY YOU. IT
CAN BE INVESTED IN EITHER OR BOTH:
1) AN ACCOUNT WHICH GUARANTEES THE PRINCIPAL AND A FIXED RATE OF
INTEREST EARNING (THIS IS KNOWN AS THE FIXED FUND ACCOUNT); OR
2) AN ACCOUNT WHICH DOES NOT GUARANTEE THE PRINCIPAL OR ANY EARNINGS
(THIS IS KNOWN AS A VARIABLE FUND ACCOUNT). THERE ARE SEVERAL VARIABLE
FUND ACCOUNTS UNDER THIS CONTRACT WHICH CORRESPOND TO VARIOUS FUNDS OF
MUTUAL FUNDS IN WHICH YOU MAY CHOOSE TO INVEST. YOUR VALUE IN THE
VARIABLE FUND ACCOUNTS UNDER THIS CONTRACT WILL VARY WITH THE
INVESTMENT EXPERIENCE OF THE CORRESPONDING FUND. THE VALUE MAY RISE OR
IT MAY FALL.
DURING THE ACCUMULATION PHASE, YOU HAVE ACCESS TO THE VALUE IN YOUR CONTRACT,
BUT YOUR INVESTMENT OBJECTIVE IS TO BUILD VALUE FOR RETIREMENT. AT THE END OF
THE ACCUMULATION PHASE, YOUR CONTRACT VALUE IS APPLIED TO PROVIDE INCOME
PAYMENTS PAID BY THE COMPANY TO THE ANNUITANT. THE PAYMENTS MAY BE PAID TO THE
ANNUITANT FOR THE REST OF THAT PERSON'S LIFE. THIS STREAM OF PAYMENTS BY THE
COMPANY IS THE SECOND OR DISTRIBUTION PHASE OF THIS CONTRACT.
THE DISTRIBUTION YOU SELECT MAY BE A PERIODIC FIXED GUARANTEED PAYMENT
AMOUNT, A PERIODIC VARIABLE NON-GUARANTEED PAYMENT AMOUNT, A COMBINATION OF THE
TWO, OR A LUMP SUM.
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<PAGE>
- --------------------------------------------------------------------------------
DEFINITIONS OF SPECIAL TERMS
- --------------------------------------------------------------------------------
ACCUMULATION PHASE - The period during the lifetime of the Contract Owner
between the Effective Date of the contract and the
Annuity Date.
ACCUMULATION UNIT - An accounting unit of measure used to calculate values
in each Variable Fund Account under the contract before
the Company starts making income payments from the
Variable Fund Accounts.
ANNUITANT - The person who is named to receive income payments and on whose
life expectancy income payments may be based.
ANNUITY - A contract designed to provide an Annuitant with income payments.
ANNUITY DATE - The date when the Company is to begin making income payments
to the Annuitant. The Annuity Date may not be later than the
Annuitant's 95/th/ birthday.
ANNUITY UNIT - An accounting unit of measure used to calculate the amount
of income payments that are based on a Variable Annuity
distribution.
BENEFICIARY - The person(s) designated who may be entitled to receive a death
benefit or any remaining income payments upon the Owner's or the
Annuitant's death.
COMPANY, WE, OUR or US - Refers to USAA Life Insurance Company.
CONTRACT INFORMATION PAGE - This page identifies certain information
about this contract and specifies certain terms of
the contract. It appears at page 4.
CONTRACT VALUE - The monetary value of this contract. It equals the sum of
the values of the Fixed Fund Account and the Variable Fund
Account(s) under this contract.
CONTRACT YEAR - A period of 12 calendar months starting with the Effective
Date of the contract, and each 12-month period thereafter. For
example, if your contract was issued on July 1, your first
Contract Year would end on the following June 30. Each
subsequent Contract Year would start on July 1 and end on
June 30.
DATE OF RECEIPT - The date actually received at our Service Office,
subject to two exceptions:
(1) If received on a date other than a Valuation Date, the
Date of Receipt will be the following Valuation Date; and
(2) If received on a Valuation Date after close of trading
of the New York Stock Exchange, the Date of Receipt will
be the following Valuation Date.
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<PAGE>
DISTRIBUTION OPTION - One of several ways in which the Contract Value can be
paid to the Annuitant.
DISTRIBUTION PHASE - The period starting on the Annuity Date during which
the Company makes payments to the Annuitant.
EFFECTIVE DATE - The date that we approve the application and issue this
contract. This date will not be earlier than the date the
application and the first premium payment are received by our
Service Office. The Effective Date is shown on the Contract
Information Page.
FIXED ANNUITY - A distribution under which income payments do not vary as to
dollar amount and which are guaranteed by the Company.
FIXED FUND ACCOUNT - An account under this contract in which premium
payments may be invested. Premium payments allocated to
this account become part of the Company's general assets
and liabilities. The Company guarantees the principal and a
rate of interest, declared from time to time.
FREE LOOK PERIOD - The 10 day period following the date you first receive
the contract or such longer period as may be required by
state law. The Free Look Period is shown on the Contract
Information Page.
FUND - An investment portfolio that has specific investment objectives and
policies and is offered by a Mutual Fund.
MUTUAL FUND - A diversified open end investment company under federal
securities law. It may offer shares of several different Funds for
investment.
NET ASSET VALUE - The current value of each Fund's total assets, less all
liabilities, divided by the total number of shares
outstanding.
NONQUALIFIED PLAN - A Retirement plan that is not eligible for favorable tax
treatment under the Internal Revenue Code.
OWNER - The person to whom we owe the rights and privileges of this contract.
QUALIFIED PLAN - A retirement plan purchased with pretax dollars that allows
deferral of federal income tax on the money you pay into the
plan as well as on the interest or other income earned.
SEPARATE ACCOUNT - The investment account established under Texas law through
which USAA Life Insurance Company invests the premium
payments received for investment in the Variable Funds
Accounts under this contract. Through subdivisions of the
Separate Account which are called the Variable Fund Accounts
under this contract, the Company invests in various Funds.
The assets of the Separate Account are owned by USAA Life
Insurance Company and to the extent that the assets are equal
to the reserves and other contractual liabilities, they are
not chargeable with liabilities arising out of any other
business of the Company. The income, gains, and losses,
realized or unrealized, from the assets of the Separate
Account are credited or charged against the Separate Account
without regard to other income, gains or losses of the
Company. The Separate Account is registered as an investment
company under federal securities law.
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<PAGE>
SERVICE OFFICE - The department of USAA Life Insurance Company responsible for
administration and servicing of this contract. The address and
toll-free telephone number of the Service Office are shown on
the Contract Information Page.
VALUATION DATE - Any business day, Monday through Friday, on which the New York
Stock Exchange is open for regular trading, except:
(1) Any day on which the value of the shares of a Fund is not
computed.
(2) Any day during which no order for the purchase,
redemption, surrender or transfer of Accumulation Units or
Annuity Units was received.
VALUATION PERIOD - The period of time from the end of any Valuation Date to the
end of the next Valuation Date.
VARIABLE ANNUITY - A distribution under which income payments vary in amount
based on the investment experience of the Funds that
correspond to the Variable Fund Accounts under this contract.
VARIABLE FUND ACCOUNT - A subdivision of the Separate Account in which premium
payments may be invested. There are several Variable
Fund Accounts under this contract. Each Variable Fund
Account corresponds to a particular Fund. Premium
payments allocated to a Variable Fund Account are
invested by the Company in the particular Fund.
YOU, YOUR, YOURS - Refers to the Owner.
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<PAGE>
- --------------------------------------------------------------------------------
OWNERSHIP AND BENEFICIARY PROVISIONS
- --------------------------------------------------------------------------------
CONTRACT AGREEMENT AND CHANGES
This contract is a legal contract between the Company and the Owner. The
contract is issued in return for:
1) Completion of the application; and
2) Payment of the first premium.
The contract and the application form the entire agreement between you and the
Company. We will consider statements in the application representations and not
warranties.
Only an officer of the Company has authority to:
1) Waive a provision of the contract; or
2) Agree with the Owner to changes in the contract; and then only in writing.
CONTRACT OWNER
The rights and privileges of this contract belong to the Owner during the
Annuitant's lifetime. The Owner is the Annuitant unless otherwise requested in
the application and we have approved it. If the Owner and the Annuitant are
different persons and the Owner dies, then the rights and privileges of
ownership will vest in the Annuitant, or the Beneficiary if the Annuitant does
not survive the Owner. If the Annuitant is the Owner and dies, then the rights
and privileges of ownership will vest in the Beneficiary.
CHANGE OF OWNERSHIP AND ASSIGNMENT
You may transfer or assign ownership of this contract, subject to any legal
restrictions. A request to transfer or assign ownership must be made in writing
and be sent to our Service Office. An assignment is not effective until it is
received by our Service Office. We are not responsible for determining the
validity of an assignment.
ANNUITANT
The Annuitant is the person who is named to receive income payments and on whose
life expectancy income payments may be based. The Owner by written request may
change the Annuitant at any time so long as such request is received by our
Service Office at least 15 days before the Annuity Date. The change will be
effective as of the Date of Receipt of the request. If the Owner and the
Annuitant are different persons and the Annuitant dies before the Annuity Date,
then the Beneficiary also becomes the Annuitant unless the Owner names a
different Annuitant.
BENEFICIARY
The Beneficiary is the person or persons named in the Application who may be
entitled to receive any contract benefits that are provided upon the Owner's or
the Annuitant's death. A contingent beneficiary may be named to receive the
contract benefits in the event the Beneficiary does not survive the Annuitant.
If the Beneficiary dies while receiving annuity payments, any remaining payments
due will be paid to the Beneficiary's estate.
Unless otherwise provided, benefits will be paid as follows:
1) If two or more Beneficiaries have been named, all benefits will be
paid in equal shares to those living at the time of the Annuitant's
death;
2) If no Beneficiary survives the Annuitant, payment will be made to the
Annuitant's estate.
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<PAGE>
CHANGE OF BENEFICIARY
The Owner, during the Annuitant's life, may change the Beneficiary. To make a
change, written notice must be received by our Service Office. The change will
take effect as of the date the Owner signs the request. If we make any payments
before receiving the request to change the Beneficiary, we will receive credit
against our obligations under the contract.
- --------------------------------------------------------------------------------
GENERAL PROVISIONS
- --------------------------------------------------------------------------------
INCONTESTABILITY
We will not contest this contract from its Effective Date.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Annuitant has been incorrectly stated, the amount
payable will be the amount that the premium paid would have purchased at the
correct age or sex. If a correction of age or sex is made while annuity
distribution payments are being made, the amount of any underpayment will be
paid in full with the next payment. Any overpayment will be deducted from the
future annuity distribution payments until the total is repaid.
PROTECTION OF CONTRACT VALUE AND ANNUITY PAYMENTS
To the extent permitted by law, the Contract Value and the value of annuity
payments are exempt from the claims of creditors and from attachment by legal
process.
PROOF OF SURVIVAL
We reserve the right to require proof that the Annuitant, or any other persons
to whom payment is due under this contract, is alive.
CONFORMITY TO LAW
The Company reserves the right to change this contract in order to comply with
all federal and state laws that apply to variable annuities. This right shall
include, but not be limited to, the right to conform the terms of this contract
to reflect any changes in the United States tax laws so that the contract will
continue to qualify as an annuity under United States tax law.
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<PAGE>
ANNUAL STATEMENT AND REPORTS
At least once each Contract Year, we will send you a statement for this
contract. The statement will provide you with information concerning your
Contract Value. It will include information concerning the number of
Accumulation Units credited to your contract for each Variable Fund Account and
the dollar value of the Accumulation Units. This statement will reflect the
status of the contract as of a date not more than two months prior to the date
of mailing. We may, at our discretion, send you a statement more frequently.
As required by state and federal law, we will also send you semi-annual reports
for the Funds that correspond to the Variable Fund Accounts, semi-annual reports
for the Separate Account, and any other information.
SERVICE AND ADMINSTRATION OF CONTRACT
The address and toll free phone number of our Service Office for the service and
administration of this contract is shown on the Contract Information Page. We
reserve the right to change the location and toll-free phone number of our
Service Office. We will provide you at least 60 days' advance notice of a
change in location or toll-free phone number.
All requests for changes to this contract must be clear and in writing and must
be received by our Service Office. Requests to change premium payment
allocation, requests for surrenders, and requests for transfers between accounts
may, however, be made by telephone if a telephone authorization satisfactory to
us in form and content has been completed and is on file with our Service
Office. We will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, and only if we do not, will we be liable
for any losses because of unauthorized or fraudulent instructions. Information
will be obtained prior to any discussion regarding the contract including: (1)
USAA number or contract number, (2) the name of the Owner, and (3) social
security number of the Owner. In addition, all telephone communications with an
Owner are recorded and confirmations of all transactions are sent to the Owner's
address. We may modify, suspend or discontinue this telephone transaction
privilege at any time without prior notice. A properly completed and filed
telephone authorization is valid until written cancellation is received by us.
- --------------------------------------------------------------------------------
PREMIUM PROVISIONS
- --------------------------------------------------------------------------------
INITIAL PAYMENT
If any part of the initial premium payment is requested to be allocated to the
Fixed Fund Account, it will be allocated to that account on the Effective Date.
If any part of the initial premium payment is requested to be allocated to any
of the Variable Fund Accounts, it will be allocated to the Money Market Variable
Fund Account on the Effective Date. The premium will remain in the Money Market
Fund Variable Account for the Free Look Period plus five days. On the Valuation
Date immediately following the end of that period the initial premium payment,
together with any subsequent premium payments that have been made, plus any
earnings will be allocated among the Variable Fund Accounts in the percentages
as directed on the application at the Accumulation Unit value next computed on
that date. The initial and all subsequent premium payments must be sent to our
Service Office and will not be made effective until received by our Service
Office.
FLEXIBLE PAYMENTS
This is a flexible premium annuity. Subsequent premium payments may be paid at
any time before the Annuity Date. The amount of premium may be increased or
decreased.
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<PAGE>
MINIMUM PAYMENTS
The minimum amount of premium that may be paid and allocated to any account may
not be less than the minimum subsequent premium amount shown on the Contract
Information Page. Premium payments will be allocated to the Fixed Fund Account
or to one or more of the Variable Fund Accounts as directed by you subject to
the terms of this contract.
PREMIUM PAYMENT ALLOCATIONS
Premium payments that are requested to be allocated among the various accounts
under this contract must be allocated in amounts no smaller than one tenth of a
percent, provided that the total amount equals an aggregate of 100 percent. The
allocation of subsequent premium payments among the various accounts under this
contract will be made to the same accounts and in the same proportions as the
initial premium payment which is shown on the application. The allocation of
subsequent premium payments may be changed by the Owner at any time by sending a
written request to our Service Office. A request to change subsequent premium
payment allocations may be made by telephone if a telephone authorization has
been completed and is on file with our Service Office. A request to change
subsequent premium payment allocations will be effective with the first premium
payment received on or following the Date of Receipt of the request.
PREMIUM TAX
When premium payments are received, a deduction may be made from the payment if
there is an applicable state premium tax. The deduction will be the appropriate
amount to cover the premium tax. The premium tax deduction will be made either
when the premium payment is received by us or when we start annuity payments,
depending on state law. If a premium tax deduction is not made from a premium
payment and tax is later found to be due, we reserve the right to reduce your
value in the contract to collect the amount of the tax.
DATE SUBSEQUENT PREMIUM PAYMENTS CREDITED
Premium payments after the initial premium payment will be credited to the
accounts under this contract on the Date of Receipt. Payments to the Variable
Fund Accounts under this contract will be credited at the Accumulation Unit
value which is next computed on the Date of Receipt.
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<PAGE>
- --------------------------------------------------------------------------------
ACCUMULATION PHASE
- --------------------------------------------------------------------------------
INTRODUCTION
During the Accumulation Phase of this contract, your premium payments will be
applied to the Fixed Fund Account or one or more of the Variable Fund Accounts
under this contract as directed by you subject to the terms of this contract.
All premium payments allocated and credited to the accounts under this contract
are net of any applicable premium tax. Your premium payments will help build
Contract Value.
1. FIXED FUND ACCOUNT
GENERAL DESCRIPTION
Under the Fixed Fund Account of this contract, your premium becomes part of the
Company's general assets and liabilities. In return, we credit the amount of
the premium payment to your contract and guarantee a fixed rate of interest
earnings. The premium payment credited to the Fixed Fund Account of this
contract is also guaranteed by the Company and will not fall in value. The
value of your Fixed Fund Account under this contract on any given date will be:
The sum of premium payments allocated to the Fixed Fund Account:
(1) less any applicable premium tax;
(2) plus accumulated interest;
(3) plus any amounts transferred from the Variable Fund Accounts to the
Fixed Fund Account;
(4) less any contract maintenance charge; and
(5) less any withdrawals or transfers of value that have been made.
CREDITING OF INTEREST
We will credit interest daily on the amount you have in the Fixed Fund Account.
Interest will always be credited at a minimum effective annual rate of 3% or at
a higher rate if required by State law. Interest credited may be at the
portfolio interest rate or the new money rate depending on when a premium
payment or transfer of value into the Fixed Fund Account is received.
(a) If received prior to the current calendar year:
(portfolio interest rate)
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<PAGE>
At the beginning of each calendar year, we will establish and guarantee an
interest rate equal to or greater than the minimum rate. This rate will be
in effect throughout the calendar year. We call this our portfolio
interest rate. All amounts in the Fixed Fund Account except amounts
received during the current calendar year will earn interest at this rate.
Before each month begins, we may at our discretion declare additional
interest, on all amounts in the Fixed Fund Account except amounts received
during the current calendar year, for the next month.
(b) If received during the current calendar year:
(new money interest rate)
At the beginning of each calendar month, we will establish and guarantee an
interest rate equal to or greater than the minimum effective annual rate.
We call this our new money interest rate. All premium payments or
transfers of value into the Fixed Fund Account during a particular month
will earn interest at the then current new money interest rate through the
end of the then current calendar year. At the end of the calendar year,
all amounts deposited into the Fixed Fund Account during that year become
subject to our portfolio interest rate and will earn interest thereafter as
discussed in paragraph (a) above.
WITHDRAWALS
You may at any time during the Accumulation Phase withdraw all or part of your
value in the Fixed Fund Account. A withdrawal is subject to a withdrawal charge
as described in this contract. We reserve the right to defer the payment of a
withdrawal from the Fixed Fund Account for up to six months from the date our
Service Office receives the request.
MINIMUM WITHDRAWAL AMOUNT
The minimum amount which may be requested for withdrawal from the Fixed Fund
Account is $500.00, or, if less, the remaining balance of the account.
FREE WITHDRAWAL OR TRANSFER PRIVILEGE
Premium payments that have been made to the Fixed Fund Account more than seven
years prior to the requested date of a withdrawal or transfer from the Fixed
Fund Account may be withdrawn without charge. In addition, each Contract Year,
the Owner may withdraw or transfer up to 15% of the value of the premium
payments or transfers that have been made to the Fixed Fund Account during the
seven years preceding the requested date of a withdrawal or transfer without
incurring a charge. All withdrawals or transfers of premium will be considered
made on a "First In-First Out (FIFO)" basis. If the privilege is not exercised
or is only partially exercised, it cannot be carried over for use in future
Contract Years.
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<PAGE>
WITHDRAWAL OR TRANSFER CHARGES
Except as provided in the Free Withdrawal or Transfer Privilege, a charge will
be deducted from the amount of any premium withdrawn or transferred from the
Fixed Fund Account. The charge is calculated separately based on the date of
each premium payment or date of transfer into the Fixed Fund Account. All
premium payments will be considered withdrawn or transferred on a "First In-
First Out (FIFO)" basis. All withdrawals are considered to be a withdrawal of
premium before any earnings are deemed to be withdrawn. There is no charge for
withdrawal or transfer of interest earnings.
The charge is calculated as a percentage of the premium withdrawn or
transferred. This percentage is determined by the number of years between the
date the premium was paid or transferred into the Fixed Fund Account and the
requested date of a withdrawal or transfer as shown in the schedule below. For
purposes of this charge a year is considered to be a period of 365 days unless a
leap year is involved.
<TABLE>
<CAPTION>
Number of Years between Date of Withdrawal Charge as a Percent of Premium
or Transfer and Date of Premium Payment or Withdrawn or Transferred in Excess
Transfer into the Fixed Fund Account of the Free Withdrawal or Transfer Amount
- -------------------------------------------- ------------------------------------------
<S> <C>
0 7%
1 6
2 5
3 4
4 3
5 2
6 1
7 or more 0
</TABLE>
If value is transferred into the Fixed Fund Account from a Variable Fund
Account, the value is considered a premium payment and is subject to withdrawal
or transfer charges. The date on which the value was transferred into the Fixed
Fund Account determines whether and how much of a charge is applicable in
accordance with the above schedule.
After the Annuity Date, withdrawals are not available.
INCOME TAX
Withdrawals may be subject to federal income tax penalties. The Owner should
seek the advice of a tax consultant prior to making a withdrawal. Under federal
income tax law, all withdrawals for value are treated as withdrawals of interest
earnings before a return of principal.
II. VARIABLE FUND ACCOUNTS
GENERAL DESCRIPTION
During the Accumulation Phase, you may also invest your premium payments in the
Variable Fund Accounts under this contract. The premium that you allocate to a
Variable Fund Account is invested by the Company through the Separate Account
that we have established to purchase shares of the corresponding Fund at their
Net Asset Value. Your value in the Variable Fund Accounts will fluctuate and
vary based on the investment experience of the corresponding Fund.
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<PAGE>
THE SEPARATE ACCOUNT
The Separate Account is an investment account established under Texas law
through which USAA Life Insurance Company invests the premium payments received
for investment in the Variable Funds Accounts under this contract. Through
subdivisions of the Separate Account which are called the Variable Fund Accounts
under this contract, the Company invests in various Funds. The assets of the
Separate Account are owned by USAA Life Insurance Company and to the extent that
the assets are equal to the reserves and other contractual liabilities, they are
not chargeable with liabilities arising out of any other business of the
Company. The income, gains, and losses, realized or unrealized, from the assets
of the Separate Account are credited or charged against the Separate Account
without regard to other income, gains or losses of the Company. The Separate
Account is registered as an investment company under federal securities law.
YOUR VALUE IN VARIABLE FUND ACCOUNTS
At the end of each Valuation Date, the Accumulation Unit value for each Variable
Fund Account is computed. Your value in a Variable Fund Account is determined
by multiplying the number of Accumulation Units credited to that Variable Fund
Account by the value of the Accumulation Unit as of the end of any Valuation
Date. Accumulation Units are credited to a Variable Fund Account under this
contract when you pay us premium and allocate it to the particular Variable Fund
Account. The number of Accumulation Units credited to a Variable Fund Account
under this contract is determined by dividing the premium credited to the
account by the account's Accumulation Unit value next computed on the Date of
Receipt of the premium. Each Variable Fund Account's Accumulation Units are
valued separately. Initially, the Accumulation Unit value of each Variable Fund
Account was arbitrarily set at $10.00, except for the Money Market Variable Fund
Account which was set at $1.00. Thereafter, the Accumulation Unit value of a
Variable Fund Account as of the end of any Valuation Date is calculated as (1)
multiplied by (2) where:
(1) Is the Accumulation Unit Value for the account as of the end of the
immediately preceding Valuation Period; and
(2) Is the Net Investment Factor for the Valuation Period ending on that
Valuation Date.
NET INVESTMENT FACTOR
The net investment factor is an index number that reflects charges to this
contract and investment performance during a Valuation Period. The net
investment factor for a Variable Fund Account is determined by dividing (1) by
(2), and then subtracting (3) from the result, where:
(1) is the net result of:
(a) the Net Asset Value per share of the Fund shares held in the
corresponding Variable Fund Account determined at the end of
the current Valuation Period;
(b) Plus the per share amount of any dividend or capital gain
distributions made on the Fund shares held in the corresponding
Variable Fund Account during the current Valuation Period;
(c) Plus or minus a per share credit or charge for that current
Valuation period for any decrease, or increase, in any income
taxes reserved that we determine has resulted from the
investment operations of the particular Variable Fund Account or
any other taxes which are applicable to this contract.
(2) is the Net Asset Value per share of the Fund shares held in the
corresponding Variable Fund Account determined at the beginning of the
current Valuation Period.,
(3) is a factor representing the mortality and expense risk and
administrative expense charge. The annual charge is 1.15% (1.05% for
the mortality and expense risk charge and 0.10% for the administrative
expense charge).
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<PAGE>
We reserve the right, subject to compliance with federal and state law, to
eliminate any Funds that are made available through this contract and substitute
another Fund if, in our judgment, further investment in the Fund becomes
undesirable in view of the purpose of this contract. We may add new Variable
Fund Accounts under this contract to permit investment in additional Funds. We
will give you written notice of the addition, elimination and substitution of
any Fund within five days after such action occurs.
Your value in a Variable Fund Account is also reduced by any values you have
withdrawn or transferred, the contract maintenance charge and any charges that
may be levied if systematic withdrawals are elected. You may learn what the
daily value of an Accumulation Unit is and the number of units credited to the
Variable Fund Accounts under your contract by contacting our Service Office.
VOTING RIGHTS
You have voting rights in relation to your value maintained in the Variable Fund
Accounts. You do not have voting rights in relation to value maintained in the
Fixed Fund Account or in relation to Fixed Annuity payments.
We will vote shares of the underlying Funds in which the Variable Fund Accounts
invest in the manner directed by Owners. Owners may give instructions equal to
the number of shares represented by the Units attributable to their Variable
Fund Accounts.
We will vote the shares attributable to assets held in the Separate Account
solely for us rather than on behalf of Owners, or any shares as to which we have
not received instructions, in the same manner and proportion as the shares for
which we have received instructions. We will do so separately for each Fund
that corresponds to a Variable Fund Account. If we determine, based on our
interpretation of applicable law, that we are permitted to vote any fund shares
in our own right, we may elect to do so.
The number of votes for an underlying Fund will be determined as of the record
date for such Fund as chosen by its board of trustees or board of directors. We
will furnish Owners with proper forms and proxies to enable them to instruct us
how to vote.
You may instruct us how to vote on the following matters: (a) election of the
board of trustees or board of directors, as applicable; (b) ratification of the
independent auditing firm; (c) approval of the investment advisory agreement;
(d) any change in the fundamental policy; and (e) any other matter requiring a
vote of the shareholders.
With respect to approval of the investment advisory agreement or any change in
fundamental investment policy, only Owners maintaining value as of the record
date in a Variable Fund Account that corresponds to the particular Fund may
instruct us how to vote on the matter, pursuant to the requirements of federal
law.
WITHDRAWALS
You may at any time during the Accumulation Phase withdraw all or part of your
value in a Variable Fund Account. A withdrawal from a Variable Fund Account is
not subject to any charge, except a tax charge if applicable. A withdrawal will
be made effective at the Accumulation Unit Value next computed on the Date of
Receipt of the request. Unless requested differently by the Owner, the value
surrendered will be withdrawn from the Variable Fund Accounts in the same
proportion as each account's value has to the total value of all the Variable
Fund Accounts under the contract as of the Date of Receipt of the request.
Requests for withdrawals of value will be paid within seven days of receipt of
the request by our Service Office, except as provided under "Postponement of
Payments" on page 26.
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<PAGE>
WITHDRAWAL OR TRANSFER CHARGES
There is no charge for a withdrawal or transfer of value from a Variable Fund
Account.
MINIMUM WITHDRAWAL AMOUNT
The minimum amount which may be requested for withdrawal from a Variable Fund
Account is $500.00, or, if less, the remaining balance of the account.
INCOME TAX
Withdrawals may be subject to federal income tax penalties. The Owner should
seek the advice of a tax consultant prior to making a withdrawal.
III. MISCELLANEOUS PROVISIONS
CONTRACT VALUE
The Contract Value as of any date during the Accumulation Phase will be:
The sum of Premium Payments:
(1) Less any applicable premium tax;
(2) Plus interest credited to the Fixed Fund Account;
(3) Plus any increase or less any decrease in the value of the
Variable Fund Accounts;
(4) Less any contract maintenance charge;
(5) Less any withdrawals of value or loans of value (if allowed by
endorsement) that have been made.
MINIMUM REQUIRED CONTRACT VALUE
If during the Accumulation Phase the Contract Value is less than the minimum
required Contract Value as shown on the Contract Information Page and no premium
payments have been received by us for a period of two years, we may at our
option cancel this contract. We will give the Owner 30 days' written notice and
an opportunity to satisfy this requirement before we cancel the contract. In
the event of a cancellation, we will pay the Owner the Contract Value in a lump
sum and be released of any further obligations under the contract.
TRANSFERS
You may convey value from one account to another account under this contract.
This is known as a transfer. There is no charge for a transfer from a Variable
Fund Account. Transfers from the Fixed Fund Account may be subject to charges.
Transfers are also subject to the following restrictions:
(1) Only six transfers may be made each Contract Year;
(2) The minimum amount that may be transferred from an account is $100.00;
(3) A request for a transfer must clearly state the amount to be
transferred, the account from which it is to be withdrawn, and the
account to which it is to be credited;
(4) A transfer may not be made during the first 30 days after the
Effective Date;
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<PAGE>
(5) A transfer will result in either the redemption or purchase of
Accumulation Units, or both; the transfer will be processed effective at
the Accumulation Unit Value next computed on the Date of Receipt of the
transfer request;
(6) We reserve the right at any time and without prior notice to terminate,
suspend, or modify these transfer privileges.
DOLLAR COST AVERAGING
We offer dollar cost averaging in the Accumulation Phase. There is no charge
for this service and it does not count toward your limit of six transfers per
Contract Year. Dollar cost averaging is a program designed to provide for
regular, approximately equal investments over time. You may choose to transfer
a fixed dollar amount or a specified percentage at regular intervals from any of
the Variable Fund Accounts under this contract to one or more of the other
accounts under this contract. Dollar cost averaging is not permitted out of the
Fixed Fund Account. Transfers under a program of dollar cost averaging will be
processed effective at the Accumulation Unit value at the end of the Valuation
Period that includes the date of transfer.
You must have at least $5,000.00, of value in an account to begin a program of
dollar cost averaging from that account. The minimum amount that may be
transferred from an account to another account is $100.00, or, if less, the
remaining balance of the account. The intervals between transfers may be
monthly, quarterly, or semi-annually. The transfers must be scheduled to occur
over a period of at least 12 months. You may select this program by making a
request in writing or by telephone if a telephone authorization has been
completed and is on file. You may cancel your participation in this program in
the same manner. We reserve the right to terminate, suspend or modify the
offering of this dollar cost averaging service upon providing you written notice
30 days in advance. Should we suspend or cancel this service, the suspension or
cancellation will not affect any dollar cost averaging program then in effect.
SYSTEMATIC WITHDRAWALS
We offer a program of systematic withdrawals. Payments may be made annually,
semi-annually, quarterly, or monthly. Withdrawals will be processed effective
at the Accumulation Unit value at the end of the Valuation Period that includes
the date of withdrawal. Withdrawals may be made pro rata from all accounts
under this contract or the Owner may specify which account(s) the payment is to
be taken from. Systematic withdrawals from the Fixed Fund Account are subject
to a withdrawal charge if they are in excess of the free withdrawal or transfer
privilege. We reserve the right to charge a fee if this program is selected.
We also reserve the right to terminate, suspend or modify this program upon
providing you written notice 30 days in advance. Should we terminate, suspend
or modify this program, the suspension or cancellation will not affect any
systematic withdrawal program then in effect.
The minimum amount of Contract Value you must have to begin a systematic
withdrawal program is $20,000.00. The minimum amount that can be withdrawn from
an account under this program is $250.00, or, if less, the remaining balance of
the account. You may change the amount or frequency of the systematic
withdrawal once in each Contract Year.
Systematic withdrawals may be subject to federal income tax and penalties. The
Owner should seek the advice of a tax consultant prior to selecting a program of
systematic withdrawal.
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<PAGE>
DEATH BENEFIT
If the Annuitant is the Owner and dies before the Annuity Date, we will pay the
Beneficiary a death benefit. If the Owner is not the Annuitant and the Owner
dies before the Annuity Date, we will pay a death benefit to the Annuitant, or
the Beneficiary if the Annuitant does not survive the Owner. We must receive
proof of death and a written request, satisfactory to us in form and content,
choosing the manner of payment before the death benefit will be paid. Proof of
death shall be either a certificate of death, a certified copy of a statement of
death from the attending physician, a certified copy of a decree of a court of
competent jurisdiction as to the finding of death, or any proof satisfactory to
us. The death benefit is the greater of:
(1) the Contract Value on the date we receive proof of death; or
(2) the sum of the premium payments credited to this contract, less the
amount of any withdrawals and less any applicable premium tax.
In lieu of receiving the death benefit in a lump sum the Beneficiary or the
Annuitant, if entitled, may choose a Distribution Option subject to the
following distribution requirements.
DISTRIBUTION REQUIREMENTS
In accordance with current federal income tax law, if the Owner dies before the
Annuity Date, distribution of the Contract Value is required to be as follows:
(1) If the Owner and Annuitant are the same person and no Beneficiary
was designated or survived the Owner, full distribution to the Owner's
estate must occur within five years after the Owner's death should be;
(2) If the Owner and the Annuitant are the same person and the
Beneficiary is the Owner's spouse, or if the Annuitant is the Owner's
spouse, the spouse may:
(a) Assume ownership as the Annuitant and defer distribution
until the Annuity Date; or
(b) Receive distributions over a period of time not exceeding the
spouse's life expectancy and distribution must begin within one
year after the Owner's death;
(3) If the Owner and the Annuitant are the same person and the
Beneficiary is not the Owner's spouse, then distribution must begin
within one year after the Owner's death and must be made over a period
of time not exceeding the life expectancy of the Beneficiary;
(4) If the Owner and the Annuitant are not the same person and the
Annuitant is not the Owner's spouse, then distribution must begin
within one year after the Owner's death and must be made over a period
of time not exceeding the life expectancy of the Annuitant, or
Beneficiary if the Annuitant does not survive the Owner.
- --------------------------------------------------------------------------------
CHARGES ASSESSED AGAINST THIS CONTRACT DURING THE
ACCUMULATION AND DISTRIBUTION PHASES
- --------------------------------------------------------------------------------
GENERAL
The charges assessed under this Contract are listed below. These charges have
an effect on the Contract Value.
. Contract Maintenance Charge
. Mortality and Expense Risk Charge
. Administrative Expense Charge
. Taxes (if applicable)
. Withdrawal or Transfer Charge
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<PAGE>
CONTRACT MAINTENANCE CHARGE
Beginning on the anniversary of the Effective Date, and each anniversary
thereafter, we will deduct a charge of $30.00 from the Contract Value for
contract maintenance. If the total Contract Value is withdrawn at any time
during a Contract Year, this charge will be deducted from the Contract Value on
the date of the withdrawal. The deduction will be made only while the contract
is in the Accumulation Phase. We will prorate the charge among all of the
accounts under this contract. The charge to an account will be in the same
proportion as each account's value has to the Contract Value as of the
anniversary or as of the date of a total withdrawal. Any charge to the Fixed
Fund Account will be waived to the extent it would cause the amount of interest
earned from the last contract anniversary to be less than 3%.
MORTALITY AND EXPENSE RISK CHARGE
The mortality and expense risk charge is a charge that applies only to the
Variable Fund Accounts under this contract. The charge is assessed on a daily
basis and affects the value of the Accumulation Unit or Annuity Unit of each
Variable Fund Account under this contract. This charge is equal, on an annual
basis, to 1.05% of the average net assets of each Variable Fund Account. This
charge compensates us for assuming the mortality and expense risks under this
contract.
ADMINISTRATIVE EXPENSE CHARGE
The administrative expense charge is a charge that applies only to the Variable
Fund Account under this contract. The charge is assessed on a daily basis and
affects the value of the Accumulation Unit or Annuity Unit of each Variable Fund
Account under this contract. This charge is equal, on an annual basis, to 0.10%
of the average net assets of each Variable Fund Account. The administrative
expense charge together with the contract maintenance charge compensates us for
the expense we incur in the establishment and maintenance of this contract.
TAX CHARGE
The company reserves the right to charge for federal income taxes that may be
incurred by the Separate Account. This charge applies only to the Variable Fund
Accounts under this contract. The charge if assessed will be applied on a pro
rata basis to determine the Accumulation Unit value or Annuity Unit value.
A charge may also be assessed if there is an applicable state premium tax. See
page 12 for an explanation of the application of state premium tax.
WITHDRAWAL OR TRANSFER CHARGE
A withdrawal or transfer charge may be assessed in some instances against
amounts that are withdrawn or transferred from the Fixed Fund Account. See page
14 for an explanation of when these charges may be applicable.
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<PAGE>
- --------------------------------------------------------------------------------
DISTRIBUTION PHASE
- --------------------------------------------------------------------------------
INTRODUCTION
On the Annuity Date, the Company begins making income payments to the Annuitant
pursuant to the distribution option you select. We will continue to make
payments to the Annuitant as provided by the Distribution Option selected.
These payments may be made over the lifetime of the Annuitant. The period of
time during which these payments are made is known as the Distribution Phase of
this contract.
ANNUITY DATE
The Annuity Date is the date chosen by the Owner. If this contract is used as a
Qualified Plan, it must not be later than the date required by federal income
tax law. If this contract is used as a Nonqualified Plan, it may not be later
than the Annuitant's 95/th/ birthday. The Annuity Date must be at least six
months after the Effective Date, unless we choose to waive this requirement.
You may change the Annuity Date selected by giving written notice to our Service
Office. Notice must be received by our Service Office at least 30 days prior to
the Annuity Date.
MINIMUM CONTRACT VALUE FOR DISTRIBUTION OPTIONS
If at the time this contract becomes payable the Contract Value is less than
$2,000.00 or would provide a monthly distribution payment of less than $20.00
per month, we may at our option cancel this contract. In this event, we will
pay the Annuitant the Contract Value in a lump sum and be released of any
further obligations under the contract.
ELECTION OF DISTRIBUTION OPTION AND FIXED OR VARIABLE ANNUITY PAYMENTS
At least 30 days prior to the Annuity Date, you must inform us in writing which
one of the Distribution Options described on page 24-25 you want to use to begin
distribution payments. You must also notify us in writing whether you want your
Contract Value to fund systematic withdrawals, a Fixed Annuity and/or a Variable
Annuity. Variable Annuity payments can be allocated form a maximum of four
Variable Fund Accounts. The Contract Value or portion thereof will then be
applied to determine the amount of the distribution payment. If this contract
has been assigned, the amount due the assignee must be paid in a lump sum before
any distribution payments can be determined and commenced.
If you have not elected a Distribution Option at least 30 days prior to the
Annuity Date, we will apply the Contract Value to effect an annuity under Option
2 as described on page 25 with monthly payments guaranteed for 10 years. The
value of the Fixed Fund Account will be applied to effect a Fixed Annuity. The
value of the Variable Fund Accounts will be applied to effect a Variable Annuity
with payments funded from each Variable Fund Account in the same proportion as
each account's value has to the total value of all Variable Fund Accounts under
your contract.
In electing a Distribution Option, you may apply all of your Contract Value to
effect a Fixed Annuity or a Variable Annuity. You may allocate Contract Value
to effect a combination Fixed and Variable Annuity. You may also obtain
distribution payments by systematic withdrawal.
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FIXED ANNUITY DISTRIBUTION
A Fixed Annuity provides a distribution under which payments do not vary as to
dollar amount and which are guaranteed by the Company. The guaranteed monthly
payment amount for each $1,000.00 of Contract Value applied is shown in the
appropriate Annuity Payment Table beginning on page 26.
VARIABLE ANNUITY DISTRIBUTION
A Variable Annuity provides payments that are not guaranteed. The amount of the
payment will vary based on the investment experience of the Funds that
correspond to the Variable Fund Accounts under this contract. The amount of the
payment may rise or it may fall. We guarantee that the dollar amount of each
payment after the first shall not be affected by actual expenses or variations
in mortality experience.
DETERMINATION OF THE FIRST VARIABLE ANNUITY DISTRIBUTION PAYMENT
If a Variable Annuity distribution is selected, value will be applied in
accordance with the Distribution Option selected. The amount of the first
payment for each $1,000.00 of value applied is shown in the appropriate Annuity
Payment Table beginning on page 27.
DETERMINATION OF VARIABLE ANNUITY DISTRIBUTION PAYMENTS AFTER THE FIRST PAYMENT
Each Variable Fund Account has Annuity Units, the value of which fluctuates and
varies daily. The dollar amount of the first annuity payment for each Variable
Fund Account is divided by the value of that account's Annuity Unit as of the
end of the Valuation Period immediately preceding the tenth day before the
Annuity Date. This result establishes a fixed number of Annuity Units for each
Variable Fund Account under this contract. The number of Annuity Units under
each Variable Fund Account is then used to determine the amount of each periodic
annuity payment to be made from that account.
The number of Annuity Units in a Variable Fund Account is multiplied by the
Annuity Unit value of that account as of the end of the Valuation Period
immediately preceding the tenth day before the date on which payment is to be
made. This result establishes the dollar amount of the payment from that
account. The payments from each Variable Fund Account are then added to
determine the total Variable Annuity payment to be made to the Annuitant.
ANNUITY UNIT VALUE
At the end of each Valuation Date, the Annuity Unit value for each Variable Fund
Account is computed. Initially, the Annuity Unit value for each Variable Fund
Account was arbitrarily set at $10.00 except for the Money Market Variable Fund
Account which was set at $1.00. Thereafter, the Annuity Unit value of a
Variable Fund Account as of the end of any Valuation Date is calculated by
multiplying (1) by (2) and multiplying the result by (3) where:
(1) Is the Annuity Unit value for the Variable Fund Account as of the
end of the immediately preceding Valuation Period; and
(2) Is the Net Investment Factor, as defined on page 15, for the
Valuation Period then ended; and
(3) Is a factor used to adjust for the assumed interest rate of 3% per
year used in the Tables but which is not applicable because the actual
amount earned on the Variable Fund Account is credited instead.
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<PAGE>
TRANSFERS OF ANNUITY UNITS
You may transfer Annuity Units by filing a written request with our Service
Office, or you may request a transfer by telephone if a telephone authorization
has been completed and is on file with our Service Office.
Values may be transferred between the Variable Fund Accounts. The total amount
transferred from an account must be at least $100.00. You may also transfer
Annuity Units from a Variable Fund Account to establish a Fixed Annuity payout
or increase the amount of Fixed Annuity payments. Transfers of value from a
Variable Fund Account to another Variable Fund Account or to a Fixed Annuity are
limited to three per Contract Year during the Distribution Phase. There is no
charge for such transfers.
Transfers will be processed effective at the Annuity Unit value next computed on
the Date of Receipt of the transfer request.
If a request to transfer Annuity Units is received after the Valuation Period
that immediately precedes the tenth day before an annuity payment date, the
transfer will be effective at the Annuity Unit value next computed on the
Valuation Date immediately following the annuity payment date. Once Annuity
Unit value has been transferred to purchase a Fixed Annuity payment or to
purchase or to purchase a larger Fixed Annuity payment, it is locked in and
cannot be transferred out.
OWNER/ANNUITANT'S DEATH
In accordance with current federal income tax law, if the Owner is the Annuitant
and dies on or after the Annuity Date, any payments that remain under the terms
of the contract must continue at least as rapidly as before the Annuitant's
death. The Beneficiary may:
(1) Continue to receive the same payments as the Annuitant; or
(2) Receive higher payments, but over a shorter period of time, than the
Annuitant was receiving; or
(3) Take full distribution of the remaining value at the Annuitant's
death.
If payments were contingent upon the Annuitant being alive, then these
distribution rules do not apply.
- --------------------------------------------------------------------------------
DISTRIBUTION OPTIONS
- --------------------------------------------------------------------------------
GENERAL
You may elect to have payments made under any one or more of the Distribution
Options listed below or any other option including a lump sum that you and the
Company mutually agree upon in writing. Payments may be received on a Fixed
Annuity basis, a Variable Annuity basis, or both, or by systematic withdrawal.
Payments on a Fixed Annuity basis are available under Options 1 through 5.
Payments on a Variable Annuity basis are available only under Option 1, 2 and 3.
Regardless of whether a Fixed Annuity or Variable Annuity is selected, if Option
1 or 3 is chosen it is possible to receive only one payment if the Annuitant or
the Joint Annuitants die before the second payment. This is possible because no
minimum number of payments is guaranteed by the Company under those Options.
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<PAGE>
The attached tables show the minimum dollar amount of the first monthly payment
for each $1,000.00 applied under the Distribution Options. The tables are based
on an assumed investment rate of 3%. The Company may, at its discretion, offer
more favorable Distribution Option values based upon its then current interest
rate and mortality assumptions.
OPTION 1. INCOME PAYMENTS FOR LIFE - If a Fixed Annuity is selected under
this option, the Company guarantees periodic payments as long as the Annuitant
is alive. If monthly payments are selected, they are made at the values shown
in Table 1.
If a Variable Annuity is selected under this option, periodic payments are
designed to continue as long as the Annuitant is alive, but because of the
inherent risk of a market based investment are not guaranteed to continue for
life. If monthly payments are selected, the first payment is made at the values
shown in Table 1. Subsequent Variable Annuity payments are variable in dollar
amount.
OPTION 2. INCOME PAYMENTS FOR LIFE WITH A CERTAIN PERIOD GUARANTEED - If a
Fixed Annuity is selected under this option, the Company guarantees periodic
payments will be made as long as the Annuitant is alive. The Company also
guarantees that periodic payments will be made for a certain period of time even
if the Annuitant dies before that period of time has expired. If monthly
payments are selected, they are made at the value shown in Table 1.
If a Variable Annuity is selected under this option, periodic payments are
designed to continue as long as the Annuitant is alive, but because of the
inherent risk of a market based investment are not guaranteed to continue for
life. Under this option the Company will make payments for a certain period of
time even if the Annuitant dies before that period of time has expired. The
amount of the payment is, however, contingent upon the current value of the
Annuity Units at the time the payment is due.
If monthly payments are selected, the first payment is made at the values shown
in Table 1. Subsequent Variable Annuity payments are variable in dollar amount.
OPTION 3. JOINT AND SURVIVOR LIFE INCOME - If a Fixed Annuity is selected
under this option, the Company guarantees periodic payments as long as the
Annuitant or the Joint Annuitant is alive. If monthly payments are selected,
they are made at the value shown in Table 2.
If a Variable Annuity is selected under this option, periodic payments are
designed to continue as long as the Annuitant or the Joint Annuitant is alive,
but because of the inherent risk of a market based investment are not guaranteed
to continue for their lives. If monthly payments are selected, the first
payment is made at the values shown in Table 2. Subsequent Variable Annuity
payments are variable in dollar amount.
If one of the joint annuitants dies before the Annuity Date the election of this
option is revoked. The surviving Annuitant may elect to receive any one or more
of the other Distribution Options available under the contract.
OPTION 4. INCOME FOR SPECIFIED PERIOD - If distribution is selected under
this option, the Company will make periodic payments which are guaranteed for a
specified period of time. This period of time is agreed upon before payments
begin. This period of time cannot be longer than 30 years. If monthly payments
are selected, they are made at the values shown in Table 3.
OPTION 5. INCOME OF FIXED AMOUNT - If distribution is selected under this
option, a sum of monetary value is transferred to the Company. In exchange, the
Company agrees to pay the specified amount of interest on the principal and to
make periodic payments of a fixed dollar amount that is chosen as long as the
principal and interest earnings last. If monthly payments are selected, they
are made at the values shown in Table 3, but the number of years payable depends
on the sum of monetary value transferred to the Company.
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<PAGE>
OPTION 6. SYSTEMATIC WITHDRAWALS - You may elect a series of substantially
equal periodic payments made either monthly, quarterly, semi-annually or
annually. These payments may be made over the life expectancy of the Annuitant
or over a shorter period of time. Withdrawals will be processed effective at
the Accumulation Unit value at the end of the Valuation Period that includes the
date of withdrawal. Withdrawals may be made pro rata from all accounts under
this contract or the Owner may specify which account(s) the payment is to be
taken from. You may change the amount or frequency of the systematic withdrawal
once in each Contract Year. The minimum amount of Contract Value you must have
to elect systematic withdrawal is $20,000.00. The minimum amount that can be
withdrawn from an account under this contract is $250.00, or, if less, the
remaining balance of the account.
If this contract is used to fund a Qualified Plan and if distributions are
required under federal income tax law, we offer a service to determine the
minimum amount of distribution that must be taken each year. You may arrange
with us to have this amount distributed by systematic withdrawal.
- --------------------------------------------------------------------------------
POSTPONEMENT OF PAYMENTS
- --------------------------------------------------------------------------------
We may not be able to determine the value of assets of the Variable Fund
Accounts if:
(1) The New York Stock Exchange is closed for other than customary
weekends and holidays; or
(2) Trading on the New York Stock Exchange is restricted; or
(3) An emergency exists as a result of which it is not reasonably
practicable to dispose of securities held in the Separate Account or
determine their value; or
(4) The Securities and Exchange Commission, by order, permits us to
defer payments for the protection of Owners of our Variable Annuity
contract.
During such times we may defer:
(1) Determination of Variable Fund Account values;
(2) Payment of such values; and
(3) Any requested transfer of Variable Fund Account values.
Requests for partial or full withdrawals which would be derived from a premium
payment made to us by a check which has not cleared the banking system will be
deferred until payment of the check has been honored, to the extent permitted by
applicable law at the time.
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<PAGE>
ANNUITY PAYMENT TABLE 1
(OPTIONS 1 & 2)
<TABLE>
<CAPTION>
Amount of Monthly Payment for each $1,000.00 applied. Second and subsequent annuity payments, when based on the investment
experience of a Variable Fund Account, are variable and are not guaranteed as to fixed dollar amount.
- ----------------------------------------------------------------------------------------------------------------------------------
MALE AGE FEMALE
- ----------------------------------------------------------------------------------------------------------------------------------
Period Certain and Life Period Certain and Life
Life ---------------------------------- Life ----------------------------
Only 10 YRS 20 YRS Only 10 YRS 20 YRS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 4.07 $4.05 $3.96 50 $3.80 $3.79 $3.74
4.14 4.12 4.02 51 3.86 3.85 3.79
4.22 4.19 4.08 52 3.92 3.90 3.84
4.30 4.27 4.14 53 3.98 3.97 3.89
4.39 4.35 4.20 54 4.05 4.03 3.95
4.48 4.43 4.27 55 4.12 4.10 4.01
4.52 4.52 4.33 56 4.20 4.17 4.07
4.68 4.62 4.40 57 4.28 4.25 4.13
4.79 4.72 4.47 58 4.36 4.33 4.20
4.90 4.82 4.54 59 4.45 4.41 4.26
5.03 4.94 4.61 60 4.55 4.50 4.33
5.16 5.05 4.67 61 4.65 4.59 4.40
5.30 5.18 4.74 62 4.76 4.69 4.47
5.45 5.30 4.81 63 4.87 4.80 4.54
5.61 5.44 4.87 64 5.00 4.91 4.61
5.79 5.58 4.94 65 5.13 5.03 4.69
5.97 5.73 5.00 66 5.27 5.15 4.76
6.17 5.88 5.06 67 5.42 5.29 4.83
6.38 6.04 5.11 68 5.58 5.42 4.90
6.61 6.21 5.16 69 5.75 5.57 4.97
6.85 6.38 5.21 70 5.94 5.72 5.03
7.11 6.55 5.25 71 6.14 5.89 5.09
7.39 6.73 5.29 72 6.36 6.06 5.15
7.69 6.91 5.33 73 6.59 6.23 5.20
8.01 7.09 5.36 74 6.85 6.42 5.25
8.35 7.27 5.39 75 7.13 6.61 5.29
8.72 7.45 5.41 76 7.43 6.80 5.33
9.11 7.62 5.43 77 7.76 7.00 5.37
9.52 7.79 5.45 78 8.11 7.20 5.40
9.96 7.96 5.46 79 8.49 7.40 5.42
10.43 8.12 5.47 80 8.90 7.60 5.44
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
ANNUITY PAYMENT TABLE 2
(OPTION 3)
<TABLE>
<CAPTION>
Amount of Monthly Payment for each $1,000.00 applied. Second and subsequent annuity payments, when based on the investment
experience of a Variable Fund Account, are variable and are not guaranteed as to fixed dollar amount.
FEMALE AGE
- ----------------------------------------------------------------------------------------------------------------------------------
50 55 60 65 70 75 80
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
M
50 $3.53 $3.65 $3.77 $3.86 $3.94 $3.99 $4.02
A
55 3.61 3.78 3.94 4.10 4.22 4.32 4.39
L
60 3.67 3.88 4.11 4.34 4.54 4.71 4.84
E
65 3.72 3.96 4.25 4.56 4.87 5.16 5.39
A 70 3.75 4.02 4.35 4.74 5.18 5.63 6.03
G 75 3.77 4.06 4.43 4.89 5.44 6.06 6.70
E 80 3.78 4.09 4.48 4.98 5.63 6.43 7.33
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ANNUITY PAYMENT TABLE 3
(OPTIONS 4 & 5)
<TABLE>
<CAPTION>
Amount of monthly payment for each $1,000.00 applied.
- ------------------------------------------------------------------
YEARS MONTHLY YEARS MONTHLY YEARS MONTHLY
PAYABLE PAYMENT PAYABLE PAYMENT PAYABLE PAYMENT
- ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1 $84.47 11 $8.86 21 $5.32
2 42.86 12 8.24 22 5.15
3 28.99 13 7.71 23 4.99
4 22.06 14 7.26 24 4.84
5 17.91 15 6.87 25 4.71
6 15.14 16 6.53 26 4.59
7 13.16 17 6.23 27 4.47
8 11.68 18 5.96 28 4.37
9 10.53 19 5.73 29 4.27
10 9.61 20 5.51 30 4.18
- ------------------------------------------------------------------
</TABLE>
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<PAGE>
[USAA logo]
USAA LIFE INSURANCE COMPANY
9800 Fredericksburg Road - San Antonio, Texas 78288
VARIABLE ANNUITY
FLEXIBLE PREMIUM DEFERRED
COMBINATION FIXED AND VARIABLE ANNUITY CONTRACT
NONPARTICIPATING - NO DIVIDENDS
23979-0797
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LVA23979ST 7-94 LVA200S2
<PAGE>
INDIVIDUAL RETIREMENT ANNUITY (IRA) RIDER
USAA LIFE INSURANCE COMPANY
This rider amends and becomes a part of the annuity contract to which it is
attached (hereinafter called "this contract") and has the same effective date as
the annuity contract. This contract is for the exclusive benefit of the
Annuitant or his/her beneficiary. The Annuitant and Owner shall always be the
same person. The Annuitant hereby agrees that as of the effective date, this
contract shall be modified in the following particulars:
(1) A contract issued on the basis of this application will not be
transferable except to the Company on surrender or settlement or under
a Qualified Domestic Relations Order issued by a court having
appropriate jurisdiction. It may not be sold, assigned, discounted or
pledged as collateral for a loan or as security for the performance of
an obligation or any other purpose. The entire interest of the
Annuitant in this contract shall be nonforfeitable.
(2) The annual contribution under this contract will not be fixed and
will not exceed the lesser of 100% of the Annuitant's compensation for
the taxable year or $2,000 for any Annuitant, except that this $2,000
limitation is not applicable to:
a. A single premium payment which represents any portion of an
eligible rollover distribution as defined and described in
sections 402(c)(4), 403(a)(4), 403(b)(8) or 408(d)3 of the
Internal Revenue Code; or
b. Premiums which represent contributions under sections 408(j),
(k) or (l) of the Internal Revenue Code.
Compensation means wages, salaries, professional fees, or other amounts
derived from or received for personal services actually rendered (including, but
not limited to commissions paid salespersons, compensation for services on the
basis of a percentage of profits, commissions on insurance premiums, tips, and
bonuses) and includes earned income, as defined in section 401(c)(2) (reduced by
the deduction the self-employed individual takes for contributions made to a
self-employed retirement plan). For purposes of this definition, section
----------------------------------------
401(c)(2) shall be applied as if the term trade or business for purposes of
- ---------------------------------------------------------------------------
section 1402 included service described in subsection (c)(6). Compensation does
- ------------------------------------------------------------
not include amounts derived from or received as earnings or profits from
property (including but not limited to interest and dividends) or amounts not
includible in gross income. Compensation also does not include any amount
received as a pension or annuity or as deferred compensation. The term
"compensation" shall include any amount includible in the individual's gross
income under section 71 with respect to a divorce or separation instrument
described in subparagraph (A) of section 71(b)(2).
Contributions will be in cash only. Any refund of premiums (other than
those attributable to excess contributions) will be applied before the close of
the calendar year following the year of the refund toward the payment of future
premiums or the purchase of additional benefits.
3. If premium payments are interrupted, the contract will not terminate
except as provided in the contract section titled Minimum Required
Contract Value, and premium payments of at least the minimum amount
shown on the Contract Information Page may be resumed at any time.
4. The entire value of the Annuitant's contract will be distributed, or
commence to be distributed, no later than the first day of April
following the calendar year in which the Annuitant attains. Age 70 1/2,
in equal or substantially equal amounts, over (a) the Annuitant's life
or the lives of the Annuitant and his/her designated beneficiary, or
(b) a period certain not extending beyond the Annuitant's life
expectancy or the joint and last survivor expectancy of the Annuitant
and his/her designated beneficiary.
Page 1 24882-1297
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LQA24882ST 11-97 AQA309ST
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5. Minimum Amounts To Be Distributed. If the Annuitant's entire interest
is to be distributed in other than a lump sum, then the amount to be
distributed each year (commencing with the required beginning date and
each year thereafter) must be at least equal to the quotient obtained
by dividing the Annuitants benefit by the applicable life expectancy.
For calendar years beginning after December 31, 1988, the amount to be
distributed each year, beginning with the first calendar year for which
distributions are required and then for each succeeding calendar year,
shall not be less than the quotient obtained by dividing the
Annuitant's benefit by the lesser of (1) the applicable life expectancy
or (2) if the Annuitant's spouse is not the designated beneficiary, the
applicable divisor determined from the table set forth in Q&A-4 of
section 1.401(a)(9)-2 of the Proposed Income Tax Regulations.
Distributions after the death of the Annuitant shall be distributed
using the applicable life expectancy as the relevant divisor without
regard to proposed regulations section 1.401(a)(9)-2.
Life expectancy is computed by use of the expected return multiples in
Tables V and VI of section 1.72-9 of the Income Tax Regulations. Unless
otherwise elected by the participant by the time distributions are
required to begin, life expectancies shall be recalculated annually.
Such election shall be irrevocable as to the participant and shall
apply to all subsequent years. The life expectancy of a non-spouse
beneficiary may not be recalculated. Instead, life expectancy will be
calculated using the attained age of such beneficiary during the
calendar year in which distributions are required to begin pursuant to
this section, and payments for subsequent years shall be calculated
based on such life expectancy reduced by one for each calendar year
which has elapsed since the calendar year life expectancy was first
calculated.
Distributions under this annuity contract shall be made in accordance
with the requirements of section 401(a)(9) of the Code and the
Regulations thereunder. For purposes of this requirement, any amount
paid to a child of the Annuitant will be a treated as if it had been
paid to the surviving spouse if the remainder of the interest becomes
payable to the surviving spouse when the child reaches the age of
majority.
6. Before distributing an amount from the contract, the Company shall
receive from the Annuitant a declaration in writing of the Annuitant's
intention as to the disposition of the amount distributed, except in
the case of the Annuitant's death or disability or when the Annuitant
is at least age 59 1/2. Distributions paid during the Annuitant's
lifetime other than periodic payments are subject to contractual
surrender charges, regardless of the Annuitant's age.
7. Distributions Beginning Before Death. If the Annuitant dies after
distribution of his/her interest has begin, the remaining portion of
such interest will continue to be distributed at least as rapidly as
under the method of distribution being used prior to the Annuitant's
death.
8. Distributions Beginning After Death. If the Annuitant dies before
distribution of his/her interest begins, the Annuitant's entire
interest will be distributed in accordance with one of the following
four provisions:
a. The Annuitant's entire interest will be paid by December 31 of
the calendar year containing the fifth anniversary of the
Annuitant's death.
b. If the Annuitant's interest is payable to a beneficiary
designated by the Annuitant and the Annuitant has not elected
(8)(a) above, then the entire interest will be distributed over
the life or over a period certain not greater than the life
expectancy of the designated beneficiary commencing on or before
December 31 of the calendar year immediately following the
calendar year in which the Annuitant died. The designated
beneficiary may elect at any time to receive greater payments.
Page 2 24882-1297
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LQA24882ST 11-97 AQA309ST
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c. If the designated beneficiary of the Annuitant is the Annuitant's
surviving spouse, the spouse may elect to receive equal or
substantially equal payments over the life or life expectancy of the
surviving spouse commencing at any date prior to the later of (1)
December 31 of the calendar year immediately following the calendar
year in which the Annuitant died and (2) December 31 of the calendar
year in which the Annuitant would have attained age 70 1/2. Such
election must be made not later than the earlier of December 31 of the
calendar year containing the fifth anniversary of the Annuitant's death
or the date distributions are required to begin pursuant to the
preceding sentence. The surviving spouse may increase the frequency or
amount of such payments.
d. If the designated beneficiary is the Annuitant's surviving spouse, the
spouse may treat the contract as his/her own Individual Retirement
Arrangement (IRA). This election will be deemed to have been made if
such surviving spouse makes a regular IRA contribution to or a rollover
to or from such contract, or fails to elect any of the above three
provisions.
AMENDMENT OF CONTRACT TO QUALIFY AS ROTH INDIVIDUAL RETIREMENT ANNUITY ("ROTH
IRA") UNDER SECTION 408A OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED
("CODE") -SECTIONS 9 AND 10 APPLY IF THE ANNUITANT HAS DESIGNATED THIS CONTRACT
AS A ROTH IRA.
9. The contract will accept contributions only as follows:
a. Contributions to this contract must be paid in cash and, except in
the case of a trust-to-trustee transfer from another Roth IRA, or in
the case of a conversion from a Traditional IRA to a Roth IRA, may not
exceed the excess of the Owner's contribution limit for the taxable
year over the aggregate contributions made during the taxable year to
all other Roth IRAs and Traditional IRAs held by the Owner.
Contributions may be made without respect to the age of the Owner.
The contribution limit for the taxable year is either (1) the lesser of
$2,000 or 100% of compensation of the Owner for the taxable year, or
(2) where the Owner files a joint return and receives less compensation
for the taxable year than the Owner's spouse, the lesser of $2,000 or
100% of the compensation of the Owner and the Owner's spouse for the
taxable year less the spouse's contribution to a Roth IRA or
Traditional IRA for the taxable year (if any).
For single taxpayers, contributions to a Roth IRA are phased out
pursuant to provisions of the Internal Revenue Code for adjusted gross
incomes between $95,000 and $110,000. For joint taxpayers,
contributions to the Roth IRA are phased out pursuant to the provisions
of the Internal Revenue Code for adjusted gross income between $150,000
and $160,000.
b. A conversion can be made from a traditional IRA to a Roth IRA only if
the Owner's adjusted gross income for the taxable year of the
conversion does not exceed $100,000.
c. For purposes of this section, compensation means wages, salaries,
professional fees, or other amounts derived from or received for
personal service actually rendered and includes earned income, as
defined in section 401(c)(2) (reduced by the deduction the self-
employed individual takes for contributions made to a self-employed
retirement plan). Compensation does not include amounts derived from or
received as earnings or profits from property (including, but not
limited to, interest and dividends) or amounts not includible in gross
income. Compensation also does not include any amount received as a
pension or annuity or as deferred compensation. The term "compensation"
shall include any amount includible in the Owner's gross income under
section 71 with respect to a divorce or separation instrument described
in subparagraph (A) of section 71(b)(2).
10. The Owner's entire interest will be distributed in accordance with one of
the following four provisions:
a. The Owner's entire interest will be paid by December 31 of the
calendar year which contains the fifth anniversary of the Owner's
death.
b. If any portion of the Owner's interest is payable to a designated
beneficiary and such beneficiary has not elected (a) above, then the
entire interest which is payable to the beneficiary will be distributed
in substantially equal installments over a period not exceeding the
life or life expectancy of the designated beneficiary, commencing by
December 31 following the first anniversary of the Owner's
Page 3 24882-1297
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LQA24882ST 11-97 AQA309ST
<PAGE>
death. The designated beneficiary may elect at any time to receive
greater payments if otherwise permitted under the terms of the
contract.
c. In applying the requirements of (b) to any portion of the Owner's
interest which is payable to the Owner's surviving spouse, the date on
which the Owner would have attained age 70 1/2 will be substituted for
the first anniversary of the Owner's death.
d. If the designated beneficiary of the Owner is the Owner's surviving
spouse, the spouse may treat the contract as the spouse's own Roth
IRA. This election will be deemed to have been made if the surviving
spouse makes a rollover or other contribution into this contract or if
the surviving spouse has failed to satisfy one or more requirements
described in (a) or (b). If the Owner's surviving spouse dies before
distributions are required to begin under this section, the Owner's
surviving spouse will be treated as having elected to make the Roth
IRA his or her own Roth IRA.
11. This contract shall be amended from time to time if required to reflect
changes in the Internal Revenue Code, Internal Revenue Service Regulations,
or published revenue rulings.
It is hereby agreed that it is the responsibility of the Annuitant to
notify the Company in the event that the aggregate contributions due or
paid under all accounts or contracts purchased in his/her name and
qualifying as Individual Retirement Account or Individual Retirement
Annuities exceed:
a. $2,000 annually; or
b. The sum of the maximum annual contribution allowed for the annuitant
under a Simplified Employee Pension (SEP-IRA) as described in section
408(j) of the Internal Revenue Code; or
c. The maximum amount eligible for rollover treatment under sections
402(c)(4), 403(a)(4), 403(b)(8), or 408(d)(3) of the Internal Revenue
Code.
By applying for this contract, the Annuitant acknowledges receipt of a
disclosure statement provided by the Company describing this Individual
Retirement Annuity.
/s/ EDWIN L. ROSANE
-------------------------
Edwin L. Rosane
President
Page 4 24882-1297
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LQA24882ST 11-97 AQA309ST
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USAA LIFE INSURANCE COMPANY
OPTIONAL RETIREMENT PROGRAM (ORP) ENDORSEMENT
The Variable Annuity contract to which this endorsement is attached is subject
to all applicable requirements of the Texas Optional Retirement Program,
including the following provisions.
GUARANTEED RETURN OF FIRST YEAR'S STATE MATCHING CONTRIBUTION
Notwithstanding any other provision of the contract to the contrary, USAA Life
Insurance Company guarantees that the First Year's State Matching Contribution
(or fractional part thereof) will be refunded to
in the event the employee/participant does not begin his/her second year of
participation in the Optional Retirement Program. USAA Life Insurance Company
will place the State Matching Contribution in the Fixed Fund Account until
notification is received by us from the Optional Retirement Program that the
employee/participant has begun his/her second year of participation in the
Optional Retirement Program. Contributions by the employee/participant are not
subject to this requirement and may be made as described in the contract.
DISTRIBUTION RESTRICTIONS IN OPTIONAL RETIREMENT PROGRAM
Notwithstanding anything in the contract to the contrary, the benefits of an
annuity purchased under the Optional Retirement Program are available only if
the participant obtains the age of 70 1/2 years or terminates participation in
the program as follows:
(1) Death;
(2) Retirement (including disability retirement); or
(3) Termination of employment in all public institutions of higher
education in Texas. A change of company providing ORP benefits or a
participant's transfer between institutions of higher education is not a
termination of employment.
You may not transfer the ownership of the contract. However, a divestiture is
permissible under a Qualified Domestic Relations Order issued by a court having
appropriate jurisdiction. "Qualification Domestic Relations Order" (QDRO) means
a domestic relations order which recognizes the existence of an alternate
payee's right to receive, or assigns to an alternate payee the right to receive,
all or a portion of the benefits payable to the participant under a plan. An
"alternate payee" is a spouse, former spouse, child or other dependent of a
participant who is recognized by a Qualified Domestic Relations Order as having
a right to receive all or a portion of the benefits under a plan with respect to
the participant.
Any request from a participant for withdrawal of benefits shall be accompanied
by a written statement from
- --------------------------------------------------------------------------------
to certify vesting status and the termination date of employment before
withdrawal shall be permitted under the contract.
This endorsement is issued and attached to the contract by the USAA Life
Insurance Company, San Antonio, Texas.
The effective date of the endorsement is the Effective Date of the contract.
/s/ EDWIN L. ROSANE
---------------------------
Edwin L. Rosane - President
24678-0794
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LQA24678TX 7-94 LQA406TX
<PAGE>
EXHIBIT 4(B)
USAA LIFE INSURANCE COMPANY
TAX-SHELTERED ANNUITY (TSA) ENDORSEMENT
The Variable Annuity contract to which this endorsement is attached is subject
to the requirements of Section 403(b) of the Internal Revenue Code (IRC),
including the following provisions.
DISTRIBUTION REQUIREMENTS
As required by IRC Section 403(b), distributions from this contract may be paid
only:
(a) when the employee attains age 59 1/2, separates from service, dies, or
becomes disabled, or
(b) in the case of hardship.
Distributions made on account of hardship may not include any earnings on
amounts contributed to the contract. Definitions of disability and hardship are
governed be federal law. USAA Life Insurance Company is not responsible for
determining the existence of a hardship or disability.
The above distribution requirements do not apply to distributions from this
annuity contract which are attributable to amounts contributed to the contract,
and any earnings thereon, prior to December 31, 1988.
CHANGE OF OWNERSHIP
You may not transfer the ownership of your TSA. However, a divestiture is
permissible under a Qualified Domestic Relations Order issued by a court having
appropriate jurisdiction. A Qualified Domestic Relations Order means a domestic
relations order which recognizes the existence of an alternate payee's right to
receive, or assigns to an alternate payee the right to receive, all or a portion
of the benefits payable to the participant under a plan.
An alternative payee is a spouse, former spouse, child or other dependent of a
participant who is recognized by a Qualified Domestic Relations Order as having
a right to receive all, or a portion of, the benefits under a plan with respect
to the participant.
/s/ Edwin L. Rosane
- ---------------------------------
Edwin L. Rosane - President
25473-1094
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AQA25473ST 10-94 AQA616ST
<PAGE>
USAA LIFE INSURANCE COMPANY
TAX-SHELTERED ANNUITY (TSA) CONTRACT ENDORSEMENT
(CONTRIBUTION LIMITS ON SALARY DEFERRAL)
This Endorsement is made a part of the annuity contract to which it is
attached. Its purpose is to continue to qualify the annuity contract as a Tax-
Sheltered Annuity under Section 403(b) of the Internal Revenue Code ("Code").
If provisions of this Endorsement conflict with provisions of the annuity
contract, the Endorsement shall control. The effective date of this Endorsement
is the same as the effective date of the annuity contract. In this Endorsement,
"you" and "your" refer to the Owner of the annuity contract, and "we" refers to
USAA Life Insurance Company.
This annuity contract is subject to Section 403(b) of the Code. Your
contributions to this and any other Section 403(b) plans are subject to Sections
402(g) and 415 of the Code as described below.
1. Contributions to this annuity contract made through your employer by
elective salary deferrals shall be limited each tax year to the amount
in Section 402(g) of the Code. If in any year you exceed this limit,
then by the following April 15 we will return to you the amount that
is over the limit. We must, by law, report this returned amount to the
Internal Revenue Service.
2. If you make elective salary deferrals in any tax year to other
Section 403(b) plans in addition to this annuity contract, then these
deferrals must be added together for the purpose of determining
whether your total for the tax year has exceeded the limit under
Section 402(g).
3. If your elective salary deferrals to all Section 403(b) plans in any
year exceed the limitations found in Sections 402(g) and 415, we will
return to you the excess amount that is over the limitations. We must
report this amount to the Internal Revenue Service.
/s/ EDWIN L. ROSANE
---------------------------
Edwin L. Rosane - President
23979-0797
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LVA23979ST LVA200S2
<PAGE>
NONQUALIFIED EXHIBIT 5(A)
[USAA logo]
VARIABLE ANNUITY
ANNUITANT INFORMATION
(Please Print)
Sex: [ ] M [ ] F
Name (First, Middle, Last)
__________________ ______/______/_____ ___
Birthplace (State) Birth Date (M/D/Y) Age
- - -
- ------------------ ----------------------------------------
SSN USAA Number (If you have one)
- -----------------------------------------------------------------------
Residence Address
- -----------------------------------------------------------------------
City State Zip
(_____)________________________________________________________________
Residence Phone Business Phone Ext.
- -----------------------------------------------------------------------
Occupation Name of Employer
- -----------------------------------------------------------------------
Employer Address
- -----------------------------------------------------------------------
City State Zip
Have you or your spouse ever been an officer in the U.S. Armed Forces?
[ ] Yes [ ] No
Have either of your parents or your spouse's parents ever been an officer in the
U.S. Armed Forces?
[ ] Yes [ ] No
BENEFICIARY DESIGNATION
(Attach separate sheet if necessary)
_________________________________________ _______-________-
Name of Primary Beneficiary(ies) SSN
_______________________________________________
Birth Date (M/D/Y) Relationship to Annuitant
__________________________________________________________
Residence Address
______________________________________________________
City State Zip
_________________________________________ _______-________-
Name of Contingent Beneficiary SSN
______/_______/__________ _________________________________
Birth Date (M/D/Y) Relationship to Annuitant
__________________________________________________________
Residence Address
_________________ ______________ __________
City State Zip
OWNER
(Complete only if owner is other than annuitant.)
__________________________ _________________________
Name (First, Middle, Last) Relationship to Annuitant
_______/________/_______ ________ _________________
SSN/Tax ID# Age Birth Date (M/D/Y)
_______________________________ Sex: [ ] M
USAA Number (if you have one) [ ] F
- ----------------------------------------------------------
Residence Address
- ----------------------------------------------------------
City State Zip
(______)_________________________ (______)__________________________
Residence Phone Business Phone Ext.
PAYMENT INFORMATION
Amount submitted $____________(Initial minimum $1,000) Please use the enclosed,
pre-addressed envelope to return this application and your initial premium
payment.
I plan to make additional premium payments of
$________ by: (Subsequent minimum $100)
__ Automatic Payment Plan (Complete the enclosed form.)
__ Monthly Government Allotment
__ Check (personal, cashier's)
Exchanges only:
__ Completed 1035 exchange forms enclosed
__ Please send me a 1035 exchange form
INVESTMENT ALLOCATION
Please allocate all of my premium payments to the Variable Annuity Accounts as
shown until further notice.
_____% Growth & Income _____% World Growth
_____% Diversified Assets _____% Money Market
_____% Alger American Growth _____% Income
_____% Scudder Capital Growth _____% Fixed Account
*You may allocate your premium payment to as many of the above accounts as you
like. Each allocation must be a percentage of your premium payment, with the
total equaling 100%. Please use whole percentages.
*If no allocations are specified, the entire premium payment will be allocated
to the Money Market Variable Fund Account.
*If you are allocating your initial premium payment to variable fund accounts
other than the Money Market Variable Fund Account, that portion of your premium
payment will be allocated to the Money Market Variable Fund Account for a period
equal to the FREE LOOK PERIOD state in your contract plus five days. At the end
of the period, the premium payments will be allocated as directed in this
application and as explained in more detail in the prospectus. If you decide to
return the contract within the FREE LOOK PERIOD, USAA Life Insurance Company
will refund any premium paid and the contract will be deemed void as if no
contract had been issued.
AAP24744ST 7-94 (Over Please) 24744-0195
<PAGE>
INVESTMENT SUITABILITY INFORMATION
Investment Objective:
[ ]Long-term growth [ ] Preservation of capital
[ ]Income [ ] Growth and Income
Risk Tolerance:
[ ] Aggressive [ ] Moderate [ ] Conservative
Before taking distributions, I plan to leave money in the Variable Annuity for
[ ] 1-10 years. [ ] 10-20 years [ ] 20 years or more.
Estimated annual income ___________________ Tax bracket ____________
Estimated net worth _______________
COMMENCEMENT OF ANNUITY PAYMENTS
Unless you specify otherwise, you will begin receiving annuity payments on the
first day of the month which follows your 95/th/ birthday as outlined in you
USAA Life Insurance Company Nonqualified Variable Annuity contract.
If you prefer, you may request an earlier date to begin receiving annuity
payments by specifying either a specific age or year. You may amend this
election in the future in accordance with Internal Revenue Code (IRC) guidelines
and contract provisions.
[ ] I wish to receive payments upon reaching age _______________
[ ] I wish to begin receiving payments on the anniversary date of this contract
in the year _______________.
REPLACEMENT
Will the annuity applied for replace or change any life insurance or annuities
now in force? [ ] Yes [ ] No
If yes, give company name(s) and details of the type of plan. (This information
is required by certain state insurance regulations.)
___________________________________________________
___________________________________________________
___________________________________________________
TELEPHONE AUTHORIZATION
I would like to authorize telephone transactions subject to the conditions
and limitations set forth in the prospectus.
[ ] Yes [ ] No
USAA Life will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, and only if we do not, will we be liable
for any losses because of unauthorized or fraudulent instructions. Information
will be obtained prior to any discussion regarding the contract including: 1)
USAA number or contract number, 2) the name of the Owner, and 3) Social
Security number of the Owner. In additions, all telephone communications with
an Owner are recorded and confirmations of all transactions are sent to the
Owner's address. We may modify, suspend or discontinue this telephone
transaction privilege at any time without prior notice.
SPECIAL REQUESTS
___________________________________________________
___________________________________________________
___________________________________________________
ACKNOWLEDGMENT/AGREEMENT
I hereby apply for this Nonqualified Variable Annuity and represent this
information is true to the best of my knowledge and belief. I certify under
penalties of perjury that my Social Security number as listed on this
application is correct. I also certify that I am of legal age to enter into
this agreement. This application and payment to USAA Life Insurance Company
represent consideration for the issuance of the annuity.
I have received and read the prospectus for this Variable Annuity contract
including the prospectuses for the underlying Funds. I understand the
objectives of the Variable Annuity's accounts as explained in the prospectus and
have determined that my allocations are suitable investments based upon my needs
and financial situation.
I understand that the premium payment value allocated to the variable accounts
may increase or decrease and is not guaranteed as to a dollar amount.
Dated at __________________________________________________________
(City, State)
this ________________day of ________________________________19,_____
X_________________________________________________________
Signature of Annuitant
X_________________________________________________________
Signature of Owner if other than Annuitant
FOR HOME OFFICE USE
- -----------------------------------------------------------
SIGNATURE OF REGISTERED REPRESENTATIVE AND AGENT
- -----------------------------------------------------------
SIGNATURE OF REGISTERED BROKER DEALER DATE
AAP24744ST 7-94 (Over Please) 24744-0195
<PAGE>
Individual Retirement
Annuity (IRA) Plan
OWNER/ANNUITANT INFORMATION
(Please Print)
__________________________________________________ ______
Name (First, Middle, Last) Age
__________________ ______/______/_____ SEX: [ ] M
Birthplace (State) Birth Date (M/D/Y) [ ] F
- ---------------------------------------------------------
SSN USAA Number (If you have one)
- ---------------------------------------------------------
Residence Address
- ---------------------------------------------------------
City State Zip
(______)________________ (______)_______________________
Residence Phone Business Phone Ext.
- ---------------------------------------------------------
Occupation Name of Employer
_______________________________________Employer's Address
- ---------------------------------------------------------
City State Zip
Have you or your spouse ever been an officer in the U.S. Armed Forces?
Yes [ ] No [ ]
Have either of your parents or your spouse's parents ever been an officer in the
U.S. Armed Forces? Yes [ ] No [ ]
TYPE OF IRA
[ ] INDIVIDUAL---$2,000 maximum or 100% of earned
income, whichever is less.
[ ] SPOUSAL----Requires two applications (one from each spouse) $2,250 maximum
total (no more than $2,000 in either IRA)
REPLACEMENT
Will the annuity applied for replace or change any life insurance or annuities
now in force? Yes [ ] No [ ]
If Yes, give company name(s) and details of the type of plan. (This information
is required by certain state insurance regulations.)
__________________________________________________________
_________________________________________________________
USAA
LIFE
INSURANCE
COMPANY
BENEFICIARY DESIGNATION
(Attach separate sheet if necessary)
- ------------------------ -------------------------
Primary Beneficiary(ies) Relationship to Annuitant
___________________ ________ ____________/___________/____
SSN Age Birth Date (M/D/Y)
_________________________________________ SEX: [ ] M
USAA Number (If you have one) [ ] F
_________________________________________________________Residence Address
- --------------------------------------------------------------------------
City State Zip
- --------------------------------------------------------------------------
Contingent Beneficiary Relationship to Annuitant
- --------------------------------------------------------------------------
SSN USAA Number (If you have one)
___________ ______/_______/_______ SEX [ ] M
Age Birth Date (M/D/Y) [ ] F
- --------------------------------------------------------------------------
Residence Address
- --------------------------------------------------------------------------
City State Zip
PAYMENT INFORMATION
IRA for tax year(s) Amount(s) submitted
(Initial minimum $100)
_______________________________ $___________________________
_______________________________ $___________________________
Please use the enclosed, pre-addressed envelope to return this
application and your initial premium payment.
I plan to make additional payments of $__________________________
(Subsequent minimums $50)
[ ] Monthly [ ] Quarterly [ ] Semi-annually [ ] Annually
I plan to make additional payments by:
[ ] Automatic Payment Plan (monthly)
(if you're paying by Automatic Payment Plan, please
complete the enclosed form.)
[ ] Check (personal, cashier's)
[ ] Monthly Government Allotment
[ ] Rollover [ ] Transfer
Amount of Rollover or Transfer $___________________________
Transfer only:
[ ] I have forwarded transfer forms to current custodian
[ ] Please send transfer forms to me.
AAP24744ST 7-94 (Over Please) 24744-0195
<PAGE>
INVESTMENT ALLOCATION
Please allocate all of my premium payments as shown below.
_______%Growth & Income _______%Diversified Assets
_______%World Growth _______%Money Market
_______%Scudder VLIF _______%Income
_______%Capital Growth _______%Fixed Account
_______%Alger American Growth
100% TOTAL
[ ] You may allocate your IRA premium payments to as many of the Variable
Annuity's accounts as you like, in amounts no smaller than one tenth of a
percent as long as the total equals 100%.
[ ] If you are allocating any part of your initial premium payment to the Fixed
Account, it will go into that Account on the effective date of the contract.
If you are allocating your initial premium payment to variable annuity fund
accounts other than the VA Money Market Fund Account, that portion of your
premium payment will be allocated to the VA Money Market Fund Account for a
period equal to the FREE LOOK PERIOD stated in your contract plus five days.
At the end of the period, the premium payment will be allocated as directed
in this application and as explained in more detail in the prospectus. If
you decided to return the contract within the FREE LOOK PERIOD, USAA Life
will refund your money as explained in the contract.
INVESTMENT SUITABILITY INFORMATION
INVESTMENT OBJECTIVE:
[ ] Long-term growth [ ] Preservation of capital
[ ] Income [ ] Growth and Income
RISK TOLERANCE:
[ ] Aggressive [ ] Moderate [ ] Conservative
Before taking distributions, I plan to leave money in the Variable Annuity for
[ ] 1-10 years. [ ] 10-20 years [ ] 20 years or more.
Estimated annual income _______________ Tax bracket ____________
Estimated net worth _________________
COMMENCEMENT OF ANNUITY PAYMENTS
Unless you specify otherwise, you will begin receiving annuity payments by April
1/st/ of the year following the calendar year you reach the age of 70 1/2 and
the distribution must meet minimums in accordance with Internal Revenue Code
(IRC).
If you prefer, you may request an earlier date to begin receiving annuity
payments by specifying either a specific age or year below. You may amend this
election in the future in accordance with IRC guidelines and contract
provisions.
[ ] I wish to receive payments upon reaching age _______________.
[ ] I wish to begin receiving payments on the anniversary date of this contract
in the year _______________.
SPECIAL REQUESTS
___________________________________________________
___________________________________________________
TELEPHONE AUTHORIZATION
I would like to authorize telephone transactions subject to the conditions and
limitations as set forth below.
[ ] Yes [ ] No
USAA Life will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, and only if we do not, will we be liable
for any losses because of unauthorized or fraudulent instructions. Information
will be obtained prior to any discussion regarding the contract including: 1)
USAA number or contract number, 2) the name of the Owner, and 3) Social
Security number of the Owner. In additions, all telephone communications with
an Owner are recorded and confirmations of all transactions are sent to the
Owner's address. We may modify, suspend or discontinue this telephone
transaction privilege at any time without prior notice. This authorization is
valid until written cancellation signed by the Owner is received by USAA Life.
ACKNOWLEDGMENT/AGREEMENT
I hereby apply for this IRA and represent this information is true and correct.
This application and payment to USAA Life Insurance Company represent
consideration for the issuance of the annuity.
I have received and read the prospectus for this Variable Annuity contract
including the prospectuses for the underlying Funds. I understand the
objectives of the Variable Annuity's accounts as explained in the prospectus and
have determined that my allocations are suitable investments based upon my needs
and financial situation.
I understand that the premium payment value allocated to the variable fund
accounts may increase or decrease and is not guaranteed as to a dollar amount.
Dated at_______________________________________________________
(City, State)
this ________________day of ____________________________19,_____
X___________________________________________________________
SIGNATURE OF ANNUITANT
X___________________________________________________________
SIGNATURE OF SPOUSE (IF APPLICABLE)
FOR HOME OFFICE USE
SIGNATURE OF AGENT (FL, NC, MI ONLY)
AAP24744ST 7-94 (Over Please) 24745-0794
<PAGE>
- --------------------------------- ---------
SIGNATURE OF REGISTERED PRINCIPAL DATE
[ ] Simplified Employee Pension Plan
(SEP-IRA)
[ ] Salary Reduction Simplified Employee
Pension (SARSEP-IRA)
ANNUITANT INFORMATION
(Please Print)
__________________________________________________________
Name (First, Middle, Last)
______________________ Sex: [ ] M
Birthplace (State) [ ] F
________/________/_______ _________
Birth Date (M/D/Y) Age
__________-___________-____________
SSN
______________________________________________
USAA Number (If you have one)
______________________________________________
Residence Address
________________________ ____________ _______
City State Zip
(______)_______________________________________
Residence Phone
(______)_______________________________________
Business Phone Ext.
- -----------------------------------------------
Occupation Name of Employer
______________________________________________
Employer's Address
______________________ __________ __________
City State Zip
Have you or your spouse ever been an officer in the U.S. Armed Forces?
[ ] Yes [ ] No
Have either of your parents or your spouse's parents ever been an officer in the
U.S. Armed Forces? [ ] Yes [ ] No
REPLACEMENT
Will the annuity applied for replace or change any life insurance or annuities
now in force? [ ] Yes [ ] No
If Yes, give company name(s) and details of the type of plans. (This information
is required by certain state insurance regulations.)
__________________________________________________________
__________________________________________________________
USAA
LIFE
INSURANCE
COMPANY
BENEFICIARY DESIGNATION
(Attach separate sheet if necessary)
________________________ _______/________/________ _______
Primary Beneficiary(ies) Birth Date (M/D/Y) Age
_________________________ _____-_______-______ SEX: [ ] M
Relationship to Annuitant SSN [ ] F
- -------------------------------------------------------------------
Residence Address
- -------------------------------------------------------------------
City State Zip
_______________________________ _______/_______/_______ _____
Contingent Beneficiary(ies) Birth Date (M/D/Y) Age
_________________________ _____-_______-______ SEX: [ ] M
Relationship to Annuitant SSN [ ] F
- --------------------------------------------------------------------
Residence Address
- --------------------------------------------------------------------
City State Zip
PAYMENT INFORMATION
SEP-IRA (Your employer will provide this information.)
Payments for tax year(s) ___________________ _________________
Amount(s) submitted $___________________ _________________
(Initial minimum $100)
Please use the enclosed, pre-addressed envelope to return this
application and your initial premium payment.
Additional payments of $__________________will be made.
(Subsequent minimums $50)
[ ] Monthly [ ] Quarterly
[ ] Semi-annually [ ] Annually
I PLAN TO MAKE ADDITIONAL PAYMENTS BY:
[ ] Automatic Payment Plan (monthly)
(If you're paying by Automatic Payment Plan, please
complete the enclosed form.)
[ ] Check (personal, cashier's)
[ ] Monthly Government Allotment
[ ] Rollover [ ] Transfer [ ] Amount $______________________
TRANSFER ONLY:
[ ] I have forwarded transfer [ ] Please send transfer forms to me
forms to current custodian.
SARSEP-IRA
Salary Reduction $__________________($25 minimum)
[ ] Weekly [ ] Bi-weekly [ ] Monthly
[ ] Quarterly [ ] Annually
[ ] Amount of Transfer $___________________________________
[ ] I have forwarded transfer [ ] Please send transfer
forms to current custodian forms to me
AAP24744ST 7-94 (Over Please) 24745-0794
<PAGE>
INVESTMENT ALLOCATION
Please allocate all of my premium payments to the variable annuity fund accounts
as shown below.
_______%Growth & Income _______%Diversified Assets
_______%World Growth _______%Money Market
_______%Scudder VLIF _______%Income
_______%Capital Growth _______%Fixed Account
_______%Alger American Growth
100% TOTAL
[ ] You may allocate your SEP-IRA and SARSEP-IRA premium payments to as many of
the Variable Annuity's accounts as you like, in amounts no smaller than one
tenth of a percent as long as the total equals 100%.
[ ] If you are allocating any part of your initial premium payment to the Fixed
Account, it will go into that Account on the effective date of the contract.
If you are allocating your initial premium payment to variable annuity fund
accounts other than the VA Money Market Fund Account, that portion of your
premium payment will be allocated to the VA Money Market Fund Account for a
period equal to the FREE LOOK PERIOD stated in your contract plus five days.
At the end of the period, the premium payment will be allocated as directed
in this application and as explained in more detail in the prospectus. If
you decided to return the contract within the FREE LOOK PERIOD, USAA Life
will refund your money as explained in the contract.
INVESTMENT SUITABILITY INFORMATION
INVESTMENT OBJECTIVE:
[ ] Long-term growth [ ] Preservation of capital
[ ] Income [ ] Growth and Income
RISK TOLERANCE:
[ ] Aggressive [ ] Moderate [ ] Conservative
Before taking distributions, I plan to leave money in the Variable Annuity for
[ ] 1-10 years. [ ] 10-20 years [ ] 20 years or more.
Estimated annual income _______________ Tax bracket ____________
Estimated net worth _________________
COMMENCEMENT OF ANNUITY PAYMENTS
Unless you specify otherwise, you will begin receiving annuity payments by April
1/st/ of the year following the calendar year you reach the age of 70 1/2 and
the distribution must meet minimums in accordance with Internal Revenue Code
(IRC).
If you prefer, you may request an earlier date to begin receiving annuity
payments by specifying either a specific age or year below. You may amend this
election in the future in accordance with IRC guidelines and contract
provisions.
[ ] I wish to receive payments upon reaching age _______________.
[ ] I wish to begin receiving payments on the anniversary date of this contract
in the year _______________.
SPECIAL REQUESTS
_____________________________________________________
____________________________________________________
TELEPHONE AUTHORIZATION
I would like to authorize telephone transactions subject to the conditions and
limitations as set forth below.
[ ] Yes [ ] No
USAA Life will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, and only if we do not, will we be liable
for any losses because of unauthorized or fraudulent instructions. Information
will be obtained prior to any discussion regarding the contract including: 1)
USAA number or contract number, 2) the name of the Owner, and 3) Social
Security number of the Owner. In additions, all telephone communications with
an Owner are recorded and confirmations of all transactions are sent to the
Owner's address. We may modify, suspend or discontinue this telephone
transaction privilege at any time without prior notice. This authorization is
valid until written cancellation signed by the Owner is received by USAA Life.
ACKNOWLEDGMENT/AGREEMENT
I hereby apply for this SEP and/or SARSEP and represent this information is true
and correct. This application and payment to USAA Life Insurance Company
represent consideration for the issuance of the annuity.
I have received and read the prospectus for this Variable Annuity contract
including the prospectuses for the underlying Funds. I understand the
objectives of the Variable Annuity's accounts as explained in the prospectus and
have determined that my allocations are suitable investments based upon my needs
and financial situation.
I understand that the premium payment value allocated to the variable accounts
may increase or decrease and is not guaranteed as to a dollar amount with the
exception of the Fixed Fund Account whose principal and earnings are guaranteed
by USAA Life..
Dated at_______________________________________________________
(City, State)
this ________________day of ____________________________19,_____
X___________________________________________________________
SIGNATURE OF ANNUITANT
FOR HOME OFFICE USE
- ----------------------------------------------------------
SIGNATURE OF AGENT (FL, NC, MI ONLY)
- ----------------------------------------------------------
SIGNATURE OF REGISTERED PRINCIPAL DATE
AAP24747ST 7-94 (Over Please) 24747-0794
<PAGE>
[ ] Texas Optional Retirement Program (ORP)
[ ] 403(b) Tax-Sheltered Annuity (TSA) Plan
Please indicate plan(s) for which you are applying.
OWNER/ANNUITANT INFORMATION
(Please Print)
__________________________________________________________
Name (First, Middle, Last)
______________________________________________
Birthplace (State)
________/________/_______ _________ SEX: [ ] M
Birth Date (M/D/Y) Age [ ] F
__________-___________-____________
Social Security Number
______________________________________________
USAA Number (If you have one)
______________________________________________
City State Zip
(______)______________ (_____)__________________
Residence Phone Business Phone Ext.
- ----------------------------------------------------------------
Occupation
________________________________ (_____)_______________________
Name of Employer Phone
- ----------------------------------------------------------------
Employer's Address
- ----------------------------------------------------------------
City State Zip
Have you or your spouse ever been an officer in the U.S. Armed Forces?
[ ] Yes [ ] No
Have either of your parents or your spouse's parents ever been an officer in the
U.S. Armed Forces? [ ] Yes [ ] No
REPLACEMENT
Will the annuity applied for replace or change any life insurance or annuities
now in force? [ ] Yes [ ] No
If Yes, give company name(s) and details of the type of plans. (This information
is required by certain state insurance regulations.)
__________________________________________________________
__________________________________________________________
USAA
LIFE
INSURANCE
COMPANY
BENEFICIARY DESIGNATION
(Attach separate sheet if necessary)
___________________________________ ___________ SEX: [ ] M
Primary Beneficiary(ies) Age [ ] F
_______/________/________ ___________________________________
Birth Date (M/D/Y) Relationship to Annuitant
- -------------------------------------------------------------
SSN/Tax ID Number USAA Number (If you have one)
_________________________________________________________Address
- ----------------------------------------------------------------
City State Zip
___________________________________ ___________ SEX: [ ] M
Contingent Beneficiary(ies) Age [ ] F
_______/________/________ __________________________________
Birth Date (M/D/Y) Relationship to Annuitant
_____-_______-______ ____________________________________
SSN/Tax ID Number USAA Number (If you have one)
________________________________________________________________
Address
_________________________________ _________________ _____
City State Zip
SPECIAL REQUESTS
__________________________________________________________
__________________________________________________________
PAYMENT INFORMATION
ORP:
Salary Reduction $__________________($50 minimum)
[ ] Weekly [ ] Bi-weekly Monthly
[ ] Quarterly [ ] Annually
[ ] Amount of Transfer $_____________________________
[ ] I have forwarded transfer forms to current custodian.
[ ] Please send transfer forms to me.
.
TSA:
Salary Reduction $__________________($50 minimum)
[ ] Weekly [ ] Bi-weekly Monthly
[ ] Quarterly [ ] Annually
[ ] Amount of Transfer $_____________________________
[ ] I have forwarded transfer forms to current custodian.
[ ] Please send transfer forms to me.
AAP24747ST 7-94 (Over Please) 24747-0794
<PAGE>
INVESTMENT ALLOCATION
Please allocate all of my ORP premium payments to the variable annuity fund
accounts as shown below.
_______%Growth & Income _______%Diversified Assets
_______%World Growth _______%Money Market
_______%Scudder VLIF Capital Growth _______%Income
_______%Alger American Growth _______%Fixed Account
100% TOTAL
Please allocate all of my TSA premium payments to the variable annuity fund
accounts as shown below.
_______%Growth & Income _______%Diversified Assets
_______%World Growth _______%Money Market
_______%Scudder VLIF Capital Growth _______%Income
_______%Alger American Growth _______%Fixed Account
[ ] You may allocate your ORP and/or TSA premium payments to as many of the
accounts listed above as you like, in amounts no smaller than one tenth of a
percent as long as the total equals 100%. During the first year of
employment, your employer's ORP contribution will be allocated to the Fixed
Account.
[ ] If you are allocating any part of your initial premium payment to the Fixed
Account, it will go into that Account on the effective date of the contract.
If you are allocating your initial premium payment to variable annuity fund
accounts other than the VA Money Market Fund Account, that portion of your
premium payment will be allocated to the VA Money Market Fund Account for a
period equal to the FREE LOOK PERIOD stated in your contract plus five days.
At the end of the period, the premium payment will be allocated as directed
in this application and as explained in more detail in the prospectus. If
you decide to return the contract within the FREE LOOK PERIOD, USAA Life
will refund your money as explained in the contract.
INVESTMENT SUITABILITY INFORMATION
INVESTMENT OBJECTIVE:
[ ] Long-term growth [ ] Preservation of capital
[ ] Income [ ] Growth and Income
RISK TOLERANCE:
[ ] Aggressive [ ] Moderate [ ] Conservative
Before taking distributions, I plan to leave my money in the Variable Annuity
for
[ ] 1-10 years. [ ] 10-20 years [ ] 20 years or more.
Estimated annual income _______________ Tax bracket ____________
Estimated net worth _________________
TELEPHONE AUTHORIZATION
I would like to authorize telephone transactions subject to the conditions and
limitations as set forth below.
[ ] Yes [ ] No
USAA Life will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, and only if we do not, will we be liable
for any losses because of unauthorized or fraudulent instructions. Information
will be obtained prior to any discussion regarding the contract including: 1)
USAA number or contract number, 2) the name of the Owner, and 3) Social
Security number of the Owner. In addition, all telephone communications with an
Owner are recorded and confirmations of all transactions are sent to the Owner's
address. We may modify, suspend or discontinue this telephone transaction
privilege at any time without prior notice. This authorization is valid until
written cancellation signed by the Owner is received by USAA Life.
COMMENCEMENT OF ANNUITY PAYMENTS
Unless you specify otherwise, you will begin receiving annuity payments by April
1/st/ of the year following the calendar year you reach the age of 70 1/2 and
the distribution must meet minimums in accordance with Internal Revenue Code
(IRC).
If you prefer, you may request an earlier date to begin receiving annuity
payments by specifying either a specific age or year below. You may amend this
election in the future in accordance with IRC guidelines and contract
provisions.
[ ] I wish to receive payments upon reaching age _______________.
[ ] I wish to begin receiving payments on the anniversary date of this contract
in the year _______________.
ACKNOWLEDGMENT/AGREEMENT
I hereby apply for this ORP and/or TSA and represent this information is true
and correct. This application and payment to USAA Life Insurance Company
represent consideration for the issuance of the annuity.
If I am applying for a Texas ORP, I acknowledge that I understand the
restrictions on redemptions of premium payments and the earnings thereon imposed
by Section 403(b) of the IRC and by Texas law. I also acknowledge that I
understand that there may be other investment alternatives available under my
employer's ORP arrangement to which I may elect to transfer my contract value.
I have received a current prospectus for this contract including the
prospectuses for the underlying Funds, and acknowledge that it includes an
explanation of the withdrawal restrictions imposed by the IRC and by Texas law.
If I am also applying for a TSA, I acknowledge that I understand the
restrictions on redemptions of premium payments and the earnings thereon imposed
by Section 403(b) of the IRC. I also acknowledge that I understand that there
may be other investment alternatives available under my employer's Section
403(b) arrangement to which I may elect to transfer my contract value. I have
received a current prospectus for this contract including the prospectuses for
the underlying Funds, and acknowledge that it includes an explanation of the
withdrawal restrictions imposed by the IRC.
I understand the objectives of the Variable Annuity's funds as explained in the
prospectuses and have determined that my allocations are suitable investments
based upon my needs and financial situation.
I understand that the premium payments value allocated to the variable annuity
fund accounts may increase or decrease and is not guaranteed as to a dollar
amount with the exception of the Fixed Fund Account whose principal and earnings
are guaranteed by USAA Life.
Dated at_______________________________________________________
(City, State)
this ________________day of ____________________________19,_____
X___________________________________________________________
SIGNATURE OF ANNUITANT
FOR HOME OFFICE USE
AAP24748ST 7-94 (Over Please) 24748-0794
<PAGE>
SIGNATURE OF AGENT (FL, NC, MI ONLY)
- ----------------------------------- ------------------
SIGNATURE OF REGISTERED PRINCIPAL DATE
403(b) Tax-Sheltered
Annuity (TSA) Plan
OWNER/ANNUITANT INFORMATION
(Please Print)
__________________________________________________________
Name (First, Middle, Last)
________/________/_______ _________ SEX: [ ] M
Birth Date (M/D/Y) Age [ ] F
- ------------------------------------------------------------
Birthplace (State) Social Security Number
______________________________________________USAA
Number (If you already have one)
______________________________________________Residence Address
- ---------------------------------------------------------------
City State Zip
(______)______________ (_____)_________________________
Residence Phone Business Phone Ext.
- ---------------------------------------
Occupation
__________________________________________________________
Name of Employer
______________________________________________
Employer's Address
______________________ __________ __________
City State Zip
(______)___________________________________________________
Employer Phone
Have you or your spouse ever been an officer in the U.S. Armed Forces?
[ ] Yes [ ] No
Have either of your parents or your spouse's parents ever been an officer in the
U.S. Armed Forces? [ ] Yes [ ] No
SPECIAL REQUESTS
__________________________________________________________
__________________________________________________________
__________________________________________________________
USAA
LIFE
INSURANCE
COMPANY
BENEFICIARY DESIGNATION
(Attach separate sheet if necessary)
______________________________________________________________
Name of Primary Beneficiary(ies) (First, Middle, Last)
_______/________/________ ___________ SEX: [ ] M
Birth Date (M/D/Y) Age [ ] F
- --------------------------------------------------------------
Social Security Number Relationship to Annuitant
_________________________________________________________ Residence Address
- ---------------------------------------------------------------------------
City State Zip
- ---------------------------------------------------------------------------
Name of Contingent Beneficiary (First, Middle, Last)
_______/________/________ ___________ SEX: [ ] M
Birth Date (M/D/Y) Age [ ] F
- ---------------------------------------------------------------------------
Social Security Number Relationship to Annuitant
_________________________________________________________ Residence Address
- ---------------------------------------------------------------------------
City State Zip
PAYMENT INFORMATION
Salary Reduction $__________________($50 minimum)
[ ] Weekly [ ] Bi-weekly [ ] Monthly
[ ] Quarterly [ ] Annually
[ ] Amount of Transfer $_____________________________
[ ] I have forwarded transfer forms to
current custodian
[ ] Please send transfer forms to me
REPLACEMENT
Will the annuity applied for replace or change any life insurance or annuities
now in force? [ ] Yes [ ] No
If Yes, give company name(s) and details of the type of plan. (This information
is required by certain state insurance regulations.)
__________________________________________________________
__________________________________________________________
AAP24748ST 7-94 (Over Please) 24748-0794
<PAGE>
INVESTMENT ALLOCATION
Please allocate all of my premium payments to the variable annuity fund accounts
as shown below.
_______%Growth & Income _______% World Growth
_______%Diversified Assets _______%Money Market
_______%Alger American Growth _______%Income
_______%Scudder VLIF _______%Fixed Account
_______%Capital Growth
100% TOTAL
[ ] You may allocate your premium payments to as many of the above accounts as
you like, in amounts no smaller than one tenth of a percent as long as the
total equals 100%.
[ ] If you are allocating any part of your initial premium payment to the Fixed
Account, it will go into that Account on the effective date of the contract.
If you are allocating your initial premium payment to variable annuity fund
accounts other than the VA Money Market Fund Account, that portion of your
premium payment will be allocated to the VA Money Market Fund Account for a
period equal to the FREE LOOK PERIOD stated in your contract plus five days.
At the end of the period, the premium payment will be allocated as directed
in this application and as explained in more detail in the prospectus. If
you decide to return the contract within the FREE LOOK PERIOD, USAA Life
will refund your money as explained in the contract.
INVESTMENT SUITABILITY INFORMATION
INVESTMENT OBJECTIVE:
[ ] Long-term growth [ ] Preservation of capital
[ ] Income [ ] Growth and Income
RISK TOLERANCE:
[ ] Aggressive [ ] Moderate [ ] Conservative
Before taking distributions, I plan to leave my money in the Variable Annuity
for
[ ] 1-10 years. [ ] 10-20 years [ ] 20 years or more.
Estimated annual income _______________ Tax bracket ____________
Estimated net worth _________________
COMMENCEMENT OF ANNUITY PAYMENTS
Unless you specify otherwise, you will begin receiving annuity payments by April
1/st/ of the year following the calendar year you reach the age of 70 1/2. The
amount of the distribution must meet minimums in accordance with Internal
Revenue Code (IRC).
If you prefer, you may request an earlier date to begin receiving annuity
payments by specifying either a specific age or year below. You may amend this
election in the future in accordance with IRC guidelines and contract
provisions.
[ ] I wish to receive payments upon reaching age _______________.
[ ] I wish to begin receiving payments on the anniversary date of this contract
in the year _______________.
TELEPHONE AUTHORIZATION
I would like to authorize telephone transactions subject to the conditions and
limitations as set forth below.
[ ] Yes [ ] No
USAA Life will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine, and only if we do not, will we be liable
for any losses because of unauthorized or fraudulent instructions. Information
will be obtained prior to any discussion regarding the contract including: 1)
USAA number or contract number, 2) the name of the Owner, and 3) Social
Security number of the Owner. In addition, all telephone communications with an
Owner are recorded and confirmations of all transactions are sent to the Owner's
address. We may modify, suspend or discontinue this telephone transaction
privilege at any time without prior notice. This authorization is valid until
written cancellation signed by the Owner is received by USAA Life.
ACKNOWLEDGMENT/AGREEMENT
I hereby apply for this TSA and represent this information is true and correct.
This application and payment to USAA Life Insurance Company represent
consideration for the issuance of the annuity.
I acknowledge that I understand the restrictions on redemptions of premium
payments and the earnings thereon imposed by Section 403(b) of the IRC. I also
acknowledge that I understand that there may be other investment alternatives
available under my employer's Section 403(b) arrangement to which I may elect to
transfer my contract value.
I have received a current prospectus for this contract including the
prospectuses for the underlying Funds, and acknowledge that it includes an
explanation of the withdrawal restrictions imposed by the IRC.
I understand the objectives of the Variable Annuity's accounts as explained in
the prospectus and have determined that my allocations are suitable investments
based upon my needs and financial situation.
I understand that the premium payment value allocated to the variable annuity
fund accounts may increase or decrease and is not guaranteed as to a dollar
amount with the exception of the Fixed Fund Account whose principal and earnings
are guaranteed by USAA Life.
Dated at_______________________________________________________
(City, State)
this ________________day of ____________________________19,_____
X___________________________________________________________
SIGNATURE OF ANNUITANT
FOR HOME OFFICE USE
________________________________________________________________
SIGNATURE OF AGENT (FL, NC, MI ONLY)
________________________________________________________________
SIGNATURE OF REGISTERED PRINCIPAL DATE
AAP24748ST 7-94 (Over Please) 24748-0794
<PAGE>
EXHIBIT 5(B)
[USAA logo] USAA LIFE INSURANCE COMPANY
VARIABLE ANNUITY
TELEPHONE AUTHORIZATION PRIVILEGE
---------------------------------
REQUEST TO ADD
--------------
I HEREBY AUTHORIZE TELEPHONE TRANSACTIONS SUBJECT TO THE CONDITIONS AND
LIMITATIONS AS SET FORTH BELOW.
USAA LIFE WILL EMPLOY REASONABLE PROCEDURES TO CONFIRM THAT INSTRUCTIONS
COMMUNICATED BY TELEPHONE ARE GENUINE, AND ONLY IF WE DO NOT, WILL WE BE
LIABLE FOR ANY LOSSES BECAUSE OF UNAUTHORIZED OR FRAUDULENT INSTRUCTIONS.
INFORMATION WILL BE OBTAINED PRIOR TO ANY DISCUSSION REGARDING THE CONTRACT
INCLUDING: 1) USAA NUMBER AND/OR CONTRACT NUMBER, 2) THE NAME OF THE OWNER,
AND 3) SOCIAL SECURITY NUMBER OF THE OWNER. IN ADDITION, ALL TELEPHONE
COMMUNICATIONS WITH AN OWNER ARE RECORDED AND CONFIRMATIONS OF ALL
TRANSACTIONS ARE SENT TO THE OWNER'S ADDRESS.
WE MAY MODIFY, SUSPEND OR DISCONTINUE THIS TELEPHONE TRANSACTION PRIVILEGE
AT ANY TIME WITHOUT PRIOR NOTICE. THIS AUTHORIZATION IS VALID UNTIL WRITTEN
CANCELLATION SIGNED BY THE OWNER IS RECEIVED BY USAA LIFE.
USAA NUMBER: __________________________ PLEASE SIGN BELOW EXACTLY AS YOUR
NAME APPEARS ON YOUR CONTRACT
CONTRACT NUMBER: _______________________
SIGNATURE OF CONTRACT OWNER:
_____________________________________
PRINT NAME OF CONTRACT OWNER:
________________________________________
DATE:________________________________
CORPORATE TITLE OR LEGAL DESIGNATION WHEN
ACTING FOR ANOTHER:
_________________________________________
PLEASE SEND TO: USAA LIFE INSURANCE COMPANY
VARIABLE SERVICE OFFICE
9800 FREDERICKSBURG ROAD
SAN ANTONIO, TEXAS 78288-0156
USAA Life Variable Service Office 9800 Fredericksburg Road, San Antonio, Texas
78288-0156 Toll Free 1-800-531-4265
24921-0398
----------
LVA705ST
<PAGE>
[USAA logo] USAA LIFE INSURANCE COMPANY
VARIABLE ANNUITY
TELEPHONE AUTHORIZATION PRIVILEGE
---------------------------------
REQUEST TO CANCEL
-----------------
I HEREBY REQUEST THAT USAA LIFE REMOVE TELEPHONE AUTHORIZATION PRIVILEGE WHICH
ALLOWED TELEPHONE TRANSACTIONS TO BE REQUESTED AND PROCESSED SUBJECT TO THE
CONDITIONS AND LIMITATIONS AS PREVIOUSLY SET FORTH, ANY FUTURE TRANSACTION
REQUESTS MUST BE SUBMITTED IN WRITING.
INFORMATION OBTAINED PRIOR TO ANY VERBAL DISCUSSION REGARDING THE CONTRACT
WILL STILL INCLUDE: 1) USAA NUMBER AND/OR CONTRACT NUMBER, 2) THE NAME OF THE
OWNER, AND 3) SOCIAL SECURITY NUMBER OF THE OWNER. IN ADDITION, ALL TELEPHONE
COMMUNICATIONS WITH AN OWNER ARE RECORDED AND CONFIRMATIONS OF ALL
TRANSACTIONS ARE SENT TO THE OWNER'S ADDRESS.
THIS REMOVAL OF THE TELEPHONE AUTHORIZATION PRIVILEGE IS VALID UNTIL A
WRITTEN REQUEST SIGNED BY THE OWNER TO ADD THE AUTHORIZATION IS RECEIVED BY
USAA LIFE.
USAA NUMBER: _________________________ PLEASE SIGN BELOW EXACTLY AS YOUR
NAME APPEARS ON YOUR CONTRACT
CONTRACT NUMBER: ______________________
PRINT NAME OF CONTRACT OWNER: SIGNATURE OF CONTRACT OWNER:
_______________________________________ ___________________________________
DATE: _____________________________
CORPORATE TITLE OR LEGAL DESIGNATION WHEN
ACTING FOR ANOTHER:
___________________________________________
PLEASE SEND TO: USAA LIFE INSURANCE COMPANY
VARIABLE SERVICE OFFICE
9800 FREDERICKSBURG ROAD
SAN ANTONIO, TEXAS 78288-0156
USAA Life Variable Service Office 9800 Fredericksburg Road, San Antonio, Texas
78288-0156 Toll Free 1-800-531-4265
31482-0398
----------
LVA708ST
<PAGE>
[USAA logo] USAA LIFE INSURANCE COMPANY VARIABLE ANNUITY EXHIBIT 5(C)
AGREEMENT FOR EXCHANGE OF INSURANCE AND NONQUALIFIED ANNUITY CONTRACTS
UNDER SECTION 1035 OF INTERNAL REVENUE CODE
USAA number ________________________
Social Security number _________________________
ATTACH THIS FORM AND YOUR CURRENT CONTRACT TO YOUR APPLICATION
FOR THE USAA LIFE VARIABLE ANNUITY.
I, _____________________________________, the undersigned, own the following:
POLICY/CONTRACT ISSUED BY: ADDRESS: INSURED/ANNUITANT'S NAME
NUMBER:
- ---------------- -------------- ---------------- ------------------------
- ---------------- -------------- ---------------- ------------------------
- ---------------- -------------- ---------------- ------------------------
collectively called "Old Contract(s)" which I hereby agree to exchange pursuant
to Section 1035 of the Internal Revenue Code for a USAA Life Variable Annuity,
called "New Contract," if USAA Life Insurance Company ("USAA Life") approves my
application, dated _____________________ for the New Contract and I accept it.
In consideration of USAA Life's furnishing this form and assisting me with the
exchange of contracts under Section 1035 of the Internal Revenue Code, I hereby
further represent and agree as follows:
At the time of the exchange, is the Old Policy a Modified Endowment Contract
(MEC) under Internal Revenue Code Section 7702A? [ ] YES [ ] NO
1. OWNERSHIP OF OLD CONTRACT(S)
I am the sole owner of the Old Contract(s). No other person (including
fiduciaries whether or not court-appointed), firm, corporation or
governmental unit has any legal or equitable claim or interest in or against
the Old Contract(s), except as follows (describe):
NOTE: COLLATERAL ASSIGNEES, IRREVOCABLE BENEFICIARIES, ETC., MUST SIGN ON
BACK OF FORM AS INDICATED.
2. ABSOLUTE ASSIGNMENT OF OLD CONTRACT(S)
I hereby assign, irrevocably transfer and deliver the Old Contract(s) described
above to USAA Life Insurance Company, Federal ID #74-1472662, together with
all right, title and interest therein and thereto. My copy of this form is my
receipt for the Old Contract(s).
3. USAA LIFE WILL NOT PAY PREMIUMS ON OLD CONTRACT(S)
I understand and agree that USAA Life is not obligated to and will not make
any premium payments on the Old Contract(s). Therefore, I further agree for
myself, my heirs and assigns that USAA Life is not liable if the Old
Contract(s) lapses for non-payment of premiums. I understand that if the Old
Contract(s) is reassigned to me under the terms of Paragraph 5, and it has
lapsed because premiums have not been paid, I can reinstate it only if the terms
of the Old Contract(s) permit it to be reinstated.
4. SURRENDER OF OLD CONTRACT(S)
I understand and agree that:
USAA Life will apply for the surrender of the Old Contract(s) for its cash
value. Upon receipt of the cash proceeds, USAA Life will issue a New Contract
for delivery to me. USAA Life will apply the entire cash surrender value or a
portion thereof that it receives from the Old Contract(s) as a non-repeating
premium for the New Contract issued by USAA Life.
5. REASSIGNMENT OF OLD CONTRACT(S)
In the event:
[ ] I refuse to accept the New Contract; or
[ ] I return the New Contract to USAA Life under the Free Look Provision
of the New Contract; then this Agreement shall be null and void and
USAA Life shall reassign the Old Contract(s) to me or my legal
representative, whereupon USAA Life shall have no further obligation
with respect to the Old Contract(s).
I UNDERSTAND THAT AFTER THE SURRENDER DATE, THE OLD CONTRACT(S) CANNOT BE
RETURNED TO ME AND THAT NO DEATH BENEFIT WILL BE PAID UNDER IT.
"THE USAA LIFE VARIABLE ANNUITY IS DISTRIBUTED BY USAA INVESTMENT MANAGEMENT
COMPANY, A REGISTERED BROKER DEALER."
USAA LIFE VARIABLE SERVICE OFFICE 9800 FREDERICKSBURG ROAD, SAN
ANTONIO, TX 78288-0156 TOLL-FREE 1-800-531-4265
24922-0198
----------
LLL608ST
<PAGE>
6. OUTSTANDING CONTRACT LOAN CONSEQUENCES
If there are any loans on the cash value(s) in this/these contract(s), there
could be negative tax consequences and taxes could be owed on this
transaction. If a loan exists on the contract(s) being exchanged, call your
Sales Team at 1-800-292-8444.
7. ACKNOWLEDGMENT OF RESPONSIBILITY FOR TAX OBLIGATIONS
I understand and agree that USAA Life is furnishing this form and
participating in this transaction at my specific request. Accordingly, I am
not relying on USAA Life, its agents or employees for any tax advice
whatsoever with respect to this transaction. I understand that any tax
obligations resulting from this transaction are mine. Further, I assume any
and all risk with respect to the accomplishment of a valid Section 1035
exchange under the Internal Revenue Code.
I also request that the surrendering company send to USAA Life a report on
any taxable gain or loss on Old Contract(s).
8. I WOULD LIKE TO HAVE MY FUNDS SENT BY:
[ ] REGULAR MAIL [ ] CERTIFIED MAIL* [ ] FEDERAL EXPRESS* [ ] WIRE*
*I UNDERSTAND THE ORIGINATING COMPANY MAY CHARGE A FEE FOR THIS SERVICE
WHICH MAY BE DEDUCTED FROM MY BALANCE. THERE IS NO GUARANTEE THAT ALL
OPTIONS ARE AVAILABLE. CONTACT ORIGINATING COMPANY FOR FEES OR OPTIONS.
9. SIGNATURE AS REQUIRED:
<TABLE>
<CAPTION>
<S> <C>
SIGNED AT __________________________________________________ ON
_____________________________________________
(CITY AND STATE) (DATE)
X_________________________________________________
X______________________________________________
(OWNER) (WITNESS)
X_________________________________________________
X______________________________________________
(IRREVOCABLE BENEFICIARY, IF ANY) (COLLATERAL ASSIGNEE, IF ANY)
</TABLE>
FOR USAA LIFE VARIABLE ANNUITY OFFICE USE ONLY
Received and recorded by USAA Life Insurance Company:
Date: _________________________________ By:
_______________________________________________________________________
24922-0198
----------
LLL608ST
<PAGE>
EXHIBIT 6A
FORM A-119
STATE OF TEXAS
STATE BOARD OF INSURANCE
NO. 2487 [Seal of State of Texas appears here]
IT IS HEREBY CERTIFIED That the instrument which is here-
unto attached is a true, full and correct copy of
Original Articles of Incorporation of USAA LIFE INSURANCE COMPANY San
Antonio, Texas, as filed in the State Board of Insurance on June 26, 1963,
together with Official Order No. 13863 of the Commissioner of Insurance,
consisting of six (6) pages.
now on file in and forming a part of the records of the State Board of
Insurance.
IN WITNESS WHEREOF, I hereunto subscribe my name and affix the Seal of the
State Board of Insurance, in the City of Austin, State of Texas, this
26th day of June, 1963.
[Seal of State Board of Insurance appears here]
/s/ William A. Harrison
-------------------------
COMMISSIONER OF INSURANCE
By______________________________
<PAGE>
[Attorney General of Texas letterhead appears here]
Austin, June 25, 1963
CERTIFICATE
I hereby certify that the attached Original Articles of Incorporation of USAA
LIFE INSURANCE COMPANY together with all supporting documents, which were
heretofore approved by the order of the Commissioner of Insurance dated June 24,
1963, were submitted on the 24th day of June 1963 and, being examined only as to
formal compliance with the Constitution and laws of the State of Texas and not
as to solvency or financial condition, is in this respect in conformity with the
law of Texas.
/s / Waggoner Carr
------------------
WAGGONER CARR
Attorney General
[Seal appears here]
Filed with State Board of In-
surance of the State of
Texas This 26th
Day of June, 1963
Commissioner of Insurance
<PAGE>
ARTICLES OF INCORPORATION
OF
USAA LIFE INSURANCE COMPANY
We, the undersigned natural persons of the age of twenty-one years or
more, all of whom are citizens of the State of Texas, do hereby associate
ourselves for the purpose of forming a life, health and accident insurance
company pursuant to Chapter 3 of the Insurance Code of Texas, 1951, as
amended, and in furtherance of such purpose, do hereby adopt the following
Articles of Incorporation:
Article One.
The name of the corporation is USAA LIFE INSURANCE COMPANY.
Article Two.
The period of time for which the corporation is to exist shall be five hun-
dred years.
Article Three.
The purpose for which the corporation is organized is to transact a life,
health and accident insurance business as now or as hereafter permitted by
law.
Article Four.
The aggregate number of shares which the corporation shall have authority
to issue is twenty thousand (20,000) with a par value of One Hundred
($100.00) Dollars each, amounting in the aggregate to Two Million ($2, 000,
000.00) Dollars; of such aggregate amount not less than ten thousand (10,
000) shares with a par value of One Hundred ($100.00) Dollars each, amounting
to One Million ($1, 000, 000.00) Dollars, have been subscribed and fully
paid.
Article Five.
The location of the Home Office of the Company is in San Antonio, Bexar
County, Texas.
Article Six.
The number of directors constituting the initial Board of Directors is
thirteen, and the names and addresses of the persons who are to serve as
directors until the first annual meeting of the shareholders or until their
-1-
<PAGE>
successors are elected and qualified are:
<TABLE>
<CAPTION>
NAME ADDRESS
- ---- -------
<S> <C>
Lt. Col. Don H. Blanchard, USMC 431 Laramie Drive, San Antonio, Texas.
RADM Frank A. Brandley Naval Air Station, Corpus Christi, Tex.
Lt. Gen. James A. Briggs, USAF 1 Main Circle, Randolph AFB, Texas.
Col. Charles E. Cheever, USA-Ret. 4119 Broadway, San Antonio. Texas.
Maj. Gen. Elbert DeCoursey, USA-Ret. 114 W. Brandon Dr., San Antonio, Texas.
Capt. John L. Hatch, MC-USN Qtrs. A, U.S Navel Hosp., Corpus Christi, Texas.
Maj. Gen. W. T. Hudnell, USAF 108 Robbins Dr., San Antonio, Texas.
Brig. Gen. Walter A. Jensen, USA 11 Staff Post Road, Ft. Sam Houston, Tex.
Maj. Gen. John H. McCormick, USAF-Ret. 315 Northridge Dr., San Antonio, Texas.
Col. John E. Pluenneke, USAF-Ret. 3127 S. Valley View, San Antonio, Texas.
Brig. Gen. George M. Powell, MC-USA 167 Artillery Post, Ft. Sam Houston, Tex.
Maj. Gen. James L. Snyder, MC-USA 139 Medford Drive, San Antonio, Texas.
Maj. Gen. Prescott M. Spicer, USAF 100 Yount Circle, Lackland AFB, Texas.
</TABLE>
No director of the corporation shall qualify as such unless he shall be a
stockholder. At elections of directors, each share of stock entitled to vote
shall constitute only one vote, and multiplication of votes by the number of
directors to be elected, or cumulative voting, expressly is prohibited. The by-
laws of the Company shall prescribe the number of directors, which shall be
thirteen, which number may be increased or decreased from time to time by
amendment of the by-laws of the Company.
Article Seven.
The names and addresses of the incorporators are:
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
Colonel Charles E. Cheever 4119 Broadway, San Antonio, Texas.
Colonel Carlton G. Schenken 4119 Broadway, San Antonio, Texas.
Colonel Amel T. Leonard 4119 Broadway, San -Antonio, Texas.
</TABLE>
-2-
<PAGE>
Article Eight
The Company reserves the right to amend, alter or repeal any provision
contained in these Articles of Incorporation in the manner now or hereafter
provided by law.
IN WITNESS WHEREOF, we have hereunto set our hands this the 24th day of
April, A. D. , 1963.
/s/ Charles E. Cheever
-----------------------
/s/ Carlton G. Schenken
-----------------------
/s/ Amel T. Leonard
-----------------------
STATE OF TEXAS I
COUNTY OF BEXAR I
I, Mary B. Grossenbacher, a notary public, do hereby certify that on this
24th day of April 1963, personally appeared before me Colonel Charles E.
Cheever, Colonel Carlton G. Schenken and Colonel Amel T. Leorard, who each being
by me first duly sworn, severally declared that they are the persons who signed
the foregoing document as incorporators, and that the statements contained
therein are true and correct.
/s/ Mary B. Grossenbacher
-------------------------
Notary Public, Bexar County, Texas
Mary B. Grossenbacher
My commission expires June 1, 1963.
<PAGE>
No. 13863
OFFICIAL ORDER
of the
COMM!SSIONER OF INSURANCE
of the
STATE OF TEXAS
AUSTIN, TEXAS
Date June 24, 1963
Subject Considered:
USAA LIFE INSURANCE COMPANY
San Antonio, Texas
ORIGINAL INCORPORATION
General remarks and official action taken:
On this day, came on for consideration by the Commissioner of Insurance,
the application of Colonel Charles E. Cheever, Colonel Carlton G. Schenken
and Colonel Amel T. Leonard for approval of the Incorporation of USAA LIFE
INSURANCE COMPANY, San Antonio, Texas.
A public hearing on the application was held before the Commissioner of
Insurance on June 24, 1963, at 10:00 A.M., in the offices of the State Board
of Insurance, 1110 San Jacinto, Austin, Texas, at which hearing Colonel
Charles E. Cheever and Colonel Carlton G. Schenken, incorporators, and
Joe S. Moore, attorney, appeared and gave evidence and testimony in support
of the application.
At such hearing, evidence was presented that all of the incorporators are
adult residents of the State of Texas; that the proposed location of the
insurance company will be in San Antonio, Bexar County, Texas; that notice of
the hearing was published in a newspaper of general circulation in Bexar
County, Texas, ten (10) days in advance of the hearing; that the company
proposes to conduct a life, health and accident insurance business; that the
proposed capital will be TWO MILLION DOLLARS ($2,000,000) divided into Twenty
Thousand (20,000) shares of stock of the par value of ONE HUNDRED DOLLARS
($100) per share, and that the company will be possessed of paid in surplus
in the amount of ONE MILLION DOLLARS ($1,000,000); that not less than fifty
percent (50%) of the authorized capital stock has been subscribed in good
faith and fully paid for; that the capital and surplus is the bona fide
property of such company, and has been paid into the company; and that SIXTY-
ONE THOUSAND TWO HUNDRED FIFTY-FIVE DOLLARS AND FIFTY-FOUR CENTS ($61,255.54)
of such capital and surplus is cash on deposit with the Frost National Bank,
San Antonio, Texas, and that the remainder of such capital and surplus is in
the form of securities authorized by Article 3.02 of the Texas Insurance Code
and is in the hands of the incorporators.
From the evidence and testimony presented at such hearing, it appears to the
Commissioner that: (1) the minimum capital and surplus, as required by law,
is the bona fide property of the company; (2) the proposed officers,
directors and managing executives have sufficient insurance experience,
ability and standing to render success of the proposed company probable; and
(3) the applicants are acting in good faith.
<PAGE>
Commissioner's Order -2- Usaa Life
THEREFORE, premises considered, the Commissioner of Insurance hereby
approves the application and directs that the original Articles of
Incorporation of USAA LIFE INSURANCE COMPANY, San Antonio, Texas, be for
warded, in accordance with Article 3.04 of the Texas Insurance Code, to
the Attorney General of this State for his approval. Upon approval by the
Attorney General of the application, Articles of Incorporation, the affidavit
and the procedure and action thereon, and upon compliance by the company
with the procedures set forth in Article 3.04 and Article 3.06 of the Texas
Insurance Code, a full and thorough examination of the company will be
conducted. Certificate of Authority to transact business shall be issued
only after further order by the Commissioner of Insurance, after examination
of the company.
/s/ William A. Harrison
-----------------------
WILLIAM A. HARRISON
COMMISSIONER OF INSURANCE
Prepared by:
/s/ Clay Cotten
- ---------------
CLAY COTTEN
Legal Counsel
<PAGE>
CONTROL NO. YM910217
STATE BOARD OF INSURANCE
STATE OF TEXAS
[Seal of State of Texas appears here]
As the chief executive and administrative officer of the State Board of
Insurance, the Commissioner of Insurance is the official custodian of the
records of the agency. TEX. INS. CODE ANN. art. 1.09a, Texas Open Records Act
TEX. REV. CIV. STAT. ANN. art. 6252-17a (S)5(a). Pursuant to the power vested in
the Commissioner under article 1.09(g), the Commissioner authorizes such
deputies as are necessary to carry out the provisions of the Open Records Act.
As a duly authorized representative of the Commissioner of Insurance, I hereby
certify that the hereunto attached document is a true, complete and correct copy
of:
THE AMENDMENT TO THE ARTICLES OF INCORPORATION OF USAA LIFF INSURANCE
COMPANY, SAN ANTONIO, TEXAS, AND COMMISSIONER'S ORDER NO. 90-1939,
DATED DECEMBER 7, 1990, ALTOGETHER CONSISTING OF FIVE (5) PAGES.
Be it known that the official records of the State Board of Insurance contain a
copy of aforesaid instrument.
WITNESS MY HAND, and the seal of the Texas State Board of Insurance, this
14th day of December, 1990
A.W. POGUE
COMMISSIONER OF INSURANCE
BY: /s/ Beverly McVey
----------------
<PAGE>
No. 90-1939
OFFICIAL ORDER
of the
COMMISSIONER OF INSURANCE
of the
STATE OF TEXAS
AUSTIN, TEXAS
Date DEC 07, 1990
Subject Considered:
USAA LIFE INSURANCE COMPANY
San Antonio, Texas
CHARTER AMENDMENT
Docket No. 11030
General remarks and official action taken:
On this day came on for consideration by the Commissioners of Insurance,
pursuant to TEX. INS. CODE arts. 3.04 and 3.05 and TEX. BUS. CORP. ACT arts.
4.02, 4.04 and 9.10, the application of USAA LIFE INSURANCE COMPANY, San
Antonio, Texas, for the approval of amendment to its charter increasing the
authorized capital.
On November 21, 1990, a public hearing concerning the charter amendment
proposed by application was held before Will McCann, Hearings Officer, in the
offices of the State Board of Insurance, 1110 San Jacinto, Austin, Texas. The
Commissioner's staff was represented by Ira M. Goodrich, Staff Attorney. The
applicant was represented by Will D. Davis, Attorney, and Richard Halinski,
Assistant Vice President and Assistant Secretary, USAA LIFE INSURANCE
COMPANY.
Evidence in the form of exhibits and testimony was presented at the hearing.
The hearing was recessed and reconvened on November 27, 1990, at which time the
hearing was closed.
JURISDICTION
------------
The Commissioner of Insurance has jurisdiction over the application of USAA LIFE
INSURANCE COMPANY pursuant to TEX. INS. CODE arts. 3.04 and 3.05 and TEX. BUS.
CORP. ACT arts. 4.02, 4.04 and 9.10. The notice of hearing, dated November 6,
1990, was properly addressed and sent by certified mail, return receipt
requested, to the applicant, pursuant to TEX. REV. CIV. STAT. art. 6252-13a
(S)13. The notice of hearing contained a statement of the time, place and
nature of the hearing, and a statement of the matters asserted and of the legal
authority and jurisdiction under which the hearing was to be held.
<PAGE>
90-1939
COMMISSIONER'S ORDER
USAA LIFE INSURANCE COMPANY
PAGE 2 OF 3
FINDINGS OF FACT
----------------
Based upon the evidence presented at the hearing and the recommendation
of the Hearings Officer, the Commissioner of Insurance makes the following
findings of fact:
1. USAA LIFE INSURANCE COMPANY, San Antonio, Texas, is a domestic stock life
insurance company engaged in the business of insurance pursuant to the
provisions of Chapter 3 of the Insurance Code.
2. Action by the Board of Directors and the shareholder of USAA LIFE
INSURANCE COMPANY authorizing the proposed amendment as required and
permitted by TEX. INS. CODE arts. 3.04 and 3.05 and TEX. BUS. CORP. ACT
arts. 4.02, 4.04 and 9.10 has been evidenced to the Commissioner of
Insurance.
3. As a result of the amendment to Article IV of the Articles of
Incorporation, USAA LIFE INSURANCE COMPANY added a provision authorizing
the issuance of 200,000 shares of preferred stock with a par value of
$100.00 per share.
4. As a result of the amendment to Article IV of the Articles of
Incorporation, USAA LIFE INSURANCE COMPANY will increase its authorized
capital from $3,000,000.00 divided into 30,000 shares of common stock with
a par value of $100.00 per share to $23,000,000.00 divided into 30,000
shares of common stock with a par value of $100.00 per share and 200,000 of
preferred stock with a par value of $100.00 per share. The stated capital
will increase from $2,500,000.00 to $12,500,000.00 and will be effected by
the purchase of 100,000 shares of preferred stock by USAA FUNDING COMPANY,
an affiliate.
5. Upon approval of the charter amendment, 25,000 shares of common stock and
100,000 of preferred stock representing more than 50% of the authorized
capital stock will be issued and outstanding.
6. The proposed capital and surplus of USAA LIFE INSURANCE COMPANY is equal
to or exceeds the minimum requirements of capital and surplus provided in
the Insurance Code for a Chapter 3 company, and is the bona fide,
unconditional and unencumbered property of the company.
7. Testimony indicates that the officers, directors and managing executives
of USAA LIFE INSURANCE COMPANY possess sufficient insurance experience,
ability and standing to render the continued success of the company
probable.
8. Testimony indicates that USAA LIFE INSURANCE COMPANY is acting in
good faith.
<PAGE>
90-1939
COMMISSIONER'S ORDER
USAALIFE INSURANCE COMPANY
PAGE 3 OF 3
CONCLUSION OF LAW
-----------------
Based upon the foregoing findings of fact, the Commissioner of Insurance
makes the following conclusion of law:
The proposed amendment to the charter of USAA LIFE INSURANCE COMPANY, San
Antonio, Texas, has been evidenced to the Commissioner of Insurance, is
properly supported by the required documents and meets all the requirements
of law for its approval.
IT IS, THEREFORE, THE ORDER of the Commissioner of Insurance that the charter
amendment of USAA LIFE INSURANCE COMPANY, San Antonio, Texas, increasing its
authorized capital from $3,000,000.00 to $23,000,000.00 be, and the same is
hereby, approved.
/s/ A. W. Pogue
---------------
A. W. POGUE
COMMISSIONER OF INSURANCE
RECOMMENDED BY:
/s/ Will McCann
- ---------------
WILL McCANN
HEARINGS OFFICER
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF USAA LIFE INSURANCE COMPANY ("USAA LIFE")
Pursuant to the provisions of Article 3.05 of the Texas Insurance Code and
Article 4.04 of the Texas Business Corporation Act, the undersigned
corporation adopts the following Amendment to its Articles of
Incorporation.
ARTICLE I
The name of the corporation is USAA Life Insurance Company.
ARTICLE II
The following amendment to Article IV of the Articles of Incorporation was
adopted by the shareholders of the corporation on October 31, 1990.
The Amendment is in addition to the original and amended Article IV of the
Articles of Incorporation and the full text of the provision added is as
follows:
The aggregate number of shares of preferred stock which USAA Life
Insurance Company has the authority to issue is two hundred thousand
(200,000) shares of preferred stock with a par value of one hundred
dollars ($100.00) per share. The preferred shares authorized by this
Amendment to the Articles of Incorporation shall be issued from time to
time in series. The first series shall be designated Preferred Stock,
Series A of USAA Life Insurance Company. Authority to issue additional
series of such authorized preferred stock and the terms of such series
shall be determined by the Board of Directors at its discretion.
ARTICLE III
The number of common shares of the corporation issued and outstanding at
the time of such adoption was twenty-five thousand (25,000); and the
number of shares entitled to vote thereon was twenty-five thousand
(25,000). The number of shares voted for such Amendment was twenty-five
thousand (25,000); and the number of shares voted against such Amendment
was NONE.
ARTICLE IV
The holder of all the shares outstanding and entitled to vote on said
Amendment has signed a consent in writing adopting said Amendment.
<PAGE>
ARTICLE V
The proposed Amendment to Article IV of the Articles of Incorporation and
the subsequent issuance of Preferred Stock will increase the stated
capital of USAA Life Insurance Company from two million and five
hundred thousand $2,500,000.00) dollars to twelve million and five
hundred thousand ($12,500,000.00) dollars. The increase is the result
of the issuance and proposed sale of one hundred thousand (100,000) shares
of Preferred Stock, Series A, one hundred ($100.00) dollars par value.
This represents fifty (50%) percent of the two hundred (200,000) shares
authorized and issued for Preferred Stock, Series A of USAA Life Insurance
Company.
Dated: October 31, 1990.
USAA LIFE INSURANCE COMPANY
By: /s/ Edwin L. Rosane
-------------------
Edwin L. Rosane
President
By: /s/ R. T. Halinski, Jr.
-----------------------
R. T. Halinski, Jr.
Assistant Secretary
STATE OF TEXAS }
COUNTY OF BEXAR }
Before me, a notary public, on this day personally appeared Edwin L. Rosane
R. T. Halinski, Jr. , known to me to be one of the persons whose names are
subscribed to the foregoing document and, being by me first duly sworn,
declared that the statements therein contained are true and correct.
Given under my hand and seal of office this 31st day of October,
A.D. , 1990.
/s/ Loretta C. Lanicek
----------------------
(Printed or Stamped Named) Loretta C. Lanicek
Notary Public, State of Texas
My commission expires:
November 30, 1992
(NOTARY SEAL) #45783
<PAGE>
EXHIBIT 6(B)
BYLAWS OF USAA LIFE INSURANCE COMPANY
USAA LIFE INSURANCE COMPANY
San Antonio, Texas
AMENDED JANUARY 1, 1992
BYLAWS
OF
USAA LIFE INSURANCE COMPANY
A SUBSIDIARY OF UNITED SERVICES
AUTOMOBILE ASSOCIATION (USAA)
AS AMENDED JANUARY 1, 1992
(* DENOTES AMENDED SECTIONS)
<PAGE>
Amendments to Bylaws
Original Bylaws Adopted
July 24, 1963
First Amendment
September 22, 1965
Second Amendment
April 27, 1966
Third Amendment
April 26, 1967
Fourth Amendment
February 24, 1971
Fifth Amendment
April 29, 1972
Sixth Amendment
June 20, 1978
Seventh Amendment
April 17, 1980
<PAGE>
Eighth Amendment
November 13, 1980
Ninth Amendment
August 16, 1983
Tenth Amendment
November 23, 1988
Eleventh Amendment
January 1, 1992
<PAGE>
ARTICLE I
STOCK CERTIFICATES
SECTION 1. All certificates of capital stock shall be signed by the President
or a Vice President, and the Secretary, and shall be sealed with the corporate
seal.
SECTION 2. Transfers of capital stock shall be made only on the books of the
Company; and the old certificates, properly endorsed, shall be surrendered and
cancelled prior to the issuance of a new certificate.
SECTION 3. In the event of loss or destruction of a certificate of stock, no
new certificate shall be issued in lieu thereof except upon satisfactory proof
of such loss or destruction.
ARTICLE II
STOCKHOLDERS' MEETINGS
SECTION 1. The stockholders of this Company shall meet annually at the Home
Office of the Company, on a date on or before April 30 to be fixed each year by
the Board of Directors and the transaction of such other business as may be
brought before the meeting.
SECTION 2. Special meetings of stockholders of this Company may be called by
a majority of the Board of Directors or upon the written request of stockholders
representing a majority of the capital stock of the Company, on a date and at a
place fixed by the Board of Directors.
SECTION 3. Written notice of all meetings of stockholders shall be delivered
either
<PAGE>
personally or by mail not less than ten days, nor more than fifty days, in
advance thereof to each stockholder at his last address as shown on the
Company's record of stockholders. Such notices shall be mailed or delivered by
the President and they shall state the time, the place, and the purpose of any
special meeting.
*SECTION 4. The President of this Company shall preside at all meetings of
stockholders. In the event of the absence of such officer, a chairman shall be
elected from among those persons present. The Secretary of the Company shall act
as secretary for the meeting of stockholders. In the event of the absence of
such secretary, a secretary may be appointed by the President or by the Chairman
of the meeting.
SECTION 5. At all meetings of stockholders, each stockholder shall be
entitled to cast one vote for each share of stock held in his name, which vote
may be cast either in person or by proxy properly executed. All proxies shall be
in writing and shall be filed with the Secretary forty-eight (48) hours prior to
the hour of the meeting.
SECTION 6. A quorom for the transaction of business at any meeting of
stockholders shall consist of stockholders representing a majority of the number
issued and outstanding shares of the capital stock, either in person or by
proxy; but the stockholders present at any meeting, though less than a quorum,
may adjourn the meeting from time to time.
ARTICLE III
DIRECTORS
*SECTION 1. There shall be not less than seven directors, one of whom shall
be the
<PAGE>
President of the Company; the number of directors for the ensuing year to be
determined by the stockholders at each annual meeting.
*SECTION 2. The directors, except the President of the Company, shall be
elected at the Annual Stockholders' Meeting from among the members of USAA
resident in the United States, who are also officers of USAA or one of its
subsidiaries. Except as may otherwise be provided in the Bylaws, directors shall
hold office for one year.
SECTION 3. Any director who is absent from four consecutive meetings of the
Board shall automatically cease to hold the office of director.
SECTION 4. Unless a director resigns or is disqualified, he shall hold office
until his successor is elected and qualified.
SECTION 5. Any vacancy on the Board of Directors may be filled by the
stockholders at any special stockholders' meeting or by a majority of the
remaining directors even though a quorum does not remain, and the chosen
directors shall hold office until the next Annual Meeting of the Stockholders.
ARTICLE IV
ORGANIZATION AND MEETINGS OF THE
BOARD OF DIRECTORS
*SECTION 1. The Board of Directors shall elect, from Directors, a Chairman
and a Vice Chairman of the Board, who shall hold such offices until the meeting
of the Board of Directors
<PAGE>
following the next Annual Meeting of Stockholders, or until their successors are
elected and qualified. The Chairman shall be the presiding officer of the Board,
and may perform all of the duties usually incident to such an office.
*SECTION 2. There shall be no stated meetings of the Board of Directors except
one immediately after the Annual Meeting of the Stockholders for the purpose of
electing an Executive Committee for the ensuing year, and for the transaction of
such other business as may come before the meeting.
SECTION 3. Special meetings of the directors may be called by the President,
the Chairman of the Board, or by any three directors. The President or the
Secretary shall send advance written notice to each director at least five days
before any special meeting.
SECTION 4. Five directors shall constitute a quorum capable of transacting
any business that may come before the meeting, except as provided elsewhere in
the Bylaws.
ARTICLE V
POWERS AND DUTIES OF THE BOARD OF DIRECTORS
IN ADDITION TO THOSE COVERED ELSEWHERE
IN THESE BYLAWS
SECTION 1. The business management and affairs of the Company shall be under the
direction and control of the Board of Directors, as shall be its several
officers, agents, and employees, and the Board of Directors shall have authority
to authorize contracts, incur liabilities, expend or invest funds, and such
other matters and things connected with the conduct of the Company as they may
determine; subject always, however, to the right of the
<PAGE>
stockholders to direct and to control the Board of Directors in the exercise of
these powers, and to review, revise, approve or disapprove its prior acts, as
herein provided.
SECTION 2. The Board of Directors may grant special or general authority to
others, and may likewise withdraw such authority, all upon such terms and
conditions as the Board of Directors may determine.
SECTION 3. The funds of the Company shall be deposited in such banks as the
Board of Directors may determine, to be withdrawn only as may be determined by
the Board of Directors under general or special authority.
ARTICLE VI
OFFICERS
SECTION 1. The officers of the Company shall be a President, who shall be a
director, one or more Vice Presidents, a Secretary, and a Treasurer. Any two or
more offices may be held by the same person, except that the President and
Secretary shall not be the same person. The Board of Directors may appoint such
other officers as they may determine.
SECTION 2. The officers shall perform such duties as are customarily performed
by such officers of similar companies, and such others as may be imposed upon
them by the Board of Directors or stockholders. The President shall be the
managing officer of the Company.
SECTION 3. All officers shall be appointed by the Board of Directors and
shall hold office until their successors are appointed and qualified, unless
sooner removed at any time by a
<PAGE>
majority vote of the whole Board of Directors whenever in its judgment the best
interests of the Company will be served thereby, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
SECTION 4. The Board of Directors shall require officers, agents and
employees of the Company to be bonded in an amount and with a surety approved by
the Board, the expense of which shall be paid by the Company.
SECTION 5. The powers vested by the Board of Directors in any committee,
officer, agent or employee of the Company may be limited, altered or revoked by
the Board of Directors, through proper action at any meeting.
ARTICLE VII
EXECUTIVE COMMITTEE
SECTION 1. There shall be an Executive Committee to meet the emergency and
routine business demands of the Company with such powers as the Board of
Directors may delegate.
*SECTION 2. The Executive Committee shall consist of not less than three nor
more than five members elected from the Board of Directors by a majority vote of
the whole Board of Directors; except that, one of the members shall be the
President of the Company, who shall also be the Chairman of the Committee.
SECTION 3. The members of the Executive Committee shall be elected at the
meeting of the Board of Directors following the Annual Meeting of Stockholders.
Except as may otherwise be
<PAGE>
provided in the Bylaws, all members of the Executive Committee, except the
President, shall hold office for one year.
SECTION 4. Any vacancy on the Executive Committee may be filled by the Board
of Directors as otherwise provided by the Bylaws, and the chosen Committee
member shall serve until the meeting of the Board of Directors following the
next Annual Meeting of Stockholders.
SECTION 5. A majority of the Executive Committee shall constitute a quorum.
ARTICLE VIII
AMENDMENTS
SECTION 1. These Bylaws may be repealed, altered or amended at any regular or
special meeting of the stockholders, provided notice of such repeal, alteration
or amendment is given in the notice of such meeting.
ARTICLE IX
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 1. The Company shall indemnify any director or officer or former
director or officer of the Company, or any person who, while a director or
officer of the Company, is or was serving at the request of the Company as a
director, officer, partner, venturer, proprietor, trustee, employee, agent or
similar functionary of another foreign or domestic corporation, partnership,
joint venture, sole proprietorship, trust, employee benefit plan or other
enterprise, against judgments, penalties (including excise and similar taxes),
fines, settlements and
<PAGE>
reasonable expenses, including court costs and attorneys' fees, actually
incurred by such person in connection with any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative, arbitrative
or investigative, any appeal in such action suit or proceeding, and any inquiry
or investigation that could lead to such an action, suit or proceeding, in which
such person was, is, or is threatened to be named defendant or respondent
because of being or having been such director or officer of because of serving
or having served in such capacity at the request of the Company, in which case
indemnification shall be limited to reasonable expenses actually incurred by the
person in connection with such action, suit or proceedings, if the person (1)
conducted himself in good faith, (2) reasonably believed, in the case of conduct
in his official capacity as director, officer, agent or employee of the Company,
that his conduct was in the Company's best interests, and, in all other cases,
that his conduct was at least not opposed to the Company's best interests, and
(3) in the case of any criminal proceeding, had no reasonable cause to believe
his conduct was unlawful. Such person may not be indemnified for obligations
resulting from such action, suit or proceeding in which the person is found (1)
liable on the basis that personal benefit resulted from an action taken in the
person's official capacity, or (2) liable to the Company; provided, however,
that nothing in this Article shall be construed to limit the protection or the
rights afforded any director or officer or former director or officer or other
person entitled to indemnity hereunder under the Company's articles of
incorporation or bylaws (as either may be amended from time to time) or under
any agreement, insurance policy or vote of shareholders, or otherwise. In this
Article, "official capacity" shall, when used with respect to a director, mean
the elective or appointive office in the Company held by the officer or the
employment or agency relationship undertaken by the employee or agent in behalf
of the Company, but in each instance, does not include service for any other
foreign or domestic corporation or any partnership, joint venture, sole
proprietorship,
<PAGE>
trust, employee benefit plan, or other enterprise. Indemnification in all cases
not provided for in this Article shall be governed by the Texas Business
Corporation Act, as amended and in effect from time to time.
SECTION 2. Any indemnification or advance or expenses to a director in
accordance with this Article shall be reported in writing to the shareholders of
the Company with or before the notice or waiver of notice of the next meeting of
shareholders, or with or before the next submission to shareholders of a consent
to action without a meeting and, in any case, within the twelve-month period
immediately following the date of the indemnification or advance.
SECTION 3. The Company may purchase and maintain indemnity insurance with
respect to any obligations hereunder to the full extent permitted by law.
ARTICLE X
SECTION 1. The fiscal year of the Company shall be the calendar year.
ARTICLE XI
SECTION 1. The corporate seal, or any facsimile thereof, shall contain the
following legend:
USAA LIFE INSURANCE COMPANY, TEXAS
45470
<PAGE>
EXHIBIT 8(B)
SERVICE AGREEMENT
BY AND BETWEEN
USAA LIFE INSURANCE COMPANY
AND
USAA TRANSFER AGENCY CO.
D/B/A USAA SHAREHOLDER ACCOUNT SERVICES
<PAGE>
This Servicing Agreement (the "Agreement") made on the 3rd day of February,
1995, by and between USAA Life Insurance Company ("USAA Life") and USAA Transfer
Agency, Co., a Delaware corporation, doing business as USAA Shareholder Accounts
Services ("SAS").
RECITALS
--------
WHEREAS, USAA Life and SAS are each affiliates of the United Service
Automobile Association; and,
WHEREAS, USAA LIFE has, by agreement with Vantage Computer Services, Inc.
("Vantage"), dated July 5, 1994 (the "Vantage Agreement"), appointed Vantage as
its third party administrator for certain variable annuity contracts to be
issued by USAA Life ("Contracts"), including USAA Life's variable tax-sheltered
annuity contracts ("Variable TSAs"); and
WHEREAS, USAA Life wishes SAS to serve as a designated recipient of
applications and premiums paid with respect to Variable TSAs.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
1. Appointment of SAS
USAA Life appoints SAS to serve as a designated recipient of applications
and premiums paid with respect to Variable TSAs.
2. Duty of SAS
SAS shall receive applications and premiums paid with respect to Variable
TSAs, and direct such applications and premiums, in accordance with instructions
from USAA Life.
<PAGE>
3. Duty of USAA Life and SAS
USAA Life shall instruct SAS and SAS shall perform its duty pursuant to
Section 2, in accordance with: (a) the federal securities laws, including
without limitation the principles under such laws to make it unnecessary for SAS
to register as a broker-dealer under the Securities Exchange Act of 1934; (b)
all other applicable agreements relating to the Contracts, including without
limitation the Vantage Agreement and the Distribution and Administration
Agreement between USAA Life and USAA Investment Management Company, an affiliate
of SAS; and (3) the prospectus for the Contracts.
4. Reimbursement
USAA Life agrees to reimburse SAS for its reasonable expenses incurred in
discharging its duties assumed under this contract. USAA Life and SAS agree to
fully cooperate in creating and implementing reimbursement procedures.
5. Termination
This Agreement shall be effective as of the date first above written and
shall remain in full force and effect thereafter, provided, however, that either
party hereto may terminate this Agreement upon 60 days' prior written notice to
the other party.
6. Governing Law
This Agreement shall be interpreted in accordance with and governed by the
laws of the State of Texas.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.
<PAGE>
USAA LIFE INSURANCE COMPANY
BY: /s/ EDWIN L. ROSANE
--------------------------
EDWIN L. ROSANE, CLU, FLMI
President
USAA TRANSFER AGENCY CO. d/b/a
USAA SHAREHOLDER ACCOUNT
SERVICES
BY: /s/ JOSEPH H. L. JIMENEZ
------------------------
JOSEPH H. L. JIMENEZ
Vice President
10396
<PAGE>
EXHIBIT 8(C)
AMENDED AND RESTATED
UNDERWRITING AND ADMINISTRATIVE
SERVICES AGREEMENT
BY AND BETWEEN
USAA LIFE INSURANCE COMPANY
AND
USAA LIFE INVESTMENT TRUST
AND
USAA INVESTMENT MANAGEMENT COMPANY
<PAGE>
AMENDED AND RESTATED
UNDERWRITING AND ADMINISTRATIVE
SERVICES AGREEMENT
AGREEMENT made as of this 16th day of December, 1994, amended as of the 7th
day of February, 1997, and amended and restated as of the 26th day of February,
1998, by and between USAA Life Insurance Company, a stock life insurance company
organized under the laws of Texas (the "Company"), on its own behalf and on
behalf of the Separate Account of USAA Life Insurance Company and the Life
Insurance Separate Account of USAA Life Insurance Company, each an investment
account organized under the laws of Texas ("Account"), USAA Life Investment
Trust, a Delaware business trust (the "Trust"), and USAA Investment Management
Company, a registered investment adviser and a registered broker-dealer
organized as a corporation under the laws of Delaware (the "Underwriter").
WHEREAS, the Company will be the issuer of certain variable annuity
contracts (the "Contracts") and certain variable life insurance policies (the
"Policies"), will fund the Contracts and Policies through the respective
Accounts, wishes to invest the assets of each Account in shares of the Trust for
the benefit of the owners of the Contracts and Policies (the "Contractowners"),
and wishes to provide, directly or through agents, certain administrative and
other services for the Trust; and
WHEREAS, the Company will serve as the depositor of each Account, which
will be a unit investment trust registered as an investment company under the
Investment Company Act of 1940 (the "1940 Act"), and the security interests
deemed to be issued by each Account under the respective Contracts and Policies
will be registered as securities under the Securities Act of 1933 (the "1933
Act"); and
<PAGE>
WHEREAS, the Trust will be an open-end management investment company under
the 1940 Act, whose shares will be registered under the 1933 Act, and will make
its shares available for purchase exclusively by each Account and wishes to have
the Underwriter serve as its principal underwriter and the Company to provide,
directly or through agents, certain administrative and other services for the
Trust; and
WHEREAS, the Contracts and Policies funded through the respective Accounts
will provide for the allocation of net amounts among certain subaccounts of each
Account (hereinafter referred to as the "Shareholders" of the Trust) for
investment in such shares of the corresponding underlying funds of the Trust
(the "Funds") as may be designated from time to time in the prospectus and
statement of additional information of each Account (collectively, the "Account
Prospectus") for the respective Contracts and Policies, the selection of the
particular subaccount or subaccounts is to be made by the Contractowners, and
such selection may be changed in accordance with the terms of the Contracts and
Policies; and
WHEREAS, the Underwriter, an affiliate of the Company's parent, has agreed
to serve as investment adviser for the Trust pursuant to an investment advisory
agreement with the Trust, wishes to serve as principal underwriter for the
Trust, and has agreed to serve as the distributor for the Contracts and Policies
pursuant to an Amended and Restated Distribution and Administration Agreement
with the Company; and
WHEREAS, the Company, the Trust, and the Underwriter wish to allocate
certain expenses among themselves regarding the Trust and certain services to be
provided to the Trust.
NOW, THEREFORE, WITNESSETH: That, in consideration for the Trust's making
its shares available for purchase by the Company for each of its Accounts, for
the Company's and the Underwriter's providing services to the Trust and assuming
expenses in connection with providing such services, and for other good and
valuable consideration the
2
<PAGE>
receipt and sufficiency of which is hereby acknowledged, it is hereby agreed
between the parties as follows:
1. APPOINTMENT OF UNDERWRITER.
The Trust hereby appoints the Underwriter as the principal underwriter and
distributor of the Trust to sell its shares to each Account, and the Underwriter
hereby accepts such appointment.
2. EXCLUSIVE NATURE OF DUTIES.
The Underwriter shall be the exclusive representative of the Trust to act
as principal underwriter and distributor.
3. SALE AND REDEMPTION OF SHARES OF THE TRUST.
3.1 The Trust, during the term of this Agreement, shall sell shares of
each available Fund that the Company orders on behalf of each Account, based on
transactions under Contracts or Policies, at net asset value as set forth in the
Trust's Prospectus and Statement of Additional Information, as amended and in
effect from time to time (collectively, the "Prospectus"), and upon the terms
and conditions set forth below.
3.2 Any orders to purchase shares of an available Fund based on
transactions under Contracts or Policies will be effected at the Fund's net
asset value per share as of the close of business on the Business Day the order
is received by the Company or its designee, as agent for the Trust, provided
that such order is received prior to the time the Fund calculates its net asset
value on that Business Day. If such order is received after that time, the
order will be effected at the Fund's net asset value as of the close of business
on the next Business Day. Business Day shall mean any day on which the Trust
calculates the net asset value of its Funds pursuant to rules of the SEC and as
described in the Trust's Prospectus. Any orders to
3
<PAGE>
purchase shares of an available Fund not based on transactions under Contracts
or Policies will be effected at the Fund's net asset value per share next
computed after the order is received by the Trust.
3.3 The Trust will redeem for cash from the Company those full or
fractional shares of each Fund that the Company requests from time to time. The
Trust will effect any orders to redeem shares of an available Fund based on
transactions under Contracts or Policies at the Fund's net asset value per share
computed as of the close of business on the Business Day the order is received
by the Company or its designee, as agent for the Trust, provided that such order
is received prior to the time the Fund calculates its net asset value on that
Business Day. If such order is received after that time, the order will be
effected at the Fund's net asset value as of the close of business on the next
Business Day. Any orders to redeem shares of an available Fund not based on
transactions under Contracts or Policies will be effected at the Fund's net
asset value per share next computed after the order is received by the Trust.
3.4 The Trust reserves the right to pay any portion of a redemption in
kind of portfolio securities, if the Trust's board of trustees (the "Board of
Trustees") determines that it would be detrimental to the best interests of the
Shareholders to make a redemption wholly in cash.
3.5 No orders for the sale, redemption or repurchase of the Trust's shares
(nor payment for shares, in the case of a purchase) shall be transmitted to the
Underwriter. Sales, redemptions and repurchases shall be effected directly by
the Company or its designee as transfer agent of the Trust. Payment for shares
shall be transmitted by the Company or its designee directly to the Trust's
custodian. Redemption and repurchase proceeds shall be allocated by the Company
directly to the Trust's custodian.
3.6 The Trust shall have the right to suspend redemption of shares of any
Fund pursuant to the conditions set forth in the Prospectus. The Trust shall
also have the right to suspend the sale of shares of any or all of its Funds at
any time when it is authorized to
4
<PAGE>
suspend redemption of such shares, or at any other time when there shall have
occurred an extraordinary event or circumstance which, in the reasonable
judgment of the Trust, makes it impractical or inadvisable to continue to sell
any such shares.
3.7 The Trust shall give the Underwriter prompt notice of any such
suspension and shall promptly furnish such other information in connection with
the sale and redemption of Trust shares as the Underwriter reasonably requests.
3.8 The Board of Trustees may refuse to sell shares of any Fund to the
Company, or suspend or terminate the offering of shares of any Fund, if such
action is required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Trustees, acting in good faith and in light of
their fiduciary duties under Federal and any applicable state laws, necessary
in the best interests of the Shareholders of the Trust.
3.9 The Trust agrees that its shares shall be sold only to the Company.
No shares of any Fund may be sold to the general public or to any life insurance
company other than the Company.
3.10 Issuance and transfer of the Trust's shares shall be by book entry
only. Stock certificates shall not be issued to the Company. Shares ordered
from the Trust shall be recorded in an appropriate title for the Company.
3.11 The Trust shall furnish notice promptly to the Company of any income,
dividends or capital gain distributions payable on the shares of any Fund. The
Company hereby elects to receive all such income, dividends and capital gain
distributions as are payable on Fund shares in additional shares of that Fund.
The Company reserves the right to revoke this election and to receive all such
income, dividends and capital gain distributions in cash. The Trust shall
notify the Company of the number of shares so issued as payment of such income,
dividends and distributions.
3.12 The Trust shall make the net asset value per share for each Fund
available to the Company or its designee each day Monday through Friday, except
days on which the New
5
<PAGE>
York Stock Exchange is closed, as soon as reasonably practical after the net
asset value per share is calculated.
3.13 The Trust may establish additional Funds to provide additional
funding media for the Contracts or Policies, or delete, combine, or modify
existing Funds. The shares of any additional Fund may be made available to an
Account by the Trust, pursuant to the terms of this Agreement, and any
applicable reference to any Fund, the Trust or its shares herein shall include a
reference to any such additional Fund.
4. LEGAL COMPLIANCE.
4.1 TAX LAWS.
(a) The Trust represents that it shall make every effort to qualify and to
maintain qualification of each Fund as a regulated investment company ("RIC")
under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), and the Trust or the Underwriter shall notify the Company immediately
upon having a reasonable basis for believing that a Fund has ceased to so
qualify or that it might not so qualify in the future.
(b) The Company represents that it believes, in good faith, that the
Contracts and Policies will be treated, respectively, as annuity contracts and
life insurance policies under applicable provisions of the Code and that it will
make every effort to maintain such treatment. The Company shall notify the
Trust and the Underwriter immediately upon having a reasonable basis for
believing that any of the Contracts or Policies have ceased to be so treated or
that they might not be so treated in the future.
(c) The Trust represents that it shall make every effort to comply and to
maintain each Fund's compliance with the diversification requirements set forth
in Section 817(h) of the Code and Section 1.817-5(b) of the regulations under
the Code, and the Trust or the Underwriter shall notify the Company immediately
upon having a reasonable basis for
6
<PAGE>
believing that a Fund has ceased to so comply or that a Fund might not so comply
in the future.
(d) The Company represents that it believes, in good faith, that each
Account is a "segregated asset account" and that interests in each Account are
offered exclusively through the purchase of or transfer into a "variable
contract," within the meaning of such terms under Section 817(h) of the Code and
the regulations thereunder. The Company shall make every effort to continue to
meet such definitional requirements, and it shall notify the Trust and the
Underwriter immediately upon having a reasonable basis for believing that such
requirements have ceased to be met or that they might not be met in the future.
(e) The Trust represents that, under the terms of its investment advisory
agreement with the Underwriter, which also serves as the investment adviser to
the Trust, the Underwriter is and shall be responsible for managing the Trust in
compliance with the Trust's investment objectives, policies and restrictions as
set forth in the Prospectus. The Trust represents that these objectives,
policies and restrictions do and shall include operating as (i) a RIC in
compliance with Subchapter M and (ii) in compliance with Section 817(h) of the
Code and regulations thereunder. The Trust has adopted and shall maintain
procedures for ensuring that the Trust is managed in compliance with Subchapter
M and Section 817(h) of the Code and the regulations thereunder. On request,
the Trust shall also provide the Company with such materials, cooperation and
assistance as may be reasonably necessary for the Company or any person
designated by the Company to review from time to time the procedures and
practices of the Underwriter, or any other provider of services to the Trust for
ensuring that the Trust is managed in compliance with Subchapter M and Section
817(h) of the Code and the regulations thereunder.
(f) The Trust shall furnish to the Company on a regular basis reports of
all of the investments of each Fund in a form sufficient to permit the Company
to determine whether each Fund is in compliance with the diversification
requirements of Section 817(h) of the
7
<PAGE>
Code and the regulations thereunder and shall take immediate action, on learning
through its own monitoring, or on advice from the Company, that any Fund is not
in compliance with such requirements, to return to compliance with such
requirements.
(g) If any Fund is found not to comply with the diversification
requirements at the end of a calendar quarter and the 30-day grace period
allowed under the Code regulations, the Trust shall take all appropriate efforts
immediately to restore any such Fund to compliance and shall fully cooperate
with the Company in any effort to correct such diversification failure under
procedures now or hereafter established by the Internal Revenue Service,
including those set forth in Revenue Procedure 92-25.
(h) Any additional income tax that is payable by a Contractowner, with any
applicable interest and penalty thereon, as a result of the failure of any Fund
to comply with either Subchapter M or Section 817(h) of the Code and the
regulations thereunder, shall be borne by the Company.
4.2 INSURANCE AND CERTAIN OTHER LAWS.
(a) The Trust will use its best efforts to comply with any applicable
state insurance laws or regulations, to the extent specifically requested in
writing by the Company.
(b) The Company represents and warrants that (i) it is an insurance
company duly organized, validly existing and in good standing under the laws of
the State of Texas and has full corporate power, authority and legal right to
execute, deliver and perform its duties and comply with its obligations under
this Agreement, (ii) it has legally and validly established and maintains each
Account as a segregated asset account under the Texas Insurance Code, and (iii)
the Contracts or Policies comply in all material respects with all other
applicable Federal and state laws and regulations.
(c) The Company and the Underwriter represent and warrant that the
Underwriter is a business corporation duly organized, validly existing, and in
good standing under the laws of
8
<PAGE>
the State of Delaware and has full corporate power, authority and legal right to
execute, deliver, and perform its duties and comply with its obligations under
this Agreement.
(d) The Underwriter and the Trust represent and warrant that the Trust is
a business trust duly organized, validly existing, and in good standing under
the laws of Delaware and has full power, authority, and legal right to execute,
deliver, and perform its duties and comply with its obligations under this
Agreement.
4.3 SECURITIES LAWS.
(a) The Company represents and warrants that (i) it has registered each
Account as a unit investment trust in accordance with the provisions of the 1940
Act to serve as a segregated investment account for its variable annuity
contracts and variable life insurance policies, respectively, (ii) each Account
shall comply in all material respects with the requirements of the 1940 Act and
the rules thereunder, (iii) each Account's 1933 Act registration statement
relating, respectively, to the Contracts and Policies, together with any
amendments thereto, shall at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder, and (iv) each Account
Prospectus shall at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder.
(b) The Trust and the Underwriter represent and warrant that (i) Trust
shares sold pursuant to this Agreement shall be registered under the 1933 Act to
the extent required by the 1933 Act and duly authorized for issuance and sold in
compliance with Delaware law, (ii) the Trust is and shall remain registered
under the 1940 Act to the extent required by the 1940 Act, and (iii) the Trust
shall amend the registration statement for its shares under the 1933 Act and
itself under the 1940 Act from time to time as required in order to effect the
continuous offering of its shares.
9
<PAGE>
(c) The Trust represents and warrants that (i) the Trust shall comply in
all material respects with the requirements of the 1940 Act and the rules
thereunder, (ii) its 1933 Act registration statement, together with any
amendments thereto, shall at all times comply in all material respects with the
requirements of the 1933 Act and rules thereunder, and (iii) the Prospectus
shall at all times comply in all material respects with the requirements of the
1933 Act and the rules thereunder.
(d) The Trust shall register and qualify its shares for sale in accordance
with the laws of any state or other jurisdiction only if and to the extent
reasonably deemed advisable by the Trust or the Company.
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
The Underwriter or the Trust shall immediately notify the Company of (i)
the issuance by any court or regulatory body of any stop order, cease and desist
order, or other similar order with respect to the Trust's registration statement
under the 1933 Act or the Prospectus, (ii) any request by the Securities and
Exchange Commission (the "SEC") for any amendment to such registration statement
or Prospectus, (iii) the initiation of any proceedings for that purpose or for
any other purpose relating to the registration or offering of the Trust's
shares, or (iv) any other action or circumstances that may prevent the lawful
offer or sale of Trust shares in any state or jurisdiction, including, without
limitation, any circumstances in which (x) the Trust's shares are not registered
and, in all material respects, issued and sold in accordance with applicable
state and Federal law or (y) such law precludes the use of such shares as an
underlying investment medium of the Contracts or Policies issued or to be issued
by the Company. The Underwriter and the Trust shall make every reasonable
effort to prevent the issuance of any stop order, cease and desist order or
similar order and, if any such order is issued, to obtain the lifting thereof at
the earliest possible time.
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5. DUTIES OF THE TRUST.
5.1 The Trust shall furnish to and at the request of the Underwriter (paid
for by the Company as set forth in Section 8.3) copies of the Prospectus, and
all information, financial statements and other papers for use in connection
with the distribution of shares of the Trust directly to each Account and, as
conceptualized by the SEC, to the Contractowners.
5.2 The Trust shall furnish directly to Shareholders and, as
conceptualized by the SEC, to the Contractowners (paid for by the Company as set
forth in Section 8.3) copies of annual and interim reports of the Trust.
5.3 The Trust shall provide such documentation, including a copy of any
proxy material, reports to Shareholders, and other communications to
Shareholders and other assistance as is reasonably necessary in order for the
Company or its designee to timely distribute the proxy material, reports to
Shareholders, and other communications.
5.4 The Trust reserves the right to take all actions, including but not
limited to the dissolution, merger, and sale of all assets of the Trust solely
upon the authorization of its Board of Trustees.
5.5 The Trust shall furnish, or shall cause to be furnished, to the
Company or its designee, each piece of sales literature, advertising, or other
promotional material of the Trust in which the Company and/or either of its
Accounts is named, at least fifteen (15) days prior to its intended use. No
such material shall be used if the Company or its designee objects to such
intended use within fifteen (15) days after receipt of such material.
5.6 The Trust shall not give any information or make any representations
or statements on behalf of the Company or concerning the Company, either of its
Accounts or its Contracts or Policies other than the information or
representations contained in a registration statement or an Account Prospectus,
as such registration statement and Account Prospectus may be amended or
supplemented from time to time, or in published reports for an Account that are
in the public domain or approved by the Company for distribution to
11
<PAGE>
Contract owners, or in sales literature, advertising, or other promotional
material approved by the Company or its designee, except with the permission of
the Company.
5.7 The Trust shall provide to the Company one complete copy of all
registration statements, Prospectuses, reports, proxy material, sales literature
and other promotional material, applications for exemptions, requests for no-
action letters, and all amendments to any of the above, that relate to the Trust
or its shares, contemporaneously with the filing of such document with the SEC
or other regulatory authorities.
6. DUTIES OF THE UNDERWRITER.
6.1 The Underwriter shall be subject to the direction and control of the
Trust in the sale of its shares and shall not be obligated to sell any specific
number of shares in any Fund.
6.2 The Underwriter shall distribute the Prospectuses together with
Account Prospectuses, as required by the SEC.
6.3 In selling shares of the Trust, the Underwriter shall comply in all
respects with the requirements of all Federal and state laws and regulations and
the regulations of the National Association of Securities Dealers, Inc. (the
"NASD"), relating to the sale of Trust shares. Neither the Underwriter nor any
other person is authorized by the Trust to give any information or to make any
representations, other than those contained in the Trust's registration
statement or related Prospectus, as such registration statement or Prospectus
may be amended from time to time, and any sales literature, advertising or other
promotional materials authorized by responsible officers of the Trust. The
Underwriter shall cause any sales literature, advertising, or other promotional
materials to be filed and, if necessary, approved by the NASD, the SEC, or any
other required securities regulatory body.
6.4 The Underwriter shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Trust in any way or be
deemed an employee.
12
<PAGE>
6.5 The Underwriter shall be responsible for its own conduct and the
employment, control and conduct of its agents and employees, and for injury to
such agents or employees or to others through its agents or employees. The
Underwriter shall assume full responsibility for its agents and employees under
applicable statutes and agrees to pay all employer taxes thereunder.
6.6 The Underwriter shall maintain, at its own expense, insurance against
public liability in such an amount as the Trust and the Underwriter may from
time to time agree.
6.7 The Underwriter agrees that it shall receive no compensation for the
performance of its duties hereunder, except as otherwise herein specifically
provided. No commission or other fee shall be charged or paid to any person or
entity in connection with the sale of Trust shares hereunder.
6.8 All services to be furnished by the Underwriter under this Agreement
may be furnished through the medium of any Directors, officers, employees or
agents of the Underwriter.
7. DUTIES OF THE COMPANY.
7.1 The Company, on behalf of the Underwriter, shall keep records showing
the amount of any contribution to or withdrawal from any Account or subaccount
investing in the Trust, which does not reflect an automatic transaction under a
contract or policy (such as investments of net premium, death of insureds,
deductions of fees and charges, transfers, surrenders, loans, loan repayments,
deduction of loan interest, lapses, reinstatements, and similar automatic
transactions), which records shall also include the name of the Company officer
ordering the transaction and the date and time of day the transaction was
ordered. It is hereby agreed that any issuance, redemption or repurchase of
Trust shares relating to any such non-automatic transaction shall be at the
Trust's net asset value next computed after the date and time of said order, and
said order shall become irrevocable at the time as of which
13
<PAGE>
such value is next determined. The Company shall also maintain, on behalf of
the Underwriter, records of the dates and times of day at which all transactions
occur, with the share and dollar amounts of such transactions, and all other
records required by the Securities Exchange Act of 1934 and rules thereunder
with respect to the issuance, redemption or repurchase of Trust shares. All
records required by this paragraph to be maintained by the Company shall (i) be
maintained and preserved in conformity with the requirements of Rules 17a-3 and
17a-4 under the Securities Exchange Act of 1934, (ii) be and remain the property
of the Underwriter, and (iii) be at all times subject to inspection by the SEC
in accordance with Section 17(a) of such Act, and (iv) be surrendered promptly
upon request without charge except for reimbursement of reasonable expenses.
7.2 To the extent not required to be provided by the Underwriter pursuant
to its Investment Advisory Agreement with the Trust, the Company shall provide
all management, administrative, legal, clerical, and accounting and
recordkeeping services necessary or appropriate to conduct the Trust's business
and operations (other than (A) investment advisory, custodial and transfer agent
services, which shall be provided to the Trust pursuant to separate agreements
and (B) services provided by outside legal counsel and independent auditors
retained by the Trust). These services shall include:
(i) overseeing the Trust's insurance relationships;
(ii) preparing and or filing on behalf of the Trust (or assisting
counsel and/or auditors in the preparation of) all required tax
returns, proxy statements and reports to the Trust's Shareholders and
Trustees and reports to and other filings with the SEC, and any other
governmental agency, including any filings necessary to maintain
registrations and qualifications of the Trust and its shares under
Federal and state law (the Underwriter and Trust agreeing to supply or
cause to be supplied to the Company all necessary financial and other
information in connection with the foregoing);
14
<PAGE>
(iii) preparing and or filing on behalf of the Trust such applications
and reports as may be necessary to register or maintain the Trust's
registration and/or the registration of the shares of the Trust under the
securities or "Blue Sky" laws of the various states selected by the Trust's
distributor (the Fund or Funds agreeing to pay all filing fees or other
similar fees in connection therewith);
(iv) overseeing all relationships between the Trust, and its service
providers, agents and/or designees, including any custodian, transfer
agent, and dividend disbursing agent, independent auditor and outside legal
counsel, including assistance in selection of such service providers agents
and/or designees, the negotiation of agreements and the supervision of the
performance of such agreements;
(v) authorizing and directing any of the Company's Directors, officers
and employees who may be elected as Trustees or officers of the Trust to
serve in the capacities in which they are elected; and
(vi) providing the services of individuals competent to perform all of
the Trust's executive, administrative, compliance and clerical functions
that are not performed by or through employees or other persons, agents or
designees engaged by the Trust.
7.3 In connection with the services furnished in Section 7.2, the Company
shall furnish personnel, and for the use of such personnel shall furnish office
space and all necessary office facilities, business equipment, supplies,
utilities and telephone service. In providing such services, the Company shall
be at all times subject to the supervision and review of the Board of Trustees
and in compliance with all applicable provisions, as in effect from time to
time, of the Trust's Master Trust Agreement, Bylaws, Prospectus, the 1940 Act
and regulations thereunder, and any other applicable laws and regulations.
Trust records maintained by the Company hereunder shall be and remain the
property of the Trust and shall be promptly surrendered or made available to the
Trust or its designee, without charge,
15
<PAGE>
except for reimbursement of expenses for surrender of such documents, upon
request by the Trust or upon termination of this Agreement.
7.4 The Company shall provide to the Trust one complete copy of all
registration statements, Account Prospectuses, reports, solicitations for voting
instructions, sales literature and other promotional material, applications for
exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to either Account or its respective Contracts or Policies,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
7.5 The Company shall mail or otherwise distribute such proxy cards and
other material supplied to it by the Trust in connection with Shareholder
meetings of the Trust and shall receive, examine and tabulate returned proxies
and voting instructions and certify the vote of each Fund of the Trust.
7.6 If and to the extent required by law, and so long as and to the extent
that the SEC continues to interpret the 1940 Act to require pass-through voting
privileges, the Company shall, subject to Section 8 below:
(i) prepare, set in type, print in quantity and distribute proxy
materials (including proxy statements, proxy cards and voting instruction
forms) relating to either the Trust or either Account and the processing,
including tabulation, of the results of voting instruction and proxy
solicitations;
(ii) solicit voting instructions from Contractowners;
(iii) vote Fund shares in accordance with instructions received from
Contractowners;
(iv) vote Fund shares for which no instructions have been received,
as well as Fund shares attributable to the Company other than under
Contracts or Policies, in the same proportion as shares of such Fund for
which instructions have been received;
16
<PAGE>
The Company reserves the right to vote Fund shares held in any segregated
asset account or in its general account in its own right, to the extent
permitted by law.
8. ALLOCATION OF EXPENSES.
8.1 Except as set forth below, each party to this Agreement shall bear, or
arrange for others to bear, the costs and expenses of performing its obligations
hereunder. Notwithstanding the foregoing:
8.2 Subject to Section 8.4 below, the Trust agrees to bear, or arrange for
others to bear, the expense of :
(a) all charges, commissions and fees agreed to by it pursuant to the
Investment Advisory Agreement by and between the Trust and the Underwriter in
the Underwriter's capacity as investment adviser;
(b) the charges and expenses of independent auditors and outside legal
counsel retained by the Trust;
(c) brokerage commissions for transactions in the portfolio investments of
the Trust and similar fees and charges for the acquisition, disposition, lending
or borrowing of such portfolio investments;
(d) all taxes, including issuance and transfer taxes, and corporate fees,
payable by the Trust to Federal, state or other governmental agencies;
(e) interest payable on the Trust's borrowings;
(f) extraordinary or non-recurring expenses, such as legal claims and
liabilities and litigation costs and indemnification payments by the Trust in
connection therewith;
(g) all expenses of Shareholders and Trustees' meetings (exclusive of
compensation and travel expenses of those Trustees of the Trust who are
"interested persons" of the Trust within the meaning of the 1940 Act), including
those in Section 8.2(h), below;
17
<PAGE>
(h) compensation and travel expenses of those Trustees of the Trust who are
not "interested persons" of the Trust within the meaning of the 1940 Act;
(i) the charges and expenses of any registrar, stock transfer or dividend
disbursing agent, custodian, or depository appointed by the Trust for the
safekeeping of its cash, portfolio securities and other property;
(j) the fees and expenses involved in registering and maintaining
registrations of the Trust and its shares with the Securities and Exchange
Commission and various states and other jurisdictions (other than any such
expenses referred to in Section 8.3 below);
(k) membership or association dues for the Investment Company Institute or
similar organization;
(l) the cost of the fidelity bond required by 1940 Act Rule 17g-1 and any
errors and omissions insurance or other liability insurance covering the Trust
and/or its officers, Trustees and employees;
(m) the preparation, setting in type, printing in quantity and distribution
of materials distributed to then current Shareholders (and, as conceptualized by
the SEC, Contractowners) of such materials as prospectuses, statements of
additional information, supplements to prospectuses and statements of additional
information, periodic reports to Shareholders (and, as conceptualized by the
SEC, Contractowners), communications, and proxy materials (including proxy
statements, proxy cards and voting instruction forms) relating to either the
Trust or either Account and the processing, including tabulation, of the results
of voting instructions and proxy solicitations;
(n) furnishing, or causing to be furnished, to each Shareholder statements
of account, including the expense of mailing; and
(o) postage.
8.3 To the extent not assumed by the Trust pursuant to Section 8.2 above,
the Company, out of its general account, agrees to assume the expense of:
18
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(a) organizational expenses of the Trust;
(b) compensation and travel expenses of those Trustees of the Trust who are
"interested persons" of the Trust within the meaning of the 1940 Act;
(c) any activity that may be attributable to the Trust as primarily
intended to result in the sale of Trust shares to other than then current
Shareholders (and, as conceptualized by the SEC, Contractowners), including the
preparation, setting in type, printing in quantity and distribution of such
materials as prospectuses, statements of additional information, supplements to
prospectuses and statements of additional information, sales literature
(including the Trust's periodic reports to Shareholders and any Account periodic
report to Contractowners), advertising and other promotional material relating
to either the Trust or either Account and compensation paid to sales personnel;
8.4 The Company, out of its general account agrees to pay directly or
reimburse the Trust for the Trust's expenses set out in Section 8.2 above to the
extent that such expenses, on behalf of each of the following respective Funds,
exceed 0.65% of the monthly average net assets of USAA Life Variable Annuity
World Growth Fund, 0.70% of the monthly average net assets of USAA Life Variable
Annuity Aggressive Growth Fund, 1.10% of the monthly average net assets of the
USAA Life Variable Annuity International Fund, and 0.35% of the monthly average
net assets of each other Fund. (Effective May 1, 1998 (or such date as the
Securities and Exchange Commission may declare a post-effective amendment to the
Trust's registration statement regarding the matter effective under the 1933
Act), the names of the foregoing Funds, as set out in this Section 8.4, are
changed to exclude the term "Variable Annuity.")
9. INDEMNIFICATION.
---------------
9.1 The Underwriter shall indemnify and hold harmless the Trust and the
Company and each of their Trustees, directors and officers (or former Trustees,
directors and officers)
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and each person, if any, who controls the Trust or the Company within the
meaning of Section 15 of the 1933 Act (collectively, "Indemnitees") against any
loss, liability, claim, damage, or expense (including the reasonable cost of
investigating and defending against the same and any counsel fees reasonably
incurred in connection therewith) incurred by any Indemnitees under the 1933 Act
or under common law or otherwise which arise out of or are based upon (1) any
untrue or alleged untrue statement of a material fact contained in information
furnished to the Trust by the Underwriter for use in the Trust's registration
statement, Prospectus, or annual or interim reports to Shareholders, (2) any
omission or alleged omission to state a material fact in connection with such
information furnished by the Underwriter to the Trust which is required to be
stated in any of such documents or necessary to make such information not
misleading, (3) any misrepresentation or omission or alleged misrepresentation
or omission to state a material fact on the part of the Underwriter or any agent
or employee of the Underwriter or any other person for whose acts the
Underwriter is responsible, unless such misrepresentation or omission or alleged
misrepresentation or omission was made in reliance on information furnished by
the Trust, or (4) the willful misconduct or failure to exercise reasonable care
and diligence on the part of the Underwriter or any agent or employee of the
Underwriter or any other person for whose acts the Underwriter is responsible
with respect to services rendered under this Agreement. This indemnity
provision, however, shall not operate to protect any officer or Trustee of the
Trust from any liability to the Trust or any shareholder by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of his or her
duties.
In case any action shall be brought against any Indemnitee, the Underwriter
shall not be liable under its indemnity agreement contained in this paragraph
with respect to any claim made against any Indemnitee, unless the Indemnitee
shall have notified the Underwriter in writing within a reasonable time after
the summons or other first legal process giving information of the nature of the
claim shall have been served upon the Indemnitee (or after
20
<PAGE>
the Indemnitee shall have received notice of such service on any designated
agent), but failure to notify the Underwriter of any such claim shall not
relieve it from liability to the Indemnitees against whom such action is brought
otherwise than on account of this Section 9.1. The Underwriter will be entitled
to participate at its own expense in the defense, or, if it so elects, to assume
the defense of any suit brought to enforce any such liability, but if the
Underwriter elects to assume the defense, such defense shall be conducted by
counsel chosen by it and satisfactory to the Indemnitees which are defendants in
the suit. In the event the Underwriter elects to assume the defense of any such
suit and retain such counsel, the Indemnitees which are defendants in the suit
shall bear the fees and expenses of any additional counsel retained by them,
but, in case the Underwriter does not elect to assume the defense of any such
suit, the Underwriter will reimburse the Indemnitees which are defendants in the
suit for the reasonable fees and expenses of any counsel retained by them. The
Underwriter shall promptly notify the Trust and the Company of the commencement
of any litigation or proceedings in connection with the issuance or sales of the
shares.
9.2 The Company shall indemnify and hold harmless the Trust and the
Underwriter and each of their Trustees, directors and officers (or former
Trustees, directors and officers) and each person, if any, who controls the
Trust or the Underwriter within the meaning of Section 15 of the 1933 Act
(collectively, "Indemnitees") against any loss, liability, claim, damage, or
expense (including the reasonable cost of investigating and defending against
the same and any counsel fees reasonably incurred in connection therewith)
incurred by any Indemnitees under the 1933 Act or under common law or otherwise
which arise out of or are based upon (1) any untrue or alleged untrue statement
of a material fact contained in information furnished to the Trust for use in
the Trust's registration statement, Prospectus, or annual or interim reports to
Shareholders, (2) any omission or alleged omission to state a material fact in
connection with such information furnished by the Company to the Trust or the
Underwriter, which is required to be stated in any of such documents or
necessary to
21
<PAGE>
make such information not misleading, (3) any misrepresentation or omission or
alleged misrepresentation or omission to state a material fact on the part of
the Company or any agent or employee of the Company or any other person for
whose acts the Company is responsible, unless such misrepresentation or omission
or alleged misrepresentation or omission was made in reliance on information
furnished by the Trust or the Underwriter, or (4) the willful misconduct or
failure to exercise reasonable care and diligence on the part of the Company or
any agent or employee of the Company or any other person for whose acts the
Company is responsible with respect to services rendered under this Agreement.
This indemnity provision, however, shall not operate to protect the Underwriter
or any officer or Trustee of the Trust from any liability to the Trust or any
shareholder by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of their duties.
Notwithstanding Section 9.1, the Company shall indemnify and hold the Trust
and the Underwriter and each of its Trustees, directors and officers, (or former
Trustees, directors and officers) and each person, if any, who controls the
Trust within the meaning of Section 15 of the 1933 Act, harmless from all loss,
cost, damage, and expense, including reasonable attorneys' fees, incurred by the
Trust as a result of the failure at any time of any Fund of the Trust (i) to
operate as a regulated investment company in compliance with Subchapter M of the
Code and the regulations thereunder or (ii) to comply with the investment
diversification rules of Section 817(h) of the Code and the regulations
thereunder; or (iii) any error or omission in any accounting data or calculation
the collection and maintenance of which data or the production of which
calculation is made the responsibility of the Company under this Agreement.
In case any action shall be brought against any Indemnitee, the Company
shall not be liable under its indemnity agreement contained in this paragraph
with respect to any claim made against any Indemnitee, unless the Indemnitee
shall have notified the Company in writing within a reasonable time after the
summons or other first legal process giving
22
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information of the nature of the claim shall have been served upon the
Indemnitee (or after the Indemnitee shall have received notice of such service
on any designated agent), but failure to notify the Company of any such claim
shall not relieve it from liability to the Indemnitees against whom such action
is brought otherwise than on account of this Section 9.2. The Company will be
entitled to participate at its own expense in the defense, or, if it so elects,
to assume the defense of any suit brought to enforce any such liability, but if
the Company elects to assume the defense, such defense shall be conducted by
counsel chosen by it and satisfactory to the Indemnitees which are defendants in
the suit. In the event the Underwriter elects to assume the defense of any such
suit and retain such counsel, the Indemnitees which are defendants in the suit
shall bear the fees and expenses of any additional counsel retained by them,
but, in case the Company does not elect to assume the defense of any such suit,
the Company will reimburse the Indemnitees that are defendants in the suit for
the reasonable fees and expenses of any counsel retained by them. The Company
shall promptly notify the Trust and the Underwriter of the commencement of any
litigation or proceedings in connection with the issuance or sales of the
shares.
10. REGULATORY REPORTS.
The Underwriter, the Company and the Trust agree to furnish to each other,
as appropriate, necessary cooperation, assistance and information in the
following matters (which shall nevertheless be primarily the responsibility of
the Company hereunder) :
10.1 The preparation of all reports as required by Federal or state law or
regulations;
10.2 The furnishing of any information or reports in connection with the
services provided hereunder as may be requested by any state insurance
commissioner, which request is made to ascertain whether the operations of any
of the parties are being conducted in a manner consistent with applicable state
insurance laws or regulations.
23
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10.3 The preparation of prospectuses, statements of additional
information, registration statements, and amendments thereto that may be
required by Federal or other laws or by the rules or regulations of any duly
authorized commission or administrative body.
11. DURATION AND TERMINATION OF AGREEMENT.
11.1 This Agreement shall become effective as of February 18, 1998, except
for the deletion of former Section 8.5 above which shall be deemed to have
become effective on January 1, 1998, and shall remain in force until January 1,
2000 and thereafter, but only so long as such continuance is specifically
approved at least annually by (i) the Board of Trustees, or by the vote of a
majority of the outstanding voting securities of the Trust, cast in person or by
proxy, and (ii) a majority of those Trustees who are not parties to this
Agreement or interested persons of any such party cast in person at a meeting
called for the purpose of voting on such approval. Notwithstanding the
foregoing, the Board of Trustees may, from time to time, establish a new
effective date for the continuance of this Agreement with respect to any initial
Fund and/or additional Fund; provided, that such new effective date precedes the
then current termination date of the Agreement.
11.2 This Agreement may be terminated at any time without the payment of
any penalty, by the Board of Trustees, by vote of a majority of the outstanding
voting securities of the Trust, or by the Underwriter or the Company on 120 days
written notice to the other party. This Agreement shall automatically terminate
in the event of its assignment or in the event of termination of the Advisory
Agreement between the Underwriter and any Fund of the Trust.
11.3 The terms "assignment," "vote of a majority of the outstanding voting
securities" and "interested person," when used in this Agreement, shall have the
respective meanings specified in the 1940 Act.
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12. GOVERNING LAW.
This Agreement shall be construed in accordance with the laws of the State
of Texas and the applicable provisions of the 1940 Act. To the extent the
applicable law of the State of Texas, or any of the provisions herein, conflict
with the applicable provisions of the 1940 Act, the latter shall control.
13. CONFIDENTIALITY.
Neither the Company nor the Underwriter shall disclose or use any records
or information obtained hereunder in any manner whatsoever except as expressly
authorized hereunder and, further, they shall keep confidential any information
obtained pursuant to their relationship with the Trust set forth herein, and
disclose such information only if the Trust has authorized such disclosure, or
if such disclosure is expressly required by applicable Federal or state
regulatory authorities.
14. COOPERATION UNDER THE AGREEMENT.
The Trust, Underwriter and Company represent and warrant that each will
fully coordinate and cooperate with each other in assuring compliance under this
Agreement with all federal and state laws and regulations.
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date first set forth above.
USAA LIFE INSURANCE COMPANY
BY: /s/ EDWIN L. ROSANE
----------------
ATTEST: EDWIN L. ROSANE
President
/s/ DWAIN A. AKINS
----------------
DWAIN A. AKINS
Assistant Vice President and
Assistant Secretary
USAA LIFE INVESTMENT TRUST
BY: /s/ EDWIN L. ROSANE
----------------
ATTEST: EDWIN L. ROSANE
President
/s/ DWAIN A. AKINS
----------------
DWAIN A. AKINS
Assistant Secretary
USAA INVESTMENT
MANAGEMENT COMPANY
BY: /s/ MICHAEL J.C. ROTH
------------------
ATTEST: MICHAEL J.C. ROTH
President
/s/ MICHAEL D. WAGNER
-----------------
MICHAEL D. WAGNER
Secretary
44491
26
<PAGE>
EXHIBIT 8(D)(I)
FORM OF PARTICIPATION AGREEMENT
PARTICIPATION AGREEMENT (the "Agreement") made by and between SCUDDER
VARIABLE LIFE INVESTMENT FUND (the "Fund"), a Massachusetts business trust
created under a Declaration of Trust dated March 15, 1985, as amended, with a
principal place of business in Boston, Massachusetts and USAA LIFE INSURANCE
COMPANY, a Texas corporation (the "Company"), with a principal place of business
in San Antonio, Texas on behalf of the Separate Account of USAA Life Insurance
Company, a separate account of the Company, and any other separate account of
the Company as designated by the Company from time to time, upon written notice
to the Fund in accordance with Section 10 herein (each, an "Account").
WHEREAS, the Fund acts as the investment vehicle for the separate accounts
established for variable life insurance policies and variable annuity contracts
(collectively referred to herein as "Variable Insurance Products") to be offered
by insurance companies which have entered into participation agreements
substantially identical to this Agreement ("Participating Insurance Companies")
and their affiliated insurance companies; and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares of beneficial interest ("Shares"), and additional series of Shares may
be established, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities; and
WHEREAS, it is in the best interest of Participating Insurance Companies to
make capital contributions if required so that the annual expenses of each
Portfolio of the Fund in which a
<PAGE>
Participating Insurance Company is a shareholder will not exceed a fixed
percentage of the Portfolio's average annual net assets; and
WHEREAS, the Parties desire to evidence their agreement as to certain other
matters,
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements hereinafter contained, the parties hereto agree as follows:
1. Additional Definitions.
----------------------
For the purposes of this Agreement, the following definitions shall apply:
(a) The "expenses of a Portfolio" for any fiscal year shall mean the
expenses for such fiscal year as shown in the Statement of Operations (or
similar report) certified by the Fund's independent public accountants;
(b) A "Portfolio's average daily net assets" for each fiscal year
shall mean the sum of the net asset values determined throughout the year for
the purpose of determining net asset value per Share, divided by the number of
such determinations during such year;
(c) The Company's "Required Contribution" on behalf of each Account in
respect of a Portfolio for any fiscal year shall mean an amount equal to the
expenses of that Portfolio for such year minus the below-indicated percentage of
that Portfolio's average daily net assets for the year:
International Portfolio. . . . . . . . . . 1.50%
Each other Portfolio. . . . . . . . . . . . 0.75%
multiplied by a fraction the denominator of which is the average daily net
assets of that Portfolio and the numerator of which is
2
<PAGE>
the average daily net asset value of the Shares of that Portfolio owned by each
Account (referred to herein as a "Participating Shareholder"). The Company's
Required Contribution in respect of a Portfolio shall be pro-rated based on the
number of business days on which this Agreement is in effect for periods of less
than a fiscal year.
(d) The "average daily net asset value of the Shares of the Portfolio"
owned by the Account for any fiscal year of the Fund shall mean the greater of
(i) $500,000 or (ii) the sum of the aggregate net asset values of the Shares so
owned determined during the fiscal year, as of each determination of the net
asset value per Share, divided by the total number of determinations of net
asset value during such year.
(e) "Shares" means shares of beneficial interest, without par value,
of any Portfolio, now or hereafter created, of the Fund.
2. Capital Contribution.
--------------------
The Company on behalf of each Account shall, within sixty days after the
end of each fiscal year of the Fund, make a capital contribution to the Fund in
respect of each Portfolio equal to the Required Contribution for that Portfolio
for such year; provided, however, that in the event that both clauses (i) and
(ii) of paragraph (d) of Section 1 of this Agreement or similar agreements are
applicable to different Participating Insurance Companies during the same fiscal
year, there shall be a proportionate reduction of the Required Contribution of
each Participating Insurance Company to which said clause (ii) is applicable so
that the total of all required capital contributions to the Fund on
3
<PAGE>
behalf of any Portfolio is not greater than the excess of the expenses of that
Portfolio for that fiscal year less the percentage of that Portfolio's total
expenses set forth in paragraph (c) of Section 1 of this Agreement for such
fiscal year.
3. Duty of Fund to Sell.
--------------------
The Fund shall make its Shares available for purchase at the applicable net
asset value per Share by Participating Insurance Companies and their affiliates
and separate accounts on those days on which the Fund calculates its net asset
value pursuant to rules of the Securities and Exchange Commission; provided,
however, that the Trustees of the Fund may refuse to sell Shares of any
Portfolio to any person, or suspend or terminate the offering of Shares of any
Portfolio, if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Trustees, necessary in the
best interest of the shareholders of any Portfolio.
4. Requirement to Execute Participation Agreement; Requests.
--------------------------------------------------------
Each Participating Insurance Company shall, prior to purchasing Shares in
the Fund, execute and deliver a participation agreement in a form substantially
identical to this Agreement.
The Fund shall make available, upon written request from the Participating
Insurance Company given in accordance with Paragraph 10, to each Participating
Insurance Company which has executed an Agreement and which Agreement has not
been terminated pursuant to Paragraph 8 (i) a list of all other Participating
Insurance Companies, and (ii) a copy of the Agreement as executed by any other
Participating Insurance Company.
4
<PAGE>
The Fund shall also make available upon request to each Participating
Insurance Company which has executed an Agreement and which Agreement has not
been terminated pursuant to Paragraph 8, the net asset value of any Portfolio of
the Fund as of any date upon which the Fund calculates the net asset value of
its Portfolios for the purpose of purchase and redemption of Shares.
5. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless the Fund and each of
its Trustees and officers and each person, if any, who controls the Fund within
the meaning of Section 15 of the Securities Act of 1933 (the "Act") against any
and all losses, claims, damages, liabilities or litigation (including legal and
other expenses), arising out of the acquisition of any Shares by any person, to
which the Fund or such Trustees, officers or controlling person may become
subject under the Act, under any other statute, at common law or otherwise,
which (i) may be based upon any wrongful act by the Company, any of its
employees or representatives, any affiliate of or any person acting on behalf of
the Company or a principal underwriter of its insurance products, or (ii) may be
based upon any untrue statement or alleged untrue statement of a material fact
contained in a registration statement or prospectus covering Shares or any
amendment thereof or supplement thereto or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading if such a statement or omission was made
in reliance upon information furnished to the Fund by the Company, or (iii) may
be based on any untrue statement or alleged untrue statement of a material fact
contained in a
5
<PAGE>
registration statement or prospectus covering insurance products
sold by the Company or any insurance company which is an affiliate thereof, or
any amendments or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, unless such statement or
omission was made in reliance upon information furnished to the Company or such
affiliate by or on behalf of the Fund; provided, however, that in no case (i) is
the Company's indemnity in favor of a Trustee or officer or any other person
deemed to protect such Trustee or officer or other person against any liability
to which any such person would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of his duties or
by reason of his reckless disregard of obligations and duties under this
Agreement or (ii) is the Company to be liable under its indemnity agreement
contained in this Paragraph 5 with respect to any claim made against the Fund or
any person indemnified unless the Fund or such person, as the case may be, shall
have notified the Company in writing pursuant to Paragraph 10 within a
reasonable time after the summons or other first legal process giving
information of the nature of the claims shall have been served upon the Fund or
upon such person (or after the Fund or such person shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it has to the
Fund or any person against whom such action is brought otherwise than on account
of its indemnity agreement contained in this Paragraph 5. The Company shall be
entitled to participate, at its own expense,
6
<PAGE>
in the defense, or, if it so elects, to assume the defense of any suit brought
to enforce any such liability, but, if it elects to assume the defense, such
defense shall be conducted by counsel chosen by it and satisfactory to the Fund,
to its officers and Trustees, or to any controlling person or persons, defendant
or defendants in the suit. In the event that the Company elects to assume the
defense of any such suit and retain such counsel, the Fund, its officers and
Trustees or controlling person or persons, defendant or defendants in the suit,
shall bear the fees and expenses of any additional counsel retained by them,
but, in case the Company does not elect to assume the defense of any such suit,
the Company will reimburse the Fund, or such officers and Trustees or
controlling person or persons, defendant or defendants in such suit, for the
reasonable fees and expenses of any counsel retained by them. The Company agrees
promptly to notify the Fund pursuant to Paragraph 10 of the commencement of any
litigation or proceedings against it in connection with the issue and sale of
any Shares.
(b) The Fund agrees to indemnify and hold harmless the Company and each of
its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the Act against any and all losses, claims,
damages, liabilities or litigation (including legal and other expenses) to which
it or such directors, officers or controlling person may become subject under
the Act, under any other statute, at common law or otherwise, arising out of the
acquisition of any Shares by any person which (i) may be based upon any wrongful
act by the Fund, any of its employees or representatives or a principal
underwriter of the
7
<PAGE>
Fund, or (ii) may be based upon any untrue statement or alleged untrue statement
of a material fact contained in a registration statement or prospectus covering
Shares or any amendment thereof or supplement thereto or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading unless such statement or
omission was made in reliance upon information furnished to the Fund by the
Company or (iii) may be based on any untrue statement or alleged untrue
statement of a material fact contained in a registration statement or prospectus
covering insurance products sold by the Company, or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the Fund; provided,
however, that in no case (i) is the Fund's indemnity in favor of a director or
officer or any other person deemed to protect such director or officer or other
person against any liability to which any such person would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of his duties or by reason of his reckless disregard of obligations
and duties under this Agreement or (ii) is the Fund to be liable under its
indemnity agreement contained in this Paragraph 5 with respect to any claims
made against the Company or any such director, officer or controlling person
unless it or such director, officer or controlling person, as the case may be,
shall have notified the Fund in writing pursuant to Paragraph 10 within a
reasonable time after the summons
8
<PAGE>
or other first legal process giving information of the nature of the claim shall
have been served upon it or upon such director, officer or controlling person
(or after the Company or such director, officer or controlling person shall have
received notice of such service on any designated agent), but failure to notify
the Fund of any claim shall not relieve it from any liability which it may have
to the person against whom such action is brought otherwise than on account of
its indemnity agreement contained in this Paragraph. The Fund will be entitled
to participate at its own expense in the defense, or, if it so elects, to assume
the defense of any suit brought to enforce any such liability, but if the Fund
elects to assume the defense, such defense shall be conducted by counsel chosen
by it and satisfactory to the Company, its directors, officers or controlling
person or persons, defendant or defendants, in the suit. In the event the Fund
elects to assume the defense of any such suit and retain such counsel, the
Company, its directors, officers or controlling person or persons, defendant or
defendants in the suit, shall bear the fees and expenses of any additional
counsel retained by them, but, in case the Fund does not elect to assume the
defense of any such suit, it will reimburse the Company or such directors,
officers or controlling person or persons, defendant or defendants in the suit,
for the reasonable fees and expenses of any counsel retained by them. The Fund
agrees promptly to notify the Company pursuant to Paragraph 10 of the
commencement of any litigation or proceedings against it or any of its officers
or Trustees in connection with the issuance or sale of any Shares.
9
<PAGE>
6. Procedure for Resolving Irreconcilable Conflicts.
------------------------------------------------
(a) The Trustees of the Fund will monitor the operations of the Fund for
the existence of any material irreconcilable conflict among the interests of all
the contract holders and policy owners of Variable Insurance Products (the
"Participants") of all separate accounts investing in the Fund. An
irreconcilable material conflict may arise, among other things, from: (a) an
action by any state insurance regulatory authority; (b) a change in applicable
insurance laws or regulations; (c) a tax ruling or provision of the Internal
Revenue Code or the regulations thereunder; (d) any other development relating
to the tax treatment of insurers, contract holders or policy owners or
beneficiaries of Variable Insurance Products; (e) the manner in which the
investments of any Portfolio are being managed; (f) a difference in voting
instructions given by variable annuity contract holders, on the one hand, and
variable life insurance policy owners, on the other hand, or by the contract
holders or policy owners of different participating insurance companies; or (g)
a decision by an insurer to override the voting instructions of Participants.
(b) The Company will be responsible for reporting any potential or existing
conflicts to the Trustees of the Fund. The Company will be responsible for
assisting the Trustees in carrying out their responsibilities under this
Paragraph 6(b) and Paragraph 6(a), by providing the Trustees with all
information reasonably necessary for the Trustees to consider the issues raised.
The Fund will also request its investment adviser to report to the Trustees any
such conflict which comes to the attention of the adviser.
10
<PAGE>
(c) If it is determined by a majority of the Trustees of the Fund, or a
majority of its disinterested Trustees, that a material irreconcilable conflict
exists involving the Company, the Company shall, at its expense, and to the
extent reasonably practicable (as determined by a majority of the disinterested
Trustees), take whatever steps are necessary to eliminate the irreconcilable
material conflict, including withdrawing the assets allocable to some or all of
the separate accounts from the Fund or any Portfolio and reinvesting such assets
in a different investment medium, including another Portfolio of the Fund,
offering to the affected Participants the option of making such a change or
establishing a new funding medium including a registered investment company.
For purposes of this Paragraph 6(c), the Trustees, or the disinterested
Trustees, shall determine whether or not any proposed action adequately remedies
any irreconcilable material conflict. In the event of a determination of the
existence of an irreconcilable material conflict, the Trustees shall cause the
Fund to take such action, such as the establishment of one or more additional
Portfolios, as they in their sole discretion determine to be in the interest of
all shareholders and Participants in view of all applicable factors, such as
cost, feasibility, tax, regulatory and other considerations. In no event will
the Fund be required by this Paragraph 6(c) to establish a new funding medium
for any variable contract or policy.
The Company shall not be required by this Paragraph 6(c) to establish a new
funding medium for any variable contract or policy if an offer to do so has been
declined by a vote of a majority of the Participants materially adversely
affected by the material
11
<PAGE>
irreconcilable conflict. The Company will recommend to its Participants that
they decline an offer to establish a new funding medium only if the Company
believes it is in the best interest of the Participants.
(d) The Trustees' determination of the existence of an irreconcilable
material conflict and its implications promptly shall be communicated to all
Participating Insurance Companies by written notice thereof delivered or mailed,
first class postage prepaid.
7. Voting Privileges.
-----------------
The Company shall be responsible for assuring that its separate account or
accounts participating in the Fund shall use a calculation method of voting
procedures substantially the same as the following: those Participants
permitted to give instructions and the number of Shares for which instructions
may be given will be determined as of the record date for the Fund shareholders'
meeting, which shall not be more than 60 days before the date of the meeting.
Whether or not voting instructions are actually given by a particular
Participant, all Fund shares held in any separate account or sub-account thereof
and attributable to policies will be voted for, against, or withheld from voting
on any proposition in the same proportion as (i) the aggregate record date cash
value held in such sub-account for policies giving instructions, respectively,
to vote for, against, or withhold votes on such proposition, bears to (ii) the
aggregate record date cash value held in the sub-account for all policies for
which voting instructions are received. Participants continued in effect under
lapse options will not be permitted to give voting instructions.
12
<PAGE>
Shares held in any other insurance company general or separate account or sub-
account thereof will be voted in the proportion specified in the second
preceding sentence for shares attributable to policies.
8. Duration and Termination.
------------------------
This Agreement shall remain in force for the period ending five years from
the date of its execution (such date and any anniversary of such date being
hereinafter called a "Renegotiation Date"), and from year to year thereafter
provided that neither the Company nor the Fund shall have given written notice
to the other within thirty (30) days prior to a Renegotiation Date that it
desires to renegotiate the amount of contribution to capital due hereunder
("Renegotiation Notice"). If a Renegotiation Notice is properly given as
aforesaid and the Fund and the Company shall fail, within sixty (60) days after
the Renegotiation Date, either to enter into an amendment to this Agreement or a
written acknowledgment that the Agreement shall continue in effect, this
Agreement shall terminate as of the one hundred twentieth day after such
Renegotiation Date. If this Agreement is so terminated, the Fund may, at any
time thereafter, automatically redeem the Shares of any Portfolio held by a
Participating Shareholder. This Agreement may be terminated at any time, at the
option of either of the Company or the Fund, when neither the Company, any
insurance company nor the separate account or accounts of such insurance company
which is an affiliate thereof which is not a Participating Insurance Company own
any Shares of the Fund or may be terminated by either party to the Agreement
upon a determination by a majority of the Trustees of the Fund, or a majority of
its disinterested
13
<PAGE>
Trustees, following certification thereof by a Participating Insurance Company
given in accordance with Paragraph 10 that an irreconcilable conflict exists
among the interests of (i) all contract holders and policy holders of Variable
Insurance Products of all separate accounts or (ii) the interests of the
Participating Insurance Companies investing in the Fund. Notwithstanding
anything to the contrary in this Agreement or its termination as provided
herein, the Company's obligation to make a capital contribution to the Fund in
accordance with this Agreement at the time in effect shall continue (i)
following a properly given Renegotiation Notice, in the absence of agreement
otherwise, until termination of this Agreement, and (ii) (except termination due
to the existence of an irreconcilable conflict), following termination of this
Agreement, until the later of the fifth anniversary of the date of this
Agreement or the date on which the Company, its separate account(s) or the
separate account(s) of any affiliated insurance company owns no Shares.
9. Compliance.
----------
The Fund will comply with the provisions of Section 4240(a) of the New York
Insurance Law.
Each Portfolio of the Fund will comply with the provisions of Section
817(h) of the Internal Revenue Code of 1986, as amended (the "Code"), relating
to diversification requirements for variable annuity, endowment and life
insurance contracts. Specifically, each Portfolio will comply with either (i)
the requirement of Section 817(h)(1) of the Code that its assets be adequately
diversified, or (ii) the "Safe Harbor for Diversification" specified in Section
817(h)(2) of the Code, or (iii) the
14
<PAGE>
diversification requirement of Section 817(h)(1) of the Code by having all or
part of its assets invested in U.S. Treasury securities which qualify for the
"Special Rule for Investments in United States Obligations" specified in Section
817(h)(3) of the Code.
The provisions of Paragraphs 6 and 7 of this Agreement shall be interpreted
in a manner consistent with any Rule or order of the Securities and Exchange
Commission under the Investment Company Act of 1940, as amended, applicable to
the parties hereto.
No Shares of any Portfolio of the Fund may be sold to the general public.
10. Notices.
-------
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
Scudder Variable Life Investment Fund
Two International Place
Boston, Massachusetts 02110
(617) 295-2275
Attn.: William M. Thomas
If to the Company:
USAA Life Insurance Company
9800 Fredericksburg Road
San Antonio, Texas 78288
Attn.: Dwain A. Akins, Esq.
11. Massachusetts Law to Apply.
--------------------------
This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of The Commonwealth of Massachusetts.
15
<PAGE>
12. Miscellaneous.
-------------
The name "Scudder Variable Life Investment Fund" is the designation of the
Trustees for the time being under a Declaration of Trust dated March 15, 1985,
as amended, and all persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Trustees, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund. No Portfolio
shall be liable for any obligations properly attributable to any other
Portfolio.
The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which taken together shall
constitute one and the same instrument.
13. Entire Agreement.
----------------
This Agreement and the letter agreement dated April ___, 1998 together
incorporate the entire understanding and agreement among the parties hereto, and
supersede any and all prior understandings and agreements between the parties
hereto with respect to the subject matter hereof.
16
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed hereto as of the ___ day of April, 1998.
SEAL SCUDDER VARIABLE LIFE
INVESTMENT FUND
By:________________
David B. Watts
President
SEAL USAA LIFE INSURANCE COMPANY
By:________________
Its:President
47103
17
<PAGE>
EXHIBIT 8(D)II
Scudder Investor Services, Inc.
Two International Place
Boston, Massachusetts 02110
FORM OF PARTICIPATING CONTRACT AND POLICY AGREEMENT
---------------------------------------------------
Ladies and Gentlemen:
We (sometimes hereinafter referred to as "Investor Services") are the
Principal Underwriter of shares of Scudder Variable Life Investment Fund (the
"Fund"), a no-load, open-end, diversified registered management investment
company established in 1985 as a Massachusetts business trust. The Fund is a
series fund consisting of the Balanced Portfolio, Bond Portfolio, Capital Growth
Portfolio, International Portfolio, Money Market Portfolio and Growth and Income
Portfolio (individually or collectively hereinafter referred to as the
"Portfolio" or the "Portfolios"). Additional Portfolios may be created from
time to time. The Fund is the funding vehicle for variable annuity contracts
and variable life insurance policies ("Participating Contracts and Policies") to
be offered to the separate accounts or sub-accounts (the "Accounts") of certain
life insurance companies ("Participating Insurance Companies"). Owners of
Participating Contracts and Policies will designate a portion of their premium
to be invested in Accounts which invest in, or represent an investment in,
directly or indirectly, shares of beneficial interest ("Shares") of the
Portfolios of the Fund. You are a registered broker-dealer which intends to
offer and sell Participating Contracts and Policies. In connection with such
offer and sale you will be obligated to deliver the prospectuses of such
Participating Contracts and Policies and, contemporaneously therewith, the
<PAGE>
prospectus of the Fund. Sales of Shares to Participating Insurance Companies or
their affiliates or the separate accounts of either shall be effected solely by
us as principal underwriter of the Fund, and not by you; provided, however, that
you shall be our agent in connection with the receipt of purchase orders for
Fund Shares and not in connection with their offer and sale. The relationship
between us shall be further governed by the following terms and conditions:
1. To the extent, if any, that your activities or the activities of the
Participating Insurance Companies in connection with the sale of
Participating Contracts and Policies may constitute the sale of
Shares, you and we agree that (i) we are the sole "principal
underwriter" of the Fund and the sole "underwriter" of the Shares as
those terms are defined in the Investment Company Act of 1940 (the
"1940 Act") and the Securities Act of 1933 (the "1933 Act"),
respectively, and (ii) neither you nor the Participating Insurance
Companies or the Accounts shall be deemed to be "principal
underwriters" of the Fund or "underwriters" of the Fund within the
meaning of the 1940 Act and the 1933 Act, respectively.
2. You hereby represent and warrant to us as follows:
(a) You are a corporation duly organized and validly existing in good
standing under the laws of the State of Texas and have full power
and authority to enter into this Agreement.
(b) This Agreement has been duly authorized, executed and delivered
by you and is a valid and binding obligation enforceable against
you in accordance with its terms.
(c) Your compliance with the provisions of this Agreement will not
conflict with or result in a violation of the provisions of your
charter or by-laws, or any statute or any judgment, decree,
order, rule or regulation of any court or governmental agency or
body having jurisdiction.
3. We hereby represent and warrant to you as follows:
(a) A registration statement (File No. 2-96461) on Form N-1A with
respect to the Shares (x) has been prepared by the Fund in
conformity with the requirements of the 1940 Act and the 1933 Act
and
2
<PAGE>
all applicable published instructions, rules and regulations
(the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission"), (y) has been filed with the
Commission, and (z) is currently effective. The registration
statement, including financial statements and exhibits, and the
final prospectus, including the statement of additional
information, as subsequently amended and supplemented, are herein
respectively referred to as the "Registration Statement" and the
"Prospectus".
(b) The Registration Statement and the Prospectus and any amendment
or supplement thereto will contain all statements required to be
stated therein and will comply in all material respects with the
requirements of the 1940 Act, the 1933 Act and the Rules and
Regulations, and the Registration Statement and any post-
effective amendment thereto will not contain or incorporate by
reference any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and the
Prospectus and any amendment or supplement thereto will not
contain or incorporate by reference any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading.
(c) We are a corporation duly organized and validly existing in good
standing under the laws of The Commonwealth of Massachusetts and
have full power and authority to enter into this Agreement.
(d) This Agreement has been duly authorized, executed and delivered
by us and is a valid and binding obligation enforceable against
us in accordance with its terms.
(e) Our compliance with all of the provisions of this Agreement will
not conflict with or result in a violation of the provisions of
our charter or by-laws, or any statute or any judgment, decree,
order, rule or regulation of any court or governmental agency or
body having jurisdiction over us.
4. You hereby covenant and agree with us as follows:
(a) You shall be an independent contractor and neither you nor any of
your directors, officers or employees as such, is or shall be an
employee of us or of the Fund. You are responsible for your own
conduct and
3
<PAGE>
the employment, control and conduct of your agents and employees
and for injury to such agents or employees or to others through
your agents or employees.
(b) You or one or more Participating Insurance Companies will be
responsible for insuring compliance with all applicable laws and
regulations of any regulatory body having jurisdiction over you
or Participating Contracts and Policies.
(c) No person is authorized to make any representations concerning
Shares except those contained in the Prospectus relating thereto
and in such printed information as issued by us for use as
information supplemental to the prospectus. In offering
Participating Contracts and Policies you shall, with respect to
the Fund and the Shares, rely solely on the representations
contained in the Prospectus and in the above-mentioned
supplemental information.
(d) You are not entitled to any compensation whatsoever from us or
the Fund with respect to offers of Participating Contracts and
Policies.
5. We hereby covenant and agree with you as follows:
(a) If, at any time when a Prospectus relating to the Shares is
required to be delivered under the 1940 Act, the 1933 Act or the
Rules and Regulations, we become aware of the occurrence of any
event as a result of which the Prospectus as then amended or
supplemented would include any untrue statement of a material
fact, or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which
made, not misleading, or if we become aware that it has become
necessary at any time to amend or supplement the Prospectus to
comply with the 1940 Act, the 1933 Act or the Rules and
Regulations, we will promptly notify you and promptly request the
Fund to prepare and to file with the Commission an amendment to
the Registration Statement or supplement to the Prospectus which
will correct such statement or omission or an amendment or
supplement which will effect such compliance, and deliver to you
copies of any such amendment or supplement.
(b) We will cooperate with you by taking such action as may be
necessary for the Fund to qualify the Shares for offer and sale
under the securities or Blue Sky laws of any state or
jurisdiction as you may request and as may be required by
applicable law, and will continue such qualification in effect so
long as is required by applicable law in connection with the
distribution of Shares.
4
<PAGE>
6. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Shares entirely, as to any person or
generally. We reserve the right to amend this Agreement at any time
and you agree that the sale of Participating Contracts and Policies,
after notice of any such amendment has been sent to you, shall
constitute your agreement to any such amendment.
7. If we elect to provide to you for the purpose of your offering
Participating Contracts and Policies copies of any Prospectus relating
to the Shares and printed information supplemental thereto, we shall
furnish you with such copies as you reasonably request upon the
payment of reasonable charges therefor by you or one or more
Participating Insurance Companies. If we elect not to provide such
copies of such documents, you or one or more Participating Insurance
Companies shall bear the entire cost of printing copies for your use.
You shall not use such copies of such documents printed by you or one
or more Participating Insurance Companies until you shall have
furnished us with a copy thereof and we either have given you written
approval for use or twenty days shall have elapsed following our
receipt thereof and we have not objected thereto in writing.
8. (a) You will indemnify and hold harmless Investor Services and
each of its directors and officers and each person, if any, who
controls Investor Services within the meaning of Section 15 of
the 1933 Act, against any loss, liability, damages, claim or
expense (including the reasonable cost of investigating or
defending any alleged loss, liability, damages, claim or expense
and reasonable counsel fees incurred in connection therewith),
arising by reason of any person's acquiring any Shares, which may
be based upon the 1933 Act or any other statute or common law,
and which (i) may be based upon any wrongful act by you, any of
your employees or representatives, or (ii) may be based upon any
untrue statement or alleged untrue statement of a material fact
contained in a registration statement or prospectus covering
Shares or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading if such a statement or omission was made
in reliance upon information furnished to us or the Fund by you,
or (iii) may be based on any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement or prospectus covering insurance products sold by you,
or any amendments or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be
stated therein or
5
<PAGE>
necessary to make the statement or statements therein not
misleading, unless such statement or omission was made in
reliance upon information furnished to you or a Participating
Insurance Company by or on behalf of Investor Services or the
Fund; provided, however, that in no case (i) is the indemnity by
you in favor of any person indemnified to be deemed to protect
Investor Services or any such person against any liability to
which Investor Services or any such person would otherwise be
subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its or his duties or by reason
of its or his reckless disregard of its obligations and duties
under this Agreement, or (ii) are you to be liable under your
indemnity agreement contained in this paragraph with respect to
any claim made against Investor Services or any person
indemnified unless Investor Services or such person, as the case
may be, shall have notified you in writing within a reasonable
time after the summons or other first legal process giving
information of the nature of the claim shall have been served
upon Investor Services or upon such person (or after Investor
Services or such person shall have received notice of such
service on any designated agent), but failure to notify you of
any such claim shall not relieve you from any liability which you
may have to Investor Services or any person against whom such
action is brought otherwise than on account of your indemnity
agreement contained in this paragraph. You shall be entitled to
participate, at your own expense, in the defense, or, if you so
elect, to assume the defense of any suit brought to enforce any
such liability, but, if you elect to assume the defense, such
defense shall be conducted by counsel chosen by you and
satisfactory to Investor Services, or to its officers or
directors, or to any controlling person or persons, defendant or
defendants in the suit. In the event that you assume the defense
of any such suit and retain such counsel, Investor Services or
such officers or directors or controlling person or persons,
defendant or defendants in the suit, shall bear the fees and
expenses of any additional counsel retained by them, but, in case
you do not elect to assume the defense or any such suit, you
shall reimburse Investor Services and such officers, directors or
controlling person or persons, defendant of defendants in such
suit, for the reasonable fees and expenses of any counsel
retained by them. You agree promptly to notify Investor Services
of the commencement of any litigation or proceedings against it
in connection with the offer, issue and sale of any shares.
6
<PAGE>
(b) Investor Services will indemnify and hold harmless you and each
of your directors and officers and each person, if any, who
controls you within the meaning of Section 15 of the 1933 Act,
against any loss, liability, damages, claim or expense (including
the reasonable cost of investigating or defending any alleged
loss, liability, damages, claim or expense and reasonable counsel
fees incurred in connection therewith), arising by reason of any
person's acquiring any Shares, which may be based upon the 1933
Act or any other statute or common law, and which (i) may be
based upon any wrongful act by Investor Services, any of its
employees or representatives, or (ii) may be based upon any
untrue statement or alleged untrue statement of a material fact
contained in a registration statement or prospectus covering
Shares or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading unless such statement or omission was made
in reliance upon information furnished to Investor Services or
the Fund by you or (iii) may be based on any untrue statement or
alleged untrue statement of a material fact contained in a
registration statement or prospectus covering insurance products
sold by you, or any amendment or supplement thereto, or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement
or statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to you
by or on behalf of Investor Services or the Fund; provided,
however, that in no case (i) is the indemnity by Investor
Services in favor of any person indemnified to be deemed to
protect you or any such person against any liability to which you
or any such person would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the
performance of your or his duties by reason of your or his
reckless disregard of your or his obligations and duties under
this Agreement, or (ii) is Investor Services to be liable under
its indemnity agreement contained in this paragraph with respect
to any claim made against you or any person indemnified unless
you or such person, as the case may be, shall have notified
Investor Services in writing within a reasonable time after the
summons or other first legal process giving information of the
nature of the claim shall have been served upon you or upon such
person (or after you or such person shall have received notice of
such service on any designated agent), but failure to notify
Investor Services of any such claim shall not relieve Investor
Services from any
7
<PAGE>
liability to which Investor Services may have to you or any
person against whom such action is brought otherwise than on
account of its indemnity agreement contained in this paragraph.
Investor Services shall be entitled to participate, at its own
expense, in the defense, or, if it so elects, to assume the
defense of any suit brought to enforce any such liability, but,
if it elects to assume the defense, such defense shall be
conducted by counsel chosen by Investor Services and satisfactory
to you, or to your officers or directors, or to any controlling
person or persons, defendant or defendants in the suit. In the
event that Investor Services assumes the defense of any such suit
and retains such counsel, you or such officers or directors or
controlling person or persons, defendant or defendants in the
suit, shall bear the fees and expenses of any additional counsel
retained by you, but, in case Investor Services does not elect to
assume the defense of any such suit, Investor Services shall
reimburse you and such officers, directors or controlling person
or persons, defendant or defendants in such suit, for the
reasonable fees and expenses of any counsel retained by you.
Investor Services agrees promptly to notify you of the
commencement of any litigation or proceedings against it in
connection with the offer, issue and sale of any Shares.
9. The indemnities, representations, warranties, covenants and agreements
of each party to this Agreement as set forth in this Agreement will
remain in full force and effect regardless of any investigation made
by or on behalf of either of such parties or any of their respective
officers, directors, partners or any controlling person, and will
survive delivery of and payment for the Shares.
10. Any provision of this Agreement which may be determined by competent
authority to be prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction. To the extent permitted by
applicable law, each party hereto waives any provision of law which
renders any provision hereof prohibited or unenforceable in any
respect.
11. This Agreement, as amended by the letter agreement dated February 3,
1995, as amended, together constitutes the entire agreement among the
parties concerning the subject matter hereof, and supersede any and
all prior understandings.
8
<PAGE>
12. This Agreement shall automatically terminate in the event of its
assignment. This Agreement may be terminated at any time by either
party by written notice given to the other party, provided that the
obligation of each party to indemnify the other party pursuant to
paragraph 8 hereof shall apply with respect to any Shares sold before
or after such termination.
13. Any notice hereunder shall be duly given if mailed or telegraphed to
the other party hereto at the address specified below. This Agreement
shall be governed by and construed in accordance with the laws of The
Commonwealth of Massachusetts.
14. This Agreement may be executed in any number of counterparts which,
taken together shall constitute one and the same instrument. This
Agreement shall become effective upon receipt by us of your acceptance
hereof.
15. This Agreement may not be modified or amended except by a written
instrument duly executed by the parties hereto.
SCUDDER INVESTOR SERVICES, INC.
By:_________________________
Mark S. Casady
President
Two International Place
Boston, Massachusetts 02110
The undersigned hereby accepts the offer set forth
in the above letter.
USAA INVESTMENT MANAGEMENT COMPANY
Dated: By:____________________
John J. Dallahan
Senior Vice President,
Investments Services
Authorized Representative
10750 Robert F. McDermott Freeway
San Antonio, Texas 78288
47111
9
<PAGE>
EXHIBIT 8(D)(III)
FORM OF REIMBURSEMENT AGREEMENT
REIMBURSEMENT AGREEMENT (the "Agreement") made by and between SCUDDER
KEMPER INVESTMENTS, INC., a Delaware corporation ("Scudder Kemper"), with a
principal place of business in Boston, Massachusetts and USAA LIFE INSURANCE
COMPANY, a Texas corporation (the "Company"), with a principal place of business
in San Antonio, Texas on behalf of the Separate Account of USAA Life Insurance
Company, a separate account of the Company, and any other separate account of
the Company as designated by the Company from time to time, upon written notice
to the Fund in accordance with Section 8 herein (the "Account").
WHEREAS, Scudder Kemper has caused to be organized Scudder Variable Life
Investment Fund (the "Fund"), a Massachusetts business trust created under a
Declaration of Trust dated March 15, 1985, as amended, the beneficial interest
in which is divided into several series, each designated a "Portfolio" and
representing the interest in a particular managed portfolio of securities; and
WHEREAS, the purpose of the Fund is to act as the investment vehicle for
the separate accounts established for variable life insurance policies and
variable annuity contracts to be offered by insurance companies which have
entered into reimbursement agreements substantially identical to this Agreement;
and
WHEREAS, the parties desire to express their agreement as to certain
matters;
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements hereinafter contained, the parties hereto agree as follows:
<PAGE>
1. Additional Definitions.
----------------------
For purposes of this Agreement, the following definition shall apply:
(a) "Shares" means shares of beneficial interest, without par value, of
any Portfolio, now or hereafter created, of the Fund.
2. Access to Other Products.
------------------------
Scudder Kemper shall permit the Company to participate in any registered
investment company other than the Fund which is intended as the funding vehicle
for insurance products and for which Scudder Kemper or an affiliate of Scudder
Kemper acts as investment adviser, on the same basis as other insurance
companies are permitted to participate in such a registered investment company.
This provision shall not require Scudder Kemper to make available to the Company
shares of any investment company which is organized solely as the funding
vehicle for insurance products offered by a single insurance company or a group
of affiliated insurance companies.
3. Right to Review and Approve Sales Materials.
-------------------------------------------
The Company shall furnish, or shall cause to be furnished, to Scudder
Kemper or its designee, at least twenty days prior to its intended use, each
piece of promotional material in which Scudder Kemper or the Fund is named. No
such material shall be used unless Scudder Kemper or its designee shall have
approved such use in writing, or twenty days shall have elapsed without
approval, rejection or objection since receipt by Scudder Kemper or its designee
of such material.
2
<PAGE>
Scudder Kemper shall furnish, or shall cause to be furnished, to the
Company or its designee, at least twenty days prior to its intended use, each
piece of promotional material in which the Company or its separate account(s) is
named. No such material shall be used unless the Company or its designee shall
have approved such use in writing, or twenty days shall have elapsed without
approval, rejection or objection since receipt by the Company or its designee of
such material.
4. Sales Organization Meetings.
---------------------------
Representatives of Scudder Kemper or its designee shall meet with the sales
organizations of the Company at such reasonable times and places as may be
agreed upon by the Company and Scudder Kemper or its designee for the purpose of
educating sales personnel about the Fund.
5. Duration.
--------
This Agreement shall continue in effect for five (5) years from the date of
its execution, except that the obligation of each party hereto to indemnify the
other party hereto shall continue with respect to all losses, claims, damages,
liabilities or litigation based upon the acquisition of Shares purchased as the
funding vehicle for any variable life insurance policy or variable annuity
contract issued by the Company or any affiliated insurance company.
6. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless Scudder Kemper and
each of its directors and officers and each person, if any, who controls Scudder
Kemper within the meaning of Section 15 of the Securities Act of 1933 (the
"Act") against any and all
3
<PAGE>
losses, claims, damages, liabilities or litigation (including legal and other
expenses) to which Scudder Kemper or such directors, officers or controlling
person may become subject under the Act, under any other statute, at common law
or otherwise, arising out of the acquisition of any Shares by any person which
(i) may be based upon any wrongful act by the Company, any of its employees or
representatives, any affiliate of or any person acting on behalf of the Company
or a principal underwriter of its insurance products, or (ii) may be based upon
any untrue statement or alleged untrue statement of a material fact contained in
a registration statement or prospectus covering Shares or any amendment thereof
or supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading if such a statement or omission was made in reliance upon
information furnished to Scudder Kemper or the Fund by the Company, provided,
however, that in no case (i) is the Company's indemnity in favor of a director
or officer or any other person deemed to protect such director or officer or
other person against any liability to which any such person would otherwise be
subject by reason of willful misfeasance, bad faith, or gross negligence in the
performance of his duties or by reason of his reckless disregard of obligations
and duties under this Agreement or (ii) is the Company to be liable under its
indemnity agreement contained in this Paragraph 6 with respect to any claim made
against Scudder Kemper or any person indemnified unless Scudder Kemper or such
person, as the case may be, shall have notified the Company in writing pursuant
to Paragraph 8 within a reasonable time after the summons or other first legal
process
4
<PAGE>
giving information of the nature of the claims shall have been served upon
Scudder Kemper or upon such person (or after Scudder Kemper or such person shall
have received notice of such service on any designated agent), but failure to
notify the Company of any such claim shall not relieve the Company from any
liability which it has to Scudder Kemper or any person against whom such action
is brought otherwise than on account of the indemnity agreement contained in
this Paragraph 6. The Company shall be entitled to participate, at its own
expense, in the defense, or, if it so elects, to assume the defense of any suit
brought to enforce any such liability, but, if it elects to assume the defense,
such defense shall be conducted by counsel chosen by it and satisfactory to
Scudder Kemper, to its officers and directors, or to any controlling person or
persons, defendant or defendants in the suit. In the event that the Company
elects to assume the defense of any such suit and retain such counsel, Scudder
Kemper, such officers and directors or controlling person or persons, defendant
or defendants in the suit, shall bear the fees and expenses of any additional
counsel retained by them, but, in case the Company does not elect to assume the
defense of any such suit, the Company will reimburse Scudder Kemper, such
officers and directors or controlling person or persons, defendant or defendants
in such suit, for the reasonable fees and expenses of any counsel retained by
them. The Company agrees promptly to notify Scudder Kemper pursuant to Paragraph
8 of the commencement of any litigation or proceedings against it in connection
with the issue and sale of any Shares.
5
<PAGE>
(b) Scudder Kemper agrees to indemnify and hold harmless the Company and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the Act against any and all losses,
claims, damages, liabilities or litigation (including legal and other expenses)
to which the Company or such directors, officers or controlling persons may
become subject under the Act, under any other statute, at common law or
otherwise, arising out of the acquisition of any Shares by any person which (i)
may be based upon any wrongful act by Scudder Kemper, any of its employees or
representatives or a principal underwriter of the Fund, or (ii) may be based
upon any untrue statement or alleged untrue statement of a material fact
contained in a registration statement or prospectus covering Shares or any
amendment thereof or supplement thereto or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading if such statement or omission was made in
reliance upon information furnished to the Company by Scudder Kemper; provided,
however, that in no case (i) is Scudder Kemper's indemnity in favor of a
director or officer or any other person deemed to protect such director or
officer or other person against any liability to which any such person would
otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of his duties or by reason of his reckless
disregard of obligations and duties under this Agreement or (ii) is Scudder
Kemper to be liable under its indemnity agreement contained in this Paragraph 6
with respect to any claims made against the Company or any such director,
officer or controlling person unless it or such director, officer
6
<PAGE>
or controlling person, as the case may be, shall have notified Scudder Kemper in
writing pursuant to Paragraph 8 within a reasonable time after the summons or
other first legal process giving information of the nature of the claim shall
have been served upon it or upon such director, officer or controlling person
(or after the Company or such director, officer or controlling person shall have
received notice of such service on any designated agent), but failure to notify
Scudder Kemper of any claim shall not relieve it from any liability which it may
have to the Company or any person against whom such action is brought otherwise
than on account of its indemnity agreement contained in this Paragraph 6.
Scudder Kemper will be entitled to participate at its own expense in the
defense, or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but if Scudder Kemper elects to assume the defense,
such defense shall be conducted by counsel chosen by it and satisfactory to the
Company, its directors, officers or controlling person or persons, defendant or
defendants, in the suit. In the event Scudder Kemper elects to assume the
defense of any such suit and retain such counsel, the Company, its directors,
officers or controlling person or persons, defendant or defendants in the suit,
shall bear the fees and expenses of any additional counsel retained by them,
but, in case Scudder Kemper does not elect to assume the defense of any such
suit, it will reimburse the Company or such directors, officers or controlling
person or persons, defendant or defendants in the suit, for the reasonable fees
and expenses of any counsel retained by them. Scudder Kemper agrees promptly to
notify the Company pursuant to Paragraph 8 of the commencement of any litigation
or proceedings against it or any
7
<PAGE>
of its officers or directors in connection with the issuance or sale of any
Shares.
(c) Scudder Kemper agrees to indemnify and hold harmless the Company and
each of its directors and officers against any and all losses, claims, damages,
liabilities or litigation arising from the imposition of additional federal
income taxes on the Company or any policyholder solely as a result of a Final
Determination that any Portfolio has failed (x) to comply with the
diversification requirements of section 817(h) of the Internal Revenue Code of
1986, as amended (the "Code"), relating to the diversification requirements for
variable annuity, endowment and life insurance contracts, or (y) to qualify as a
regulated investment company within the meaning of section 851 of the Code;
provided, however, that (i) Scudder Kemper shall have no liability under this
Paragraph 6(c) if such failure is caused by a third party who is not an employee
or agent of Scudder Kemper (e.g., the Fund's custodian or another service
provider), and (ii) in no case is Scudder Kemper's indemnity under this
Paragraph 6(c) deemed to protect any person against any liability to which that
person would otherwise be subject by reason of willful misfeasance, bad faith or
gross negligence in the performance of that person's duties or by reason of
reckless disregard by that person of obligations under this Agreement.
The Company agrees that if the Internal Revenue Service asserts in
writing in connection with any governmental audit or review of the Company or,
to the Company's knowledge, of any policyholder, that any Portfolio has failed
to comply with the diversification requirements of section 817(h) of the Code or
the
8
<PAGE>
Company otherwise becomes aware of any facts that could give rise to any
claim against Scudder Kemper as a result of such a failure or alleged failure,
(i) the Company shall promptly notify Scudder Kemper of such assertion or
potential claim; (ii) the Company shall consult with Scudder Kemper as to how to
minimize any liability that may arise as a result of such failure or alleged
failure; (iii) the Company shall use its best efforts to minimize any liability
of Scudder Kemper for indemnification resulting from such failure, including,
without limitation, demonstrating, pursuant to Treasury Regulations Section
1.817-5(a) (2), to the Commissioner of the Internal Revenue Service that such
failure was inadvertent; (iv) the Company shall permit Scudder Kemper and its
legal and accounting advisors to participate in any conferences, settlement
discussions or other administrative or judicial proceedings or contests
(including judicial appeals thereof) with the Internal Revenue Service, any
policyholder or any other claimant regarding any claims that could give rise to
indemnification by Scudder Kemper as a result of such a failure or alleged
failure; (v) any written materials to be submitted by the Company to the
Internal Revenue Service, any policyholder or any other claimant in connection
with any of the foregoing proceedings or contests (including, without
limitation, any such materials to be submitted to the Internal Revenue Service
pursuant to Treasury Regulations Section 1.817-5(a) (2)), (a) shall be provided
by the Company to Scudder Kemper (together with any supporting information or
analysis) at least 10 business days prior to the day on which such proposed
materials are to be submitted and (b) shall not be submitted by the Company to
any such person without the express
9
<PAGE>
written consent of Scudder Kemper, which shall not be unreasonably withheld;
(vi) the Company shall provide Scudder Kemper and its advisors with such
cooperation as Scudder Kemper shall reasonably request (including, without
limitation, by permitting Scudder Kemper and its accounting and legal advisors
to review the relevant books and records of the Company) in order to facilitate
Scudder Kemper's review of any written submissions provided to it pursuant to
the preceding clause or its assessment of the validity or amount of any claim
against it arising from such a failure or alleged failure; (vii) the Company
shall not with respect to any claim of the IRS or any policyholder that would
give rise to a claim for indemnification against Scudder Kemper (a) compromise
or settle any claim, (b) accept any adjustment on audit, or (c) forego any
allowable judicial appeals, without the express written consent of Scudder
Kemper, which shall not be unreasonably withheld, provided that the Company
shall not be required to appeal any adverse judicial decision unless Scudder
Kemper shall have provided an opinion of independent counsel to the effect that
a reasonable basis (consistent with Formal Opinion 85-352 of the American Bar
Association) exists for taking such appeal; and (viii) Scudder Kemper shall have
no liability as a result of such failure or alleged failure if the Company fails
to comply with any of the foregoing clauses (i) through (vii). Should Scudder
Kemper refuse to give its written consent to any compromise or settlement of any
claim or liability hereunder, the Company may, in its discretion, authorize
Scudder Kemper to act in the name of the Company in, and to control the conduct
of, such conferences, discussions, proceedings, contests or appeals and all
administrative or judicial
10
<PAGE>
appeals thereof, and in that event Scudder Kemper shall bear the fees and
expenses associated with the conduct of the proceedings that it is so authorized
to control.
For purposes of this Paragraph 6(c), "Final Determination" shall mean, with
respect to any claim, a settlement of such claim (including the acceptance of an
adjustment proposed by the Internal Revenue Service) or a decision of a court of
competent jurisdiction with respect to such claim that has become final after
either the (i) exhaustion of allowable appeals or (2) expiration of the time to
take any such appeal with respect to the claim.
7. Massachusetts Law to Apply.
--------------------------
This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of The Commonwealth of Massachusetts.
8. Notices.
-------
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to Scudder Kemper:
Scudder Kemper Investments, Inc.
Two International Place
Boston, Massachusetts 02110
(617) 295-2275
Attn: David B. Watts
If to the Company:
USAA Life Insurance Company
9800 Fredericksburg Road
San Antonio, Texas 78288
Attn.: Dwain A. Akins, Esq.
11
<PAGE>
9. Miscellaneous.
-------------
The captions in the Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which taken together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed hereto as of the ___ day of April, 1998.
SEAL SCUDDER KEMPER INVESTMENTS, INC.
By:__________________
Mark S. Casady
Authorized Officer
SEAL USAA LIFE INSURANCE COMPANY
By:____________________
Name: Edwin L. Rosane
Title: President
47106
12
<PAGE>
[LOGO OF USAA APPEARS HERE]
EXHIBIT 8(D)(IV)
FORM OF
BY EXPRESS DELIVERY
- -------------------
Scudder Kemper Investments, Inc.
Scudder Investor Services, Inc.
Scudder Variable Life Investment Fund
2 International Place
Boston, MA 02110
Executives:
We are writing to augment and clarify certain of the terms and
conditions of: (1) the participation agreement, dated February 3, 1995, by and
between USAA Life Insurance Company ("USAA Life"), on behalf of the Separate
Account of USAA Life Insurance Company ("Separate Account") and the Life
Insurance Separate Account of USAA Life Insurance Company ("Life Insurance
Separate Account"), and the Scudder Variable Life Investment Fund ("Fund")
(hereinafter "Participation Agreement"); (2) the reimbursement agreement, dated
February 3, 1995, by and between USAA Life and Scudder, Stevens & Clark ("SS&C")
(hereinafter "Reimbursement Agreement"); and (3) the participating contract and
policy agreement, dated February 3, 1995, by and between USAA Investment
Management Company ("IMCO") and Scudder Investor Services, Inc. ("SIS")
(hereinafter "Policy Agreement").
Unless otherwise noted, the provisions set out below are intended to
apply to the Participation Agreement, Reimbursement Agreement and the Policy
Agreement (collectively, the "Agreements") and, to the extent contrary to or
inconsistent with any provision in any Agreement, shall modify such provision.
The headings used herein are for convenience of reference only.
Kindly acknowledge your acceptance and agreement to the following by
affixing your signature to the last page of this letter.
AVAILABLE PORTFOLIOS.
- --------------------
The Fund's Capital Growth Portfolio ("Portfolio" or "Capital Growth
Portfolio") is the only Fund series that USAA Life currently intends to make
available for investment through the Separate Account and the Life Insurance
Separate Account. Accordingly, any obligations of USAA Life with respect to
capital contributions or expense reimbursements required to be made under the
Participation Agreement shall be limited to the Capital Growth Portfolio, until
such time as USAA Life notifies the Fund that it intends to use one or more
additional portfolios.
9800 Fredericksburg Road San Antonio, Texas 78288 1-800-531-8000
In San Antonio 498-8000
<PAGE>
Scudder Kemper Investments, Inc.
__________ , 1998
Page 2
PURCHASES AND REDEMPTIONS.
- -------------------------
1. Timely Pricing and Orders. The Fund or its designated agent will use
all commercially reasonable efforts to provide to USAA Life the closing net
asset value and any dividend and capital gain information for the Portfolio by
5:15 p.m., Central time on each Business Day. "Business Day" shall mean any day
on which the Fund calculates the net asset value of its Funds pursuant to rules
of the Securities and Exchange Commission and as described in the Fund's
Prospectus. USAA Life will use these data to calculate unit values, which in
turn will be used to process transactions that receive that same Business Day's
Separate Account or Life Insurance Separate Account unit value. Such Separate
Account or Life Insurance Separate Account processing will be done the same
evening, and corresponding orders with respect to Fund shares will be placed the
morning of the following Business Day. USAA Life will use all commercially
reasonable efforts to place such orders with the Fund by 9 a.m., Central time.
2. Timely Payments. USAA Life or its designated agent will transmit
orders for purchases and redemptions of Fund shares to SIS, and will wire
payment for net purchases to a custodial account designated by the Fund on the
same day as the order for Fund shares is placed, to the extent practicable.
Payment for net redemptions will be wired by the Fund to an account designated
by USAA Life on the same day as the order is placed, to the extent practicable,
but in any event within such reasonably practicable period of time after the
order is placed as would enable USAA Life to pay redemption proceeds in
compliance with Section 22(e) of the Investment Company Act of 1940.
3. Applicable Price. The Fund shall effect any orders to purchase or
redeem Portfolio shares that USAA Life submits on behalf of the Separate
Account, based on transactions under variable annuity contracts issued by USAA
Life ("Contracts"), and on behalf of the Life Insurance Separate Account, based
on transactions under variable life insurance policies ("Policies"), at the
Portfolio's net asset value per share as of the close of business on the
Business Day the order is received by USAA Life or its designee, acting as agent
for the Fund, provided that such order is received prior to the time as of which
the Fund calculates net asset value on that Business Day. If such order is
received after that time, the order will be effected at the Portfolio's net
asset value as of the close of business on the next Business Day. Any orders to
purchase shares of an available Fund not based on transactions under Contracts
or Policies will be effected at the Fund's net asset value per share next
computed after the order is received by the Fund.
4. Redemptions. The Fund shall redeem for cash from USAA Life those full
or fractional shares of the Portfolio that USAA Life requests from time to time.
<PAGE>
Scudder Kemper Investments, Inc.
__________ , 1998
Page 3
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS.
- -------------------------------------------
USAA Life, on behalf of the Separate Account and the Life Insurance
Separate Account, hereby elects to reinvest all dividends and capital gains
distributions in additional shares of the Capital Growth Portfolio at the net
asset values on the payment date of such dividends and capital gains
distributions until USAA Life otherwise notifies the Fund in writing. USAA Life
reserves the right to revoke this election and to receive all such dividends and
capital gain distributions in cash. The Fund shall promptly notify USAA Life of
the number of shares so issued as payment of such dividends and distributions.
AMENDMENT TO POLICY AGREEMENT.
- -----------------------------
As an additional inducement for IMCO to enter into the Policy Agreement,
SIS hereby agrees with IMCO as follows:
(1) in connection with Sections 6 and 12 of the Policy Agreement, SIS will
give IMCO thirty days' written notice before suspending sales or
withdrawing the offering of Shares (as defined in the Policy Agreement) or
terminating the Policy Agreement, except that sales of Shares may be
suspended or the offering of Shares withdrawn or the Policy Agreement
terminated without notice (i) if the continued offering or sale of Shares
would violate any applicable statute or regulation, order or decree of any
court, governmental agency or self-regulatory organization having
jurisdiction, or (ii) if in the sole discretion of the Trustees of the
Fund, including a majority of those Trustees who are not "interested
persons" as defined in the Investment Company Act of 1940, as amended, of
the Trust or of its investment adviser, such action is determined to be
necessary in the best interests of the Shareholders of the Portfolio.
(2) no unilateral amendment pursuant to Section 6 of the Policy Agreement
shall be effective against IMCO unless it is accompanied by a written
notice from SIS stating that the amendment is necessary to prevent the
continued offering or sale of Shares from violating any applicable statute
or regulation, order or decree of any court, governmental agency or self-
regulating organization having jurisdiction.
<PAGE>
Scudder Kemper Investments, Inc.
__________ , 1998
Page 4
FUND MATERIALS.
- --------------
The Fund, at its expense, shall provide USAA Life or its designee with
camera ready copy or computer diskette versions of all prospectuses (including
supplements thereto), statements of additional information, annual and semi-
annual reports, and proxy materials (collectively, "Fund Materials"), to be
printed and distributed by USAA Life or IMCO to existing and prospective
Contract or Policy owners, as appropriate. USAA Life agrees to bear the cost of
printing and distributing such Fund Materials.
TAX MATTERS.
- -----------
1. The Fund, SS&C, or SIS will notify USAA Life immediately upon having a
reasonable basis for believing that the Portfolio has ceased to comply with the
requirements of Section 817(h) of the Internal Revenue Code of 1986, as amended
("Code") or that the Portfolio might not so comply in the future. In connection
with a failure to comply with the Section 817(h) diversification requirements,
SS&C shall cooperate with USAA Life by providing it with full explanation as to
the circumstances that caused the failure, and the reasons why the failure was
inadvertent.
2. The limitation against liability set out in paragraph 6(c)(viii) of the
Reimbursement Agreement shall apply only where it can be shown that the failure
of USAA Life to comply with clauses 6(c)(i) through (vii) materially contributed
to the liability.
3. Each Agreement shall terminate, at the option of USAA Life or IMCO, as
the case may be, in the event of a non-curable failure by the Portfolio to
comply with the provisions of Subchapter M or Section 817(h) of the Code. To
the extent that any Agreement by its terms provides for one or more rights or
obligations thereunder to survive the termination of that Agreement, those
provisions shall survive the termination of that Agreement under this paragraph.
MISCELLANEOUS.
- -------------
(a) The Fund, SS&C, and SIS agree to make available to USAA Life and its
affiliates, to the extent permitted by applicable law, any arrangement for
utilization of the Portfolio, which arrangement has been or will be made
generally available to any other life insurance company or any affiliate of a
life insurance company.
<PAGE>
Scudder Kemper Investments, Inc.
__________ , 1998
Page 5
(b) This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the Commonwealth of Massachusetts.
(c) The name "Scudder Variable Life Investment Fund" is the designation of
the Trustees for the time being under a Declaration of Trust dated March 15,
1985, as amended, and all persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Trustees, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund. No Portfolio
shall be liable for any obligations properly attributable to any other
Portfolio.
_________________________________
Very truly yours,
USAA LIFE INSURANCE COMPANY
By_________________________
EDWIN L. ROSANE
President
USAA INVESTMENT
MANAGEMENT COMPANY
By________________________
JOHN J. DALLAHAN
Senior Vice President
Investments Services
<PAGE>
Scudder Kemper Investments, Inc.
__________ , 1998
Page 6
We hereby agree to and accept the provisions set out above.
SCUDDER KEMPER INVESTMENTS, INC.
By: ________________
SCUDDER INVESTOR SERVICES, INC.
By: ________________
SCUDDER VARIABLE LIFE INVESTMENT FUND
By: _______________
44265
<PAGE>
EXHIBIT 8(E)(I)
AMENDED PARTICIPATION AGREEMENT
BY AND AMONG
USAA LIFE INSURANCE COMPANY
AND
THE ALGER AMERICAN FUND,
FRED ALGER MANAGEMENT, INC.,
FRED ALGER & COMPANY, INCORPORATED
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ------------ ----
<S> <C>
Section 1. Available Portfolios 2
1.1 Growth Portfolio 2
1.2 Addition or Deletion of Portfolios 2
1.3 No Sales to the General Public 2
Section 2. Processing Transactions 2
2.1 Timely Pricing and Orders 2
2.2 Timely Payments 3
2.3 Applicable Price 3
2.4 Dividends and Distributions 3
2.5 Book Entry 4
Section 3. Costs and Expenses 4
3.1 General 4
3.2 Registration 4
3.3 Other (Non-Sales-Related) 5
3.4 Other (Sales-Related) 5
3.5 Parties to Cooperate 5
Section 4. Legal Compliance 5
4.1 Tax Laws 5
4.2 Insurance and Certain Other Laws 7
4.3 Securities Laws 8
4.4 Notice of Certain Proceedings and Other Circumstances 9
4.5 USAA Life to Provide Documents; Information about the Trust 10
4.6 Trust to Provide Documents; Information about USAA Life 10
Section 5. Mixed and Shared Funding 11
5.1 General 11
5.2 Disinterested Trustees 11
5.3 Monitoring for Material Irreconcilable Conflicts 12
5.4 Conflict Remedies 12
5.5 Notice to USAA Life 14
5.6 Information Requested by Board of Trustees 14
5.7 Compliance with SEC Rules 14
5.8 Requirements for Other Insurance Companies 14
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ------------ ----
<S> <C>
Section 6. Termination 15
6.1 Events of Termination 15
6.2 Notice Requirement for Termination 16
6.3 Portfolios to Remain Available 16
6.4 Survival of Warranties and Indemnifications 17
6.5 Continuance of Agreement for Certain Purposes 17
Section 7. Parties to Cooperate Respecting Termination 17
Section 8. Assignment 18
Section 9. Notices 18
Section 10. Voting Procedures 19
Section 11. Foreign Tax Credits 19
Section 12. Indemnification 19
12.1 Of Trust, Distributor and Adviser by USAA Life 19
12.2 Of USAA Life by Distributor and Adviser 21
12.3 Effect of Notice 24
Section 13. Applicable Law 24
Section 14. Execution in Counterparts 24
Section 15. Severability 24
Section 16. Rights Cumulative 25
Section 17. Restrictions on Sales of Trust Shares 25
Section 18. Scope of Liability 25
Section 19. Headings 26
</TABLE>
ii
<PAGE>
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 16th day of December, 1994
and amended March 16, 1998 ("Agreement"), by and among USAA Life Insurance
Company, a Texas life insurance company ("USAA Life"), on behalf of itself, the
Separate Account of USAA Life Insurance Company (the "Separate Account"), and
the Life Insurance Separate Account of USAA Life Insurance Company (the "Life
Insurance Separate Account"), each an investment account organized under the
laws of Texas; The Alger American Fund, a Massachusetts business trust (the
"Trust"); Fred Alger Management, Inc., a New York corporation ("Adviser"), the
Trust's investment adviser; and Fred Alger & Company, Incorporated, a Delaware
corporation ("Distributor"), the Trust's principal underwriter (collectively,
the "Parties").
WITNESSETH THAT:
WHEREAS, USAA Life will be the issuer of certain variable annuity contracts
of USAA Life that are the subject of USAA Life's Form N-4 registration statement
filed with the Securities and Exchange commission ("SEC"), File No. 33-82268
(the "Contracts"); and
WHEREAS, USAA Life will be the issuer of certain flexible premium variable
universal life insurance policies that are the subject of USAA Life's Form S-6
and Form N-8B-2 registration statements filed with the SEC, File No. 333-45343
and 811-08625, respectively, (the "Policy" or "Policies"); and
WHEREAS, USAA Life will fund the Contracts and Policies through the
Separate Account and Life Insurance Separate Account, respectively, each of
which currently consists of seven subaccounts ("Fund Accounts"; reference herein
to the "Separate Account" or "Life Insurance Separate Account" includes
reference to each Fund Account to the extent the context requires); and
WHEREAS, USAA Life will serve as the depositor of the Separate Account and
the Life Insurance Separate Account, each of which is a unit investment trust
registered as an investment company under the Investment Company Act of 1940
(the "1940 Act"), and the security interests deemed to be issued by the Separate
Account under the Contracts and the Life Insurance Separate Account under the
Policies will be registered as securities under the Securities Act of 1933 (the
"1933 Act"); and
WHEREAS, the Trust is registered with the SEC as an open-end management
investment company under the 1940 Act, consisting of six separate series
("Series") whose shares are registered under the 1933 Act; and
WHEREAS, the Trust and Distributor will make shares of each Series listed
on Schedule A hereto (each, a "Portfolio"; reference herein to the "Trust"
includes reference to each Portfolio to the
1
<PAGE>
extent the context requires) and made part hereof, available for purchase by the
Separate Account and the Life Insurance Separate Account; and
WHEREAS, the Trust's Alger American Growth Portfolio ("Growth Portfolio")
is currently the only Portfolio that USAA Life intends to utilize as an
investment medium for the benefit of the owners of the Contracts (the "Contract
owners") or Policies ("Policy owners") who have allocated Contract or Policy
value to the Fund Account corresponding to that Portfolio;
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
Section 1. Available Portfolios
---------------------------------
1.1 Growth Portfolio.
The Trust and Distributor will make shares in the Growth Portfolio
available to USAA Life for purchase and redemption at net asset value and with
no sales charges, subject to the terms and conditions of this Agreement.
1.2 Addition or Deletion of Portfolios.
The Parties hereto may agree, from time to time, to add other Trust
Portfolios to provide additional funding media for the Contracts and Policies,
or to delete, combine, or modify existing Portfolios, by amending Schedule A
hereto. Upon such amendment to Schedule A, any applicable reference to a
Portfolio, the Trust, or its shares herein shall include a reference to any such
additional Portfolio.
1.3 No Sales to the General Public.
The Trust and Distributor represent and warrant that no shares of any
Portfolio have been or will be sold to the general public.
2
<PAGE>
Section 2. Processing Transactions
------------------------------------
2.1 Timely Pricing and Orders.
The Trust or its designated agent will provide closing net asset value,
dividend and capital gain distribution information for each Portfolio to USAA
Life at the close of trading on each day on which (a) the New York Stock
Exchange is open for regular trading, (b) the Trust calculates the Portfolio's
net asset value and (c) USAA Life is open for business ("Business Day"). The
Trust or its designated agent will use its best efforts to provide this
information by 5:15 p.m., Central time. USAA Life will use these data to
calculate unit values, which in turn will be used to process transactions that
receive that same Business Day's Separate Account or Life Insurance Separate
Account unit value. Such Separate Account or Life Insurance Account processing
will be done the same evening, and corresponding orders with respect to Trust
shares will be placed the morning of the following Business Day. USAA Life will
use its best efforts to place such orders with the Trust by 9 a.m., Central
time.
It is understood and agreed that the Trustees of the Trust may refuse to
sell shares of any Portfolio to any person, or suspend or terminate the offering
of shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or if, in the sole discretion of the Trustees
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, such action is deemed in the best interests of the
shareholders of such Portfolio.
2.2 Timely Payments.
USAA Life will transmit orders for purchases and redemptions of Trust
shares to Distributor, and will wire payment for net purchases to a custodial
account designated by the Trust on the same day as the order for Trust shares is
placed, to the extent practicable. Payment for net redemptions will be wired by
the Trust to an account designated by USAA Life on the same day as the order is
placed, to the extent practicable, and in any event be made within five calendar
days after the date the order is placed in order to enable USAA Life to pay
redemption proceeds within the time specified in Section 22(e) of the 1940 Act.
2.3 Applicable Price.
The Parties agree that Portfolio share purchase and redemption orders that
result from Contract or Policy owner purchase payments, surrenders, partial
surrenders, partial withdrawals, routine withdrawals of charges, loans, loan
repayments, payment of benefit proceeds at death or Policy maturity, or requests
for other transactions under the Contracts or Policies that USAA Life receives
prior to the close of regular trading on the New York Stock Exchange on a
Business Day, will be executed at the net asset values as determined as of the
close of regular trading on the New
3
<PAGE>
York Stock Exchange on that Day, which generally will be the Business Day prior
to Distributor's receipt of the corresponding orders for purchases and
redemptions of Portfolio shares. USAA Life or its designee shall act as the
Trust's agent for receipt of such orders. All other purchases and redemptions of
Portfolio shares by USAA Life will be effected at the net asset values next
computed after receipt by Distributor of the order therefor, and such orders
will be irrevocable.
2.4 Dividends and Distributions.
The Trust will furnish notice promptly to USAA Life of any income dividends
or capital gain distributions payable on the shares of any Portfolio. USAA Life
hereby elects to reinvest all dividends and capital gains distributions in
additional shares of the corresponding Portfolio at the ex-dividend date net
asset values until USAA Life otherwise notifies the Trust in writing, it being
agreed by the Parties that the ex-dividend date and the payment date with
respect to any dividend or distribution will be the same Business Day. USAA
Life reserves the right to revoke this election and to receive all such income
dividends and capital gain distributions in cash. The Trust shall notify USAA
Life of the number of shares so issued as payment of such dividends and
distributions.
2.5 Book Entry.
Issuance and transfer of Trust shares will be by book entry only. Stock
certificates will not be issued to USAA Life. Shares ordered from the Trust on
behalf of the Separate Account will be recorded in an appropriate title for USAA
Life, on behalf of its Separate Account. Shares ordered from the Trust on
behalf of the Life Insurance Separate Account will be recorded in an appropriate
title for USAA Life, on behalf of its Life Insurance Separate Account.
Section 3. Costs and Expenses
-------------------------------
3.1 General.
Except as otherwise specifically provided herein, each Party will bear all
expenses incident to its performance under this Agreement.
3.2 Registration.
(a) The Trust will bear the cost of its registering as a management
investment company under the 1940 Act and registering its shares under the 1933
Act, and keeping such registrations current and effective; including, without
limitation, the preparation of and filing with the SEC of
4
<PAGE>
Forms N-SAR and Rule 24f-2 Notices respecting the Trust and its shares and
payment of all applicable registration or filing fees with respect to any of the
foregoing.
(b) USAA Life will bear the cost of registering the Separate Account and
the Life Insurance Separate Account as a unit investment trust under the 1940
Act and registering units of interest under the Contracts and Policies under the
1933 Act and keeping such registrations current and effective; including,
without limitation, the preparation and filing with the SEC of Forms N-SAR and
Rule 24f-2 Notices respecting the Separate Account and the Life Insurance
Separate Account and each of its units of interest and payment of all applicable
registration or filing fees with respect to any of the foregoing.
3.3 Other (Non-Sales-Related).
(a) The Trust will bear the costs of preparing, filing with the SEC and
setting for printing the Trust's prospectus, statement of additional information
and any amendments or supplements thereto (collectively, the "Trust
Prospectus"), periodic reports to shareholders, Trust proxy material and other
shareholder communications.
(b) USAA Life will bear the costs of preparing, filing with the SEC and
setting for printing, the Separate Account's prospectus, statement of additional
information and any amendments or supplements thereto (collectively, the
"Separate Account Prospectus"), any periodic reports to Contract owners,
annuitants or participants under the Contracts (collectively, and with Policy
owners, "Participants"), voting instruction solicitation material, and other
Participant communications.
(c) USAA Life will bear the costs of preparing, filing with the SEC and
setting for printing, the Life Insurance Separate Account's prospectus and any
amendments or supplements thereto (collectively, the "Life Insurance Separate
Account Prospectus"), any periodic reports to Policy owners, voting instruction
solicitation material, and other Policy owner communications.
(d) USAA Life or its affiliates shall print in quantity and deliver to
existing Participants the documents provided by the Trust in camera ready form
pursuant to Section 4.6(b) hereof. The costs of printing in quantity and
delivering to existing Participants such documents will be allocated between
USAA Life or its affiliates and the Trust or its affiliates as they shall
determine by separate agreement.
3.4 Other (Sales-Related).
Expenses of distributing a Portfolio's shares and the Contracts and
Policies will be allocated between USAA Life, or its affiliates, and the Trust,
or its affiliates, as they shall determine by
5
<PAGE>
separate agreement. As used in this Agreement, the term "affiliates" shall have
the same meaning as "affiliated person" as defined in Section 2(a)(3) of the
1940 Act.
3.5 Parties to Cooperate.
The Trust, Adviser, Distributor and USAA Life, each agrees to cooperate
with the others, as applicable, in arranging to print, mail and/or deliver
combined or coordinated prospectuses or other materials of the Trust, Separate
Account and Life Insurance Separate Account.
Section 4. Legal Compliance
-----------------------------
4.1 Tax Laws.
(a) The Trust represents and warrants that each Portfolio is currently
qualified as a regulated investment company ("RIC") under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), and represents that it
will use its best efforts to qualify and to maintain qualification of each
Portfolio as a RIC and the Trust, Adviser or Distributor will notify USAA Life
immediately upon having a reasonable basis for believing that a Portfolio has
ceased to so qualify or that it might not so qualify in the future.
(b) USAA Life represents that it believes, in good faith, that the
Contracts and Policies will be treated as annuity contracts and life insurance
policies, respectively, under applicable provisions of the Code and that it will
use its best efforts to maintain such treatment; USAA Life will notify the Trust
and Distributor immediately upon having a reasonable basis for believing that
any of the Contracts or Policies have ceased to be so treated or that they might
not be so treated in the future.
(c) The Trust represents that it will use its best efforts to comply and to
maintain each Portfolio's compliance with the diversification requirements set
forth in Section 817(h) of the Code and Section 1.817-5(b) of the regulations
under the Code, and the Trust, Adviser or Distributor will notify USAA Life
immediately upon having a reasonable basis for believing that a Portfolio has
ceased to so comply or that a Portfolio might not so comply in the future.
(d) USAA Life represents that it believes, in good faith, that the Separate
Account and Life Insurance Separate Account are each a "segregated asset
account" and that interests in the Separate Account and Life Insurance Separate
Account are offered exclusively through the purchase of or transfer into a
"variable contract," within the meaning of such terms under Section 817 of the
Code and the regulations thereunder. USAA Life will use its best efforts to
continue to meet such definitional requirements, and it will notify the Trust
and Distributor immediately upon having a
6
<PAGE>
reasonable basis for believing that such requirements have ceased to be met or
that they might not be met in the future.
(e) Adviser represents and warrants that it will manage each Portfolio in
compliance with its investment objectives, policies and restrictions as set
forth in the Trust Prospectus. Adviser further represents and warrants that it
will manage each Portfolio as a RIC in compliance with Subchapter M and Section
817(h) of the Code and regulations thereunder.
(f) The Trust represents that it has adopted and will maintain procedures
for ensuring that the Trust is managed in compliance with Subchapter M and
Section 817(h) of the Code and regulations thereunder, and in a manner designed
to avoid the imposition of excise taxes under Section 4982 of the Code or any
other similar or successor provision. On request, the Trust will also provide
USAA Life with such materials, cooperation and assistance as may be reasonably
necessary for USAA Life or any person designated by USAA Life to review from
time to time the procedures and practices of Adviser or any other provider of
services to the Trust for ensuring that the Trust is managed in compliance with
Subchapter M and Section 817(h) of the Code and regulations thereunder. The
Parties hereto agree that the Trust shall not incur any unreasonable costs in
connection with the provision of any material, cooperation or assistance to USAA
Life pursuant to this paragraph.
(g) Within 15 Business Days after the end of each calendar quarter, the
Adviser will furnish to USAA Life a letter confirming the Trust's compliance
with Subchapter M and Section 817(h) of the Code and regulations thereunder as
of the end of the applicable quarter, or, in the case of the last quarter in
each year, for the 12 months then ended.
(h) In the event of any noncompliance or potential noncompliance with
Subchapter M or Section 817(h) of the Code and regulations thereunder, the Trust
will take such action as is necessary or appropriate to cure any noncompliance
during a grace period of 30 calendar days after the end of the calendar quarter
in which such noncompliance occurred. If the Trust so cures the noncompliance,
it will furnish USAA Life with a report by the last day of such grace period
confirming the same. If the Trust does not so cure the noncompliance regarding
its status as a RIC, the Trust will pursue those efforts necessary to enable
each affected Portfolio to qualify once again for treatment as a RIC in
compliance with Subchapter M. If the Trust does not so cure the noncompliance
regarding its status under Section 817(h), the Trust will cooperate in good
faith with USAA Life's efforts to obtain a ruling and closing agreement, as
provided in Revenue Procedure 92-25 issued by the Internal Revenue Service (or
any applicable ruling or procedure subsequently issued by the Internal Revenue
Service), that the Trust satisfies Section 817(h) for the applicable period or
periods.
4.2 Insurance and Certain Other Laws.
7
<PAGE>
(a) The Trust will use its best efforts to comply with any applicable state
insurance laws or regulations, to the extent specifically requested in writing
by USAA Life.
(b) USAA Life represents and warrants that (i) it is an insurance company
duly organized, validly existing and in good standing under the laws of the
State of Texas and has full corporate power, authority and legal right to
execute, deliver and perform its duties and comply with its obligations under
this Agreement, (ii) it has legally and validly established and maintains the
Separate Account and the Life Insurance Separate Account each as a segregated
asset account under Chapter 3, Article 3.75 of the Texas Insurance Code and the
regulations thereunder, and (iii) the Contracts and Policies comply in all
material respects with all other applicable federal and state laws and
regulations.
(c) Distributor represents and warrants that it is a business corporation
duly organized, validly existing, and in good standing under the laws of the
State of Delaware and has full corporate power, authority and legal right to
execute, deliver, and perform its duties and comply with its obligations under
this Agreement.
(d) The Trust, Adviser and Distributor represent and warrant that the Trust
is a business trust duly organized, validly existing, and in good standing under
the laws of the Commonwealth of Massachusetts and has full power, authority, and
legal right to execute, deliver, and perform its duties and comply with its
obligations under this Agreement.
(f) Adviser represents and warrants that it is a corporation, duly
organized, validly existing and in good standing under the laws of New York and
has full power, authority, and legal right to execute, deliver, and perform its
duties and comply with its obligations under this Agreement.
4.3 Securities Laws.
(a) USAA Life represents and warrants that (i) interests in the Separate
Account pursuant to the Contracts and in the Life Insurance Separate Account
pursuant to the Polices will be registered under the 1933 Act to the extent
required by the 1933 Act, and the Contracts and Policies will be duly authorized
for issuance and sold in compliance with Texas law, (ii) the Separate Account
and Life Insurance Separate Account each is and will remain registered under the
1940 Act, to the extent required under the 1940 Act, (iii) the Separate Account
and Life Insurance Separate Account each does and will comply in all material
respects with the requirements of the 1940 Act and the rules thereunder, (iv)
the Separate Account's and the Life Insurance Separate Account's 1933 Act
registration statement relating to the Contracts and Policies, respectively,
together with any amendments thereto, will at all times comply in all material
respects with the requirements of the 1933 Act and the rules thereunder, and (v)
the Separate Account Prospectus and Life Insurance Separate Account Prospectus
each will at all times comply in all material respects with the requirements of
the 1933 Act and the rules thereunder.
8
<PAGE>
(b) The Trust and Distributor represent and warrant that (i) Trust shares
sold pursuant to this Agreement will be registered under the 1933 Act to the
extent required by the 1933 Act and duly authorized for issuance and sold in
compliance with Massachusetts law, (ii) the Trust is and will remain registered
under the 1940 Act to the extent required by the 1940 Act, (iii) the Trust will
amend the registration statement for its shares under the 1933 Act and itself
under the 1940 Act from time to time as required in order to effect the
continuous offering of shares, (iv) the Trust does and will comply in all
material respects with the requirements of the 1940 Act and the rules
thereunder, (v) the Trust's 1933 Act registration statement, together with any
amendments thereto, will at all times comply in all material respects with the
requirements of the 1933 Act and rules thereunder, and (vi) the Trust Prospectus
will at all times comply in all material respects with the requirements of the
1933 Act and the rules thereunder.
(c) The Trust will register and qualify its shares for sale in accordance
with the laws of any state or other jurisdiction if and to the extent
reasonably deemed advisable by the Trust, USAA Life or any other life insurance
company utilizing the Trust.
(d) Distributor represents and warrants that it is registered as a broker-
dealer with the SEC under the Securities Exchange Act of 1934, as amended, and
is a member in good standing of the National Association of Securities Dealers,
Inc. (the "NASD"), and that it has and will perform its obligations hereunder in
compliance in all material respects with the federal securities laws, any
applicable state securities laws, and the regulations of the NASD.
(e) Adviser represents and warrants that it is registered as an
investment adviser with the SEC under the Investment Advisers Act of 1940, as
amended, and under such state securities laws as may be applicable, and that it
has and will perform its obligations hereunder in compliance in all material
respects with the federal securities laws and any applicable state securities
laws.
4.4 Notice of Certain Proceedings and Other Circumstances.
-----------------------------------------------------
(a) Distributor or the Trust will immediately notify USAA Life of (i) the
issuance by any court or regulatory body of any stop order, cease and desist
order, or other similar order with respect to the Trust's registration statement
under the 1933 Act or the Trust Prospectus, (ii) any request by the SEC for any
amendment to such registration statement or Trust Prospectus, (iii) the
initiation of any proceedings for that purpose or for any other purpose relating
to the registration or offering of the Trust's shares, or (iv) any other action
or circumstances that may prevent the lawful offer or sale of shares of any
Portfolio in any state or jurisdiction, including, without limitation, any
circumstances in which (x) such shares are not registered and, in all material
respects, issued and sold in accordance with applicable state and federal law or
(y) such law precludes the use of such shares as an underlying investment medium
of the Contracts or the Policies issued or to be issued by USAA Life.
Distributor and the Trust will make every reasonable effort to prevent the
issuance,
9
<PAGE>
with respect to any Portfolio, of any such stop order, cease and desist order or
similar order and, if any such order is issued, to obtain the lifting thereof at
the earliest possible time.
(b) USAA Life will immediately notify the Trust of (i) the issuance by any
court or regulatory body of any stop order, cease and desist order, or other
similar order with respect to the Separate Account's or Life Insurance Separate
Account's registration statement under the 1933 Act relating to the Contracts or
the Separate Account Prospectus, or the Policies or the Life Insurance Separate
Account Prospectus, respectively, (ii) any request by the SEC for any amendment
to such registration statements or Prospectuses, (iii) the initiation of any
proceedings for that purpose or for any other purpose relating to the
registration or offering of the Separate Account interests pursuant to the
Contracts or the Life Insurance Separate Account interests pursuant to the
Policies, or (iv) any other action or circumstances that may prevent the lawful
offer or sale of said interests in any state or jurisdiction, including, without
limitation, any circumstances in which said interests are not registered and, in
all material respects, issued and sold in accordance with applicable state and
federal law. USAA Life will make every reasonable effort to prevent the
issuance of any such stop order, cease and desist order or similar order and, if
any such order is issued, to obtain the lifting thereof at the earliest possible
time.
4.5 USAA Life to Provide Documents; Information about the Trust.
(a) USAA Life will provide to the Trust one complete copy of all SEC
registration statements, Separate Account Prospectuses, Life Insurance Separate
Account Prospectuses, reports, any preliminary and final voting instruction
solicitation material, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Separate
Account, the Contracts, the Life Insurance Separate Account or the Policies,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
(b) USAA Life will provide to the Trust or its designee each piece of
sales literature or other promotional material in which the Trust, Distributor,
and/or Adviser is named, at least 15 Business Days prior to its use or such
shorter period as the Parties hereto may, from time to time, agree upon. No
such material shall be used if the Trust or its designee objects to such use
within 15 Business Days after receipt of such material or such shorter period as
the Parties hereto may, from time to time, agree upon. The Trust hereby
designates its Adviser as the entity to receive such sales literature, until
such time as the Trust appoints another designee by giving notice to USAA Life
in the manner required by Section 9 hereof.
(c) Neither USAA Life nor any of its affiliates will give any information
or make any representations or statements on behalf of or concerning the Trust
in connection with the sale of the Contracts or the Policies other than (i) the
information or representations contained in the registration statement,
including the Trust Prospectus contained therein, relating to shares of a
Portfolio, as such registration statement and Trust Prospectus may be amended
from time to time; or
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(ii) in reports or proxy materials for the Trust; or (iii) in sales literature
or other promotional material approved by the Trust or Distributor, except with
the permission of the Trust or Distributor.
4.6 Trust to Provide Documents; Information about USAA Life.
(a) The Trust will provide to USAA Life one complete copy of all SEC
registration statements, Trust Prospectuses, reports, any preliminary and final
proxy material, applications for exemptions, requests for no-action letters, and
all amendments to any of the above, that relate to the Trust or the shares of a
Portfolio, contemporaneously with the filing of such document with the SEC or
other regulatory authorities.
(b) The Trust will provide to USAA Life camera ready copies of all Trust
Prospectuses, proxy materials, periodic reports to shareholders and other
materials required by law to be sent to Contract or Policy owners who have
allocated any Contract or Policy value to a Portfolio. The Trust will provide
such camera ready copies to USAA Life in a timely manner so as to enable USAA
Life to print and distribute such materials within the time required by law to
be furnished to Contract and Policy owners.
(c) The Trust will provide to USAA Life or its designee each piece of sales
literature or other promotional material in which USAA Life or any of its
affiliates is named, or which refers to the Contracts or Policies, at least 15
Business Days prior to its use or such shorter period as the Parties hereto may,
from time to time, agree upon. No such material shall be used if USAA Life or
its designee objects to such use within 15 Business Days after receipt of such
material or such shorter period as the Parties hereto may, from time to time,
agree upon. USAA Life shall receive all such sales literature until such time
as it appoints a designee by giving notice to the Trust in the manner required
by Section 9 hereof.
(d) Neither the Trust nor any of its affiliates will give any information
or make any representations or statements on behalf of or concerning USAA Life,
the Separate Account, the Contracts, the Life Insurance Separate Account or the
Policies other than (i) the information or representations contained in the
registration statement, including the Separate Account Prospectus contained
therein, relating to the Contracts, as such registration statement and Separate
Account Prospectus may be amended from time to time; or (ii) the information or
representations contained in the registration statement, including the Life
Insurance Separate Account Prospectus contained therein, relating to the
Policies, as such registration statement and Life Insurance Separate Account
Prospectus may be amended from time to time; (iii) in reports or voting
instruction materials for the Separate Account or the Life Insurance Separate
Account; or (iv) in sales literature or other promotional material approved by
USAA Life or its affiliates, except with the express written permission of USAA
Life.
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Section 5. Mixed and Shared Funding
-------------------------------------
5.1 General.
The Trust represents and warrants that it has received an order from the
SEC exempting it from certain provisions of the 1940 Act and rules thereunder so
that the Trust may be available for investment by certain other entities,
including, without limitation, separate accounts funding variable life insurance
contracts ("Mixed Funding") and separate accounts of insurance companies
unaffiliated with USAA Life ("Shared Funding"). The Parties recognize that the
SEC has imposed terms and conditions for such orders that are substantially
identical to many of the provisions of this Section 5. Sections 5.2 through 5.8
below shall apply, if and only if the Trust implements Mixed or Shared Funding,
pursuant to such an exemptive order or otherwise.
5.2 Disinterested Trustees.
The Trust agrees that its Board of Trustees shall at all times consist of
trustees a majority of whom (the "Disinterested Trustees") are not interested
persons of the Trust within the meaning of Section 2(a)(19) of the 1940 Act.
5.3 Monitoring for Material Irreconcilable Conflicts.
The Trust agrees that its Board of Trustees will monitor for the existence
of any material irreconcilable conflict between the interests of the
participants in all separate accounts of life insurance companies utilizing the
Trust, including the Separate Account. USAA Life agrees to inform the Board of
Trustees of the Trust of the existence of or any potential for any such material
irreconcilable conflict of which it is aware. The concept of a "material
irreconcilable conflict" is not defined by the 1940 Act or the rules thereunder,
but the Parties recognize that such a conflict may arise for a variety of
reasons, including, without limitation:
(a) an action by any state insurance or other regulatory authority;
(b) a change in applicable federal or state insurance, tax or securities
laws or regulations, or a public ruling, private letter ruling, no-
action or interpretative letter, or any similar action by insurance,
tax or securities regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any Portfolio are being managed;
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(e) a difference in voting instructions given by variable annuity
contract and variable life insurance contract participants or by
participants of different life insurance companies utilizing the Trust;
or
(f) a decision by a life insurance company utilizing the Trust to
disregard the voting instructions of participants.
Consistent with the SEC's requirements in connection with exemptive
proceedings of the type referred to in Section 5.1 hereof, USAA Life will assist
the Board of Trustees in carrying out its responsibilities by providing the
Board of Trustees with all information reasonably necessary for the Board of
Trustees to consider any issue raised, including information as to a decision by
USAA Life to disregard voting instructions of Participants.
5.4 Conflict Remedies.
(a) It is agreed that if it is determined by a majority of the members of
the Board of Trustees or a majority of the Disinterested Trustees that a
material irreconcilable conflict exists, USAA Life and the other life insurance
companies utilizing the Trust will, at their own expense and to the extent
reasonably practicable (as determined by a majority of the Disinterested
Trustees), take whatever steps are necessary to remedy or eliminate the material
irreconcilable conflict, which steps may include, but are not limited to:
(i) withdrawing the assets allocable to some or all of the separate
accounts from the Trust or any Portfolio and reinvesting such assets in
a different investment medium, including another Portfolio of the
Trust, or submitting the question whether such segregation should be
implemented to a vote of all affected participants and, as appropriate,
segregating the assets of any particular group (e.g., annuity contract
owners or participants, life insurance contract owners or all contract
owners and participants of one or more life insurance companies
utilizing the Trust) that votes in favor of such segregation, or
offering to the affected contract owners or participants the option of
making such a change; and
(ii) establishing a new registered investment company of the type defined
as a "Management Company" in Section 4(3) of the 1940 Act or a new
separate account that is operated as a Management Company.
(b) If the material irreconcilable conflict arises because of USAA Life's
decision to disregard Participant voting instructions and that decision
represents a minority position or would preclude a majority vote, USAA Life may
be required, at the Trust's election, to withdraw the Separate Account's or Life
Insurance Separate Account's investment in the Trust. No charge or penalty will
be imposed as a result of such withdrawal. Any such withdrawal must take place
within six months after the Trust gives notice to USAA Life that this provision
is being
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implemented, and until such withdrawal Distributor and the Trust shall
continue to accept and implement orders by USAA Life for the purchase and
redemption of shares of the Trust.
(c) If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to USAA Life conflicts with the
majority of other state regulators, then USAA Life will withdraw the Separate
Account's or Life Insurance Separate Account's investment in the Trust within
six months after the Trust's Board of Trustees informs USAA Life that it has
determined that such decision has created a material irreconcilable conflict,
and until such withdrawal Distributor and Trust shall continue to accept and
implement orders by USAA Life for the purchase and redemption of shares of the
Trust.
(d) USAA Life agrees that any remedial action taken by it in resolving any
material irreconcilable conflict will be carried out at its expense and with a
view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Trustees will
determine whether or not any proposed action adequately remedies any material
irreconcilable conflict. In no event, however, will the Trust or Distributor be
required to establish a new funding medium for any Contracts or Policies. USAA
Life will not be required by the terms hereof to establish a new funding medium
for any Contracts or Policies if an offer to do so has been declined by vote of
a majority of Participants materially adversely affected by the material
irreconcilable conflict.
5.5 Notice to USAA Life.
The Trust will promptly make known in writing to USAA Life the Board of
Trustees' determination of the existence of a material irreconcilable conflict,
a description of the facts that give rise to such conflict and the implications
of such conflict.
5.6 Information Requested by Board of Trustees.
USAA Life and the Trust will at least annually submit to the Board of
Trustees of the Trust such reports, materials or data as the Board of Trustees
may reasonably request so that the Board of Trustees may fully carry out the
obligations imposed upon it by the provisions hereof, and said reports,
materials and data will be submitted at any reasonable time deemed appropriate
by the Board of Trustees. All reports received by the Board of Trustees of
potential or existing conflicts, and all Board of Trustees actions with regard
to determining the existence of a conflict, notifying life insurance companies
utilizing the Trust of a conflict, and determining whether any proposed action
adequately remedies a conflict, will be properly recorded in the minutes of the
Board of Trustees or other appropriate records, and such minutes or other
records will be made available to the SEC upon request.
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5.7 Compliance with SEC Rules.
If, at any time during which the Trust is serving as an investment medium
for variable life insurance policies, 1940 Act Rules 6e-3(T) or, if applicable,
6e-2 are amended or Rule 6e-3 is adopted to provide exemptive relief with
respect to mixed and shared funding, the Trust agrees that it will comply with
the terms and conditions thereof and that the terms of this Section 5 shall be
deemed modified if and only to the extent required in order also to comply with
the terms and conditions of such exemptive relief that is afforded by any of
said rules that are applicable.
5.8 Requirements for Other Insurance Companies.
The Trust will require that each insurance company utilizing the Trust
enter into an agreement with the Trust that contains in substance the same
provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a), 4.4(b), 4.5(a),
5, 10 and 18(a) of this Agreement.
Section 6. Termination
------------------------
6.1 Events of Termination.
Subject to Section 6.4 below, this Agreement will terminate as to a
Portfolio:
(a) at the option of USAA Life, Distributor or the Trust upon the approval
by (x) a majority of the Disinterested Trustees or (y) a majority vote of the
shares of the affected Portfolio that are held in the corresponding Fund Account
of the Separate Account or Life Insurance Separate Account (pursuant to the
procedures set forth in Section 10 of this Agreement for voting Trust shares in
accordance with Participant instructions); provided, however, that the approvals
described in clauses (x) and (y) above shall not be required if (1) the
aggregate account value under the Contracts or Policies is less than $25
million, respectively, at the date the notice of termination is delivered, and
(2) the notice of termination is delivered no earlier than the end of the 36th
full calendar month following the date this Agreement was amended ; or
(b) at the option of the Trust upon institution of formal proceedings
against USAA Life or its affiliates by the NASD, the SEC, any state insurance
regulator or any other regulatory body regarding USAA Life's obligations under
this Agreement or related to the sale of the Contracts or Policies, the
operation of the Separate Account or the Life Insurance Separate Account, or the
purchase of the Trust shares, if, in each case, the Trust reasonably determines
that such proceedings, or the facts on which such proceedings would be based,
have a material likelihood of imposing
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material adverse consequences on the Portfolio with respect to which the
Agreement is to be terminated; or
(c) at the option of USAA Life upon institution of formal proceedings
against the Trust, Distributor, or Adviser by the NASD, the SEC, or any state
insurance regulator or any other regulatory body regarding the Trust's,
Distributor's or Adviser's obligations under this Agreement or related to the
operation or management of the Trust or the purchase of Trust shares, if, in
each case, USAA Life reasonably determines that such proceedings, or the facts
on which such proceedings would be based, have a material likelihood of imposing
material adverse consequences on USAA Life, or the Fund Accounts corresponding
to the Portfolio with respect to which the Agreement is to be terminated; or
(d) at the option of any Party in the event that (i) the Portfolio's shares
are not registered and, in all material respects, issued and sold in accordance
with any applicable state or federal law or (ii) such law precludes the use of
such shares as an underlying investment medium of the Contracts or Policies
issued or to be issued by USAA Life; or
(e) upon termination of the corresponding Fund Accounts' investment in the
Portfolio pursuant to Section 5 hereof; or
(f) at the option of USAA Life if the Portfolio ceases to qualify as a RIC
under Subchapter M of the Code or under successor or similar provisions, or if
USAA Life reasonably believes that the Portfolio may fail to so qualify;
(g) at the option of USAA Life if the Portfolio fails to comply with
Section 817(h) of the Code or with successor or similar provisions, or if USAA
Life reasonably believes that the Portfolio may fail to so comply; or
(h) in the event of any change in the Portfolio's investment adviser or
investment practices, at the option of USAA Life if USAA Life reasonably
believes that such change will materially increase the risks incurred by USAA
Life or Participants; or
(i) at the option of any Party if the Contracts or Policies issued by USAA
Life cease to qualify as annuity contracts or life insurance policies,
respectively, under the Code (other than by reason of the Portfolio's
noncompliance with Section 817(h) or Subchapter M of the Code) or if interests
in the Separate Account under the Contracts or in the Life Insurance Separate
Account under the Policies are not registered and, in all material respects,
issued or sold in accordance with any applicable state or federal law.
6.2 Notice Requirement for Termination.
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No termination of this Agreement will be effective unless and until the
Party terminating this Agreement gives prior written notice to the other Party
to this Agreement of its intent to terminate, and such notice shall set forth
the basis for such termination. Furthermore,
(a) in the event that any termination is based upon the provisions of
Section 6.1(a) or 6.1(e) hereof, such prior written notice shall be given at
least six months days in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto;
(b) in the event that any termination is based upon the provisions of
Section 6.1(b) or Section 6.1(c) hereof, such prior written notice shall be
given at least ninety (90) days in advance of the effective date of termination
unless a shorter time is agreed to by the Parties hereto;
(c) in the event that any termination is based upon the provisions of
Section 6.1(d), Section 6.1(f), Section 6.1(g), Section 6.1(h) or Section 6.1(i)
hereof, such prior written notice shall be given as soon as possible within
twenty-four (24) hours after the terminating Party learns of the event causing
termination to be required.
6.3 Portfolios to Remain Available.
Except (i) as necessary to implement Participant-initiated transactions,
(ii) as required by state insurance laws or regulations, (iii) as required
pursuant to Section 5 of this Agreement, or (iv) with respect to any Portfolio
as to which this Agreement has terminated, USAA Life shall not (x) redeem Trust
shares attributable to the Contracts or Policies (as opposed to Trust shares
attributable to USAA Life's assets held in the Separate Account or Life
Insurance Separate Account), or (y) prevent Participants from allocating
payments to or transferring amounts from a Portfolio that was otherwise
available under the Contracts or Policies , until, in either case, 90 calendar
days after USAA Life shall have notified the Trust or Distributor of its
intention to do so.
6.4 Survival of Warranties and Indemnifications.
All warranties and indemnifications will survive the termination of this
Agreement.
6.5 Continuance of Agreement for Certain Purposes.
If any Party terminates this Agreement with respect to any Portfolio
pursuant to Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i)
hereof, this Agreement shall nevertheless continue in effect as to any shares of
that Portfolio that are outstanding as of the date of such termination (the
"Initial Termination Date"). This continuation shall extend to the earlier of
the date as of which the Separate Account or Life Insurance Separate Account
owns no shares of the affected Portfolio or a date (the "Final Termination
Date") six months following the Initial
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Termination Date, except that USAA Life may, by written notice to the other
Parties, shorten said six month period in the case of a termination pursuant to
Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i).
Section 7. Parties to Cooperate Respecting Termination
--------------------------------------------------------
The other Parties hereto agree to cooperate with and give reasonable
assistance to USAA Life in taking all necessary and appropriate steps for the
purpose of ensuring that the Separate Account or Life insurance Separate Account
owns no shares of a Portfolio after the Final Termination Date with respect
thereto, or, in the case of a termination pursuant to Section 6.1(a), the
termination date specified in the notice of termination. Such steps may include
combining the affected Fund Account with another Fund Account, substituting
other mutual fund shares for those of the affected Portfolio, or otherwise
terminating participation by the Contracts or the Policies in such Portfolio.
Section 8. Assignment
----------------------
This Agreement may not be assigned by any Party, except with the written
consent of each other Party.
Section 9. Notices
-------------------
Notices and communications required or permitted by Section 2 hereof will
be given by means mutually acceptable to the Parties concerned. Each other
notice or communication required or permitted by this Agreement will be given to
the following persons at the following addresses and facsimile numbers, or such
other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:
USAA Life Insurance Company
9800 Fredericksburg Road
San Antonio, TX 78288
Attn: Dwain A. Akins, Esq.
FAX: 210-498-0608
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The Alger American Fund
75 Maiden Lane
New York, NY 10038
Attn: Gregory S. Duch
FAX: 201-434-1459
Fred Alger Management, Inc.
75 Maiden Lane
New York, NY 10038
Attn: Gregory S. Duch
FAX: 201-434-1459
Fred Alger & Company, Incorporated
30 Montgomery Street
Jersey City, NJ 07302
Attn: Gregory S. Duch
FAX: 201-434-1459
Section 10. Voting Procedures
------------------------------
Subject to the cost allocation procedures set forth in Section 3 hereof,
USAA Life will distribute all proxy material furnished by the Trust to
Participants and will vote Trust shares in accordance with instructions received
from Participants. USAA Life will vote Trust shares that are (a) not
attributable to Participants or (b) attributable to Participants, but for which
no instructions have been received, in the same proportion as Trust shares for
which said instructions have been received from Participants. USAA Life agrees
that, with respect to the Policies, it will disregard Participant voting
instructions only to the extent it would be permitted to do so pursuant to Rule
6e-3(T)(b)(15)(iii) under the 1940 Act. USAA Life agrees that, with respect to
the Contracts, it will disregard Participant voting instructions only to the
extent it would be permitted to do so pursuant to Rule 6e-3(T)(b)(15)(iii) under
the 1940 if the Contracts were variable life insurance policies subject to that
rule. Other participating life insurance companies utilizing the Trust will be
responsible for calculating voting privileges in a manner consistent with that
of USAA Life, as prescribed by this Section 10.
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Section 11. Foreign Tax Credits
--------------------------------
The Trust agrees to consult in advance with USAA Life concerning any
decision to elect or not to elect pursuant to Section 853 of the Code to pass
through the benefit of any foreign tax credits to its shareholders.
Section 12. Indemnification
----------------------------
12.1 Of Trust, Distributor and Adviser by USAA Life.
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c), below,
USAA Life agrees to indemnify and hold harmless the Trust, Distributor and
Adviser, each of their trustees, directors and officers, and each person, if
any, who controls the Trust, Distributor or Adviser within the meaning of
Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for purposes
of this Section 12.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of USAA Life) or
actions in respect thereof (including, to the extent reasonable, legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or actions are related to the sale or acquisition of the
Trust's shares and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Separate Account's or
the Life Insurance Separate Account's 1933 Act registration statement,
the Separate Account Prospectus, the Life Insurance Separate Account
Prospectus, the Contracts, the Policies or sales literature or
advertising for the Contracts or the Policies (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading; provided that this agreement to indemnify shall
not apply as to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reliance upon and in
conformity with information furnished to USAA Life or its affiliates by
or on behalf of the Trust, Distributor or Adviser for use in the
Separate Account's or the Life Insurance Separate Account's 1933 Act
registration statement, the Separate Account Prospectus, the Life
Insurance Separate Account Prospectus, the Contracts, the Policies, or
sales literature or advertising (or any amendment or supplement to any
of the foregoing); or
(ii) arise out of or as a result of any other statements or representations
(other than statements or representations contained in the Trust's 1933
Act registration
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statement, Trust Prospectus, sales literature or advertising of the
Trust, or any amendment or supplement to any of the foregoing, not
supplied for use therein by or on behalf of USAA Life or its
affiliates) or the negligent, illegal or fraudulent conduct of USAA
Life or its affiliates or persons under their control (including,
without limitation, their employees and "Associated Persons," as
that term is defined in paragraph (m) of Article I of the NASD's By-
Laws), in connection with the sale or distribution of the Contracts;
or
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Trust's 1933
Act registration statement, Trust Prospectus, sales literature or
advertising of the Trust, or any amendment or supplement to any of
the foregoing, or the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make
the statements therein not misleading if such a statement or
omission was made in reliance upon and in conformity with
information furnished to the Trust, Adviser or Distributor by or on
behalf of USAA Life or its affiliates for use in the Trust's 1933
Act registration statement, Trust Prospectus, sales literature or
advertising of the Trust, or any amendment or supplement to any of
the foregoing; or
(iv) arise as a result of any failure by USAA Life to perform the
obligations, provide the services and furnish the materials required
of them under the terms of this Agreement, or any material breach of
any representation and/or warranty made by USAA Life in this
Agreement or arise out of or result from any other material breach
of this Agreement by USAA Life; or
(v) arise as a result of failure by the Contracts or Policies issued by
USAA Life to qualify as annuity contracts or life insurance
policies, respectively, under the Code, otherwise than by reason of
any Portfolio's failure to comply with Subchapter M or Section
817(h) of the Code.
(b) USAA Life shall not be liable under this Section 12.1 with respect
to any losses, claims, damages, liabilities or actions to which an Indemnified
Party would otherwise be subject by reason of willful misfeasance, bad faith, or
gross negligence in the performance by that Indemnified Party of its duties or
by reason of that Indemnified Party's reckless disregard of obligations or
duties (i) under this Agreement or (ii) to Distributor or to the Trust.
(c) USAA Life shall not be liable under this Section 12.1 with respect
to any action against an Indemnified Party unless the Trust, Distributor or
Adviser shall have notified USAA Life in writing within a reasonable time after
the summons or other first legal process giving information of the nature of the
action shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify USAA Life of any such action shall not relieve
USAA Life from any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of
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this Section 12.1. In case any such action is brought against an Indemnified
Party, USAA Life shall be entitled to participate, at its own expense, in the
defense of such action. USAA Life also shall be entitled to assume the defense
thereof, with counsel approved by the Indemnified Party named in the action,
which approval shall not be unreasonably withheld. After notice from USAA Life
to such Indemnified Party of USAA Life's election to assume the defense thereof,
the Indemnified Party will cooperate fully with USAA Life and shall bear the
fees and expenses of any additional counsel retained by it, and USAA Life will
not be liable to such Indemnified Party under this Agreement for any legal or
other expenses subsequently incurred by such Indemnified Party independently in
connection with the defense thereof, other than reasonable costs of
investigation.
12.2 Of USAA Life by Distributor and Adviser.
(a) Except to the extent provided in Sections 12.2(d) and 12.2(e), below,
Distributor and Adviser agree to indemnify and hold harmless USAA Life and its
affiliates, each of their directors and officers, and each person, if any, who
controls USAA Life or its affiliates within the meaning of Section 15 of the
1933 Act (collectively, the "Indemnified Parties" for purposes of this Section
12.2) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of Distributor and/or
Adviser) or actions in respect thereof (including, to the extent reasonable,
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or actions are related to the sale or acquisition of the
Trust's shares and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Trust's 1933 Act
registration statement, Trust Prospectus or sales literature or
advertising of the Trust (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading;
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to the Trust Distributor or Adviser by or on
behalf of USAA Life or its affiliates for use in the Trust's 1933 Act
registration statement, Trust Prospectus, or in sales literature or
advertising (or any amendment or supplement to any of the foregoing); or
(ii) arise out of or as a result of any other statements or representations
(other than statements or representations contained in the Separate
Account's or Life Insurance Separate Account's 1933 Act registration
statement, Separate Account Prospectus, Life Insurance Separate Account
Prospectus, sales literature or advertising for the Contracts or
Policies, or any amendment or supplement to any of the foregoing, not
supplied for use therein by or on behalf of the Trust, Distributor or
Adviser) or the negligent, illegal or fraudulent conduct of the Trust,
Distributor, Adviser or persons
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under their control (including, without limitation, their employees and
Associated Persons), in connection with the sale or distribution of
Trust shares; or
(iii) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Separate
Account's or Life Insurance Separate Account's 1933 Act registration
statement, Separate Account Prospectus, Life Insurance Separate Account
Prospectus, sales literature or advertising covering the Contracts or
Policies, or any amendment or supplement to any of the foregoing, or the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, if such statement or omission was made in reliance upon and
in conformity with information furnished to USAA Life or its affiliates
by or on behalf of the Trust, Distributor or Adviser for use in the
Separate Account's or Life Insurance Separate Account's 1933 Act
registration statement, Separate Account Prospectus, Life Insurance
Separate Account Prospectus, sales literature or advertising covering
the Contracts or Policies, or any amendment or supplement to any of the
foregoing; or
(iv) arise as a result of any failure by the Trust, Distributor or Adviser to
perform the obligations, provide the services and furnish the materials
required of them under the terms of this Agreement, or any material
breach of any representation and/or warranty made by the Trust,
Distributor, or Adviser in this Agreement or arise out of or result from
any other material breach of this Agreement by the Trust, Distributor,
or Adviser.
(b) Except to the extent provided in Sections 12.2(d) and 12.2(e) hereof,
Distributor and Adviser agree to indemnify and hold harmless the Indemnified
Parties from and against any and all losses, claims, damages, liabilities
(including amounts paid in settlement thereof with, except as set forth in
Section 12.2(c) below, the written consent of Distributor and/or Adviser) or
actions in respect thereof (including, to the extent reasonable, legal and other
expenses) to which the Indemnified Parties may become subject directly or
indirectly under any statute, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or actions directly or indirectly result
from or arise out of the failure of any Portfolio to operate as a regulated
investment company in compliance with (i) Subchapter M of the Code and
regulations thereunder or (ii) Section 817(h) of the Code and regulations
thereunder, including, without limitation, any income taxes and related
penalties, rescission charges, liability under state law to Contract owners,
Policy owners or Participants asserting liability against USAA Life or its
affiliates pursuant to the Contracts or Policies, the costs of any ruling and
closing agreement or other settlement with the Internal Revenue Service, and the
cost of any substitution by USAA Life of shares of another investment company or
portfolio for those of any adversely affected Portfolio as a funding medium for
the Separate Account or Life Insurance Separate Account that USAA Life
reasonably deems necessary or appropriate as a result of the noncompliance.
23
<PAGE>
(c) The written consent of Distributor and/or Adviser referred to in
Section 12.2(b) above shall not be required with respect to amounts paid in
connection with any ruling and closing agreement or other settlement with the
Internal Revenue Service.
(d) Distributor and Adviser shall not be liable under this Section 12.2
with respect to any losses, claims, damages, liabilities or actions to which an
Indemnified Party would otherwise be subject by reason of willful misfeasance,
bad faith, or gross negligence in the performance by that Indemnified Party of
its duties or by reason of such Indemnified Party's reckless disregard of its
obligations and duties (i) under this Agreement or (ii) to USAA Life, the
Separate Account, the Life Insurance Separate Account or Participants.
(e) Distributor and Adviser shall not be liable under this Section 12.2
with respect to any action against an Indemnified Party unless USAA Life or its
affiliates shall have notified Distributor and/or Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the action shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify Distributor and/or
Adviser of any such action shall not relieve Distributor or Adviser from any
liability which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this Section 12.2. In case any such action
is brought against an Indemnified Party, Distributor and/or Adviser will be
entitled to participate, at its own expense, in the defense of such action.
Distributor and/or Adviser also shall be entitled to assume the defense thereof
(which shall include, without limitation, the conduct of any ruling request and
closing agreement or other settlement proceeding with the Internal Revenue
Service), with counsel approved by the Indemnified Party named in the action,
which approval shall not be unreasonably withheld. After notice from
Distributor or Adviser to such Indemnified Party of Distributor or Adviser's
election to assume the defense thereof, the Indemnified Party will cooperate
fully with Distributor or Adviser and shall bear the fees and expenses of any
additional counsel retained by it, and Distributor or Adviser will not be liable
to such Indemnified Party under this Agreement for any legal or other expenses
subsequently incurred by such Indemnified Party independently in connection with
the defense thereof, other than reasonable costs of investigation.
12.3 Effect of Notice.
Any notice given by the indemnifying Party to an Indemnified Party referred
to in Section 12.1(c) or 12.2(e) above of participation in or control of any
action by the indemnifying Party will in no event be deemed to be an admission
by the indemnifying Party of liability, culpability or responsibility, and the
indemnifying Party will remain free to contest liability with respect to the
claim among the Parties or otherwise.
24
<PAGE>
Section 13. Applicable Law
----------------------------
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Texas law, without regard for that state's
principles of conflict of laws.
Section 14. Execution in Counterparts
---------------------------------------
This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together will constitute one and the same instrument.
Section 15. Severability
--------------------------
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
Section 16. Rights Cumulative
-------------------------------
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
Section 17. Restrictions on Sales of Trust Shares
----------------------------------------------------
USAA Life agrees that the Trust will be permitted (subject to the other
terms of this Agreement) to make its shares available to separate accounts of
other life insurance companies and such other entities as may be permitted by
Section 817(h) of the Code, the regulations hereunder, or judicial or
administrative interpretations thereof. The Trust, Distributor, and Adviser
agree to make available to USAA Life and its affiliates, to the extent permitted
by applicable law and consistent with the fiduciary duties of the Trustees of
the Trust, any arrangement for utilization of a Portfolio that involves a Rule
12b-1 plan adopted by the Trust.
25
<PAGE>
Section 18. Scope of Liability
--------------------------------
(a) It is understood and expressly agreed that the obligations and
liabilities of the Trust hereunder will not be binding upon any of the trustees,
shareholders, nominees, officers, agents or employees of the Trust, as provided
in its Declaration of Trust. The execution and delivery of this Agreement have
been authorized by the Board of Trustees and this Agreement has been signed by
an authorized officer of the Trust, acting as such, and neither such
authorization by the Board of Trustees nor such execution and delivery by such
officer will be deemed to have been made by any of the Trustees individually or
to impose any liability on any of them personally, but will bind only the assets
and property of the Trust, as provided in its Declaration of Trust.
(b) The obligations assumed by Adviser and Distributor under this Agreement
shall be binding on them notwithstanding any provision in any other agreement or
instrument that limits their liability to Trust shareholders generally.
Section 19. Headings
----------------------
The Table of Contents and headings used in this Agreement are for purposes
of reference only and shall not limit or define the meaning of the provisions of
this Agreement.
__________________________
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized officers
signing below.
USAA LIFE INSURANCE COMPANY
By: /s/ EDWIN L. ROSANE
--------------------
Title: President
26
<PAGE>
THE ALGER AMERICAN FUND
By: /s/ GREGORY DUCH
-----------------
Title: Treasurer
FRED ALGER MANAGEMENT, INC.
By: /s/ Gregory Duch
-----------------
Title: Executive Vice President
FRED ALGER & COMPANY, INCORPORATED
By: /s/ Gregory Duch
-----------------
Title: Executive Vice President
27
<PAGE>
SCHEDULE A
----------
LIST OF PORTFOLIOS
------------------
Alger American Growth Portfolio
44301
28
<PAGE>
EXHIBIT 8(E)(II)
AMENDED EXPENSE ALLOCATION AGREEMENT
This Agreement is made as of the 16th day of December, 1994, and
amended as of the 16th day of March, 1998, by and between USAA Life Insurance
Company, a Texas corporation ("USAA Life"), Fred Alger & Company, Incorporated,
a Delaware corporation ("Distributor"), and Fred Alger Management, Inc., a New
York corporation ("Adviser") (collectively, the "Parties").
W I T N E S S E T H:
-------------------
WHEREAS, the Distributor and Adviser serve as the principal
underwriter and investment adviser, as amended, respectively, of The Alger
American Fund, a Massachusetts business trust ("Trust"), which currently
consists of six separate series (each, a "Portfolio"); and
WHEREAS, USAA Life has entered into an agreement, dated December 16th,
1994, with the Trust, Distributor, and Adviser, as amended ("Participation
Agreement"), pursuant to which the Trust and Distributor will make shares of
each Portfolio listed from time to time on Schedule A thereto available to USAA
Life at net asset value and with no sales charges, subject to the terms of the
Participation Agreement; and
WHEREAS, the Participation Agreement provides that the Trust will bear
the costs of preparing, filing with the Securities and Exchange Commission and
setting for printing the Trust's prospectus, statement of additional information
and any amendments or supplements thereto, periodic reports to shareholders,
Trust proxy material and other shareholder communications (collectively, the
"Trust Materials"), and that the Trust will provide USAA Life with camera ready
copies of all Trust Materials required by law to be sent to owners of Contracts
("Contract owners") or Policies ("Policy owners") who have allocated any
Contract or Policy value to a Portfolio; and
WHEREAS, the Participation Agreement provides that USAA Life shall
print in quantity and deliver to existing Contract or Policy owners the Trust
Materials, and that the costs of printing in quantity and delivering to existing
Contract owners such Trust Materials will be allocated between USAA Life or its
affiliates and the Trust or its affiliates as they shall determine by separate
agreement; and
WHEREAS, the Participation Agreement provides that the expenses of
distributing a Portfolio's shares and the Contracts and the Polices will be
allocated between USAA Life, or its affiliates and the Trust, or its affiliates,
as they shall determine by separate agreement; and
<PAGE>
WHEREAS, USAA Life will incur various administrative expenses in
connection with the servicing of Contract or Policy owners who have allocated
Contract or Policy value to a Portfolio, including, but not limited to,
responding to various Contract or Policy owner inquiries regarding a Portfolio;
and
WHEREAS, the Parties hereto wish to allocate the expenses in a manner
that is fair and equitable, and consistent with the best interests of Contract
and Policy owners; and
WHEREAS, the Parties hereto wish to establish a means for allocating
the expenses that does not entail the expense and inconvenience of separately
identifying and accounting for each item of Trust expense;
NOW THEREFORE in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
1. Expense Allocations.
-------------------
1.1. Trust Materials.
---------------
(a) Subject to Section 2 hereof, USAA Life or its affiliates shall
initially bear the costs of printing in quantity and distributing all Trust
Materials required by law to be distributed to existing Contract or Policy
owners who have allocated Contract or Policy value to a Portfolio.
(b) Subject to Section 2 hereof, USAA Life or its affiliates shall
initially bear the costs of printing in quantity and mailing all Trust Materials
to prospective Contract or Policy owners.
1.2. Sales Materials.
---------------
(a) The Distributor and Adviser, as they may allocate between themselves,
shall bear the costs of preparing all sales literature or other promotional
material relating to each Portfolio (collectively, "Trust Sales Materials").
(b) Subject to Section 2 hereof, USAA Life or its affiliates shall
initially bear the costs of printing in quantity all Trust Sales Materials, and
preparing and printing in quantity all sales literature or other promotional
material relating to the Contracts or Policies (collectively, "USAA Sales
Materials").
2
<PAGE>
(c) Subject to Section 2 hereof, USAA Life or its affiliates shall
initially bear the costs of mailing all Trust and USAA Sales Materials to
prospective Contract or Policy owners.
1.3. Contract Owner Servicing.
------------------------
Subject to Section 2 hereof, USAA Life or its affiliates shall initially
bear all costs of servicing Contract or Policy owners who have allocated
Contract or Policy value to a Portfolio, which servicing shall include, but is
not limited to, responding to various Contract owner inquiries regarding a
Portfolio.
2. Payment of Expenses.
-------------------
(a) The Distributor and Adviser, as they may allocate between themselves,
shall pay to USAA Life a quarterly fee equal to a percentage of the average
daily net assets of the Portfolio attributable to Contracts and Policies, at the
annual rate of .10% (hereinafter, "Quarterly Fee"), in connection with the
expenses incurred by USAA Life under Section 1.1, Section 1.2 and Section 1.3
hereof. The payment of the Quarterly Fee shall commence at the end of the first
calendar quarter in which Contract or Policy value has been allocated to a
Portfolio.
(b) From time to time, the Parties hereto shall review the Quarterly Fee
to determine whether it reasonably approximates the incurred and anticipated
costs, over time, of USAA Life in connection with its duties hereunder. The
Parties agree to negotiate in good faith any change to the Quarterly Fee
proposed by a Party in good faith.
3. Term of Agreement.
-----------------
This Agreement shall continue in effect for so long as the Adviser or its
successor(s) in interest, or any affiliate thereof, continues to perform in a
similar capacity for the Trust, and for so long as any Contract or Policy value
or any monies attributable to USAA Life is allocated to a Portfolio.
4. Notices.
-------
Notices and communications required or permitted hereby will be given to
the following persons at the following addresses and facsimile numbers, or such
other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:
3
<PAGE>
USAA Life Insurance Company
9800 Fredericksburg Road
San Antonio, TX 78288
Attn: Dwain A. Akins, Esq.
FAX: 210-498-0608
Fred Alger Management, Inc.
75 Maiden Lane
New York, NY 10038
Attn: Gregory S. Duch
FAX: 202-434-1459
Fred Alger & Company, Incorporated
75 Maiden Lane
New York, NY 10038
Attn: Gregory S. Duch
FAX: 201-434-1459
5. Applicable Law.
--------------
Except insofar as the 1940 Act or other federal laws and regulations may be
controlling, this Agreement will be construed and the provisions hereof
interpreted under and in accordance with Texas law, without regard for that
state's principles of conflict of laws.
6. Execution in Counterparts.
-------------------------
This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together will constitute one and the same instrument.
7. Severability.
------------
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
4
<PAGE>
8. Rights Cumulative.
-----------------
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
9. Headings.
--------
The headings used in this Agreement are for purposes of reference only and
shall not limit or define the meaning of the provisions of this Agreement.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized officers
signing below.
USAA LIFE INSURANCE COMPANY
By: /s/ Edwin L. Rosane
------------------------
Title: President
------------------------
FRED ALGER MANAGEMENT, INC.
By: /s/ Gregory Duch
------------------------
Title: Executive Vice President
------------------------
FRED ALGER & COMPANY, INCORPORATED
By: /s/ Gregory Duch
------------------------
Title: Executive Vice President
------------------------
44274
5
<PAGE>
EXHIBIT 8(F)(I)
FORM OF FUND PARTICIPATION AGREEMENT
THIS AGREEMENT ("Agreement") made as of the ___ day of ________, 1998, by
and among BT Insurance Funds Trust ("TRUST"), a Massachusetts business trust,
Bankers Trust Company ("ADVISER"), a New York banking corporation, and USAA Life
Insurance Company ("LIFE COMPANY"), a life insurance company organized under the
laws of the State of Texas (collectively, the "Parties").
WHEREAS, TRUST is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940, as amended (the "'40 Act"), as
an open-end diversified management investment company; and
WHEREAS, TRUST is comprised of several series funds (each a "Series"), each
of whose shares are registered under the Securities Act of 1933, as amended ("
'33 Act"); and
WHEREAS, TRUST was organized to act as the funding vehicle for certain
variable life insurance and/or variable annuity contracts ("Variable Contracts")
offered by life insurance companies ("Participating Insurance Companies")
through their separate accounts; and
WHEREAS, TRUST may also offer its shares to certain qualified pension and
retirement plans ("Qualified Plans"); and
WHEREAS, TRUST has received an order from the SEC granting Participating
Insurance Companies and their separate accounts exemptions from the provisions
of Sections 9(a), 13(a), 15(a) and 15(b) of the '40 Act, and Rules 6e-2(b)(15)
and 6e-3(T)(b)(1-5) thereunder, to the extent necessary to permit shares of the
Series of the TRUST to be sold to and held by separate accounts of both
affiliated and unaffiliated Participating Insurance Companies and Qualified
Plans ("Exemptive Order"); and
WHEREAS, LIFE COMPANY has established or will establish one or more
separate accounts listed on Appendix A hereto (collectively, "Separate
Accounts") to offer certain Variable Contracts issued by LIFE COMPANY and funded
by the Separate Accounts listed on Appendix A hereto (collectively, "Contracts")
and is desirous of having the Series listed on Appendix B hereto (each, a
"Portfolio") serve as underlying funding vehicles for the Contracts; and
WHEREAS, ADVISER is a "bank" as defined in the Investment Advisers Act of
1940, as amended (the "Advisers Act") and as such is excluded from the
definition of "Investment Adviser" and is not required to register as an
investment adviser pursuant to the Advisers Act; and
1
<PAGE>
WHEREAS, ADVISER serves as the TRUST's investment adviser; and
WHEREAS, First Data Distributors, Inc., a corporation organized under the
law of ____("DISTRIBUTOR") serves as the Trust's principal underwriter of
the Trust's shares; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase shares of Portfolios to fund the
Contracts and TRUST is authorized to sell such shares to LIFE COMPANY at such
shares' net asset value;
NOW, THEREFORE, in consideration of their mutual promises, LIFE COMPANY,
TRUST, and ADVISER agree as follows:
Article I. SALE OF TRUST SHARES
--------------------
1.1 TRUST agrees to make available to the Separate Accounts shares of each
Portfolio ("Shares") for purchase and redemption at net asset value, and with no
sales charges, subject to the terms and conditions of this Agreement. The
Parties may agree, from time to time, to amend Appendicies A and/or B hereto
("Appendix A" and "Appendix B," respectively) to reflect additions, deletions,
and other changes to the Separate Accounts, Contracts, and/or Portfolios. Upon
such amendment, references to Separate Account, Contract, Portfolio, Trust or
Shares shall be read consistently with the changes effected by that amendment,
unless otherwise specifically provided.
1.2 TRUST agrees to execute orders to purchase Shares ("Purchase orders")
that correspond to Contract owner transaction requests received by LIFE COMPANY
("requests" or "Contract owner requests") on each Business Day using the net
asset value per Share next computed after the LIFE COMPANY receives the
requests. The Parties agree that, unless otherwise specified in writing by
TRUST, the computation of each Portfolio's net asset value per Share will occur
as of 4:00 p.m. New York time each Business Day. For purposes of this Agreement,
"Business Day" shall mean any day on which the New York Stock Exchange is open
for trading and on which TRUST calculates its net asset value pursuant to the
rules of the SEC.
1.3 TRUST agrees to execute orders to redeem Shares ("Redemption orders")
that correspond to Contract owner requests on each Business Day using the net
asset value per Share next computed after the LIFE COMPANY receives the
requests. Redemption orders that do not relate to requests will be executed
using the net asset value per Share next computed after receipt by TRUST of such
orders.
1.4 TRUST shall furnish, on or before each ex-dividend date, notice to
LIFE COMPANY of any income dividends or capital gain distributions payable on
the Shares of any Portfolio. LIFE COMPANY hereby elects to receive all such
income dividends and capital gain distributions as are payable on a Portfolio's
Shares in additional Shares of the Portfolio. TRUST shall notify LIFE COMPANY or
its designee of the number of Shares so issued as payment of such dividends and
distributions.
2
<PAGE>
1.5 TRUST shall make the net asset value per Share for the Portfolios
available to LIFE COMPANY on a daily basis as soon as reasonably practicable
after the net asset value per Share is calculated but shall use its best efforts
to make such net asset value available by 6:30 p.m. New York time. If TRUST
provides LIFE COMPANY with materially incorrect Share net asset value
information through no fault of LIFE COMPANY, LIFE COMPANY on behalf of the
Separate Accounts, shall be entitled to an adjustment to the number of Shares
purchased or redeemed to reflect the correct Share net asset value. Any material
error in the calculation of net asset value per Share, dividend or capital gain
information shall be reported promptly by TRUST upon discovery to LIFE COMPANY.
1.6 LIFE COMPANY shall be the designee of TRUST for receipt of Purchase
orders and Redemption orders from the designated Separate Account to purchase or
redeem Shares that correspond to Contract owner transactions. At the end of
each Business Day, LIFE COMPANY shall use the information described in Section
1.5 to calculate Separate Account unit values for that Day. Using these unit
values, LIFE COMPANY shall process each such Business Day's Contract owner
transactions based on requests received by the close of trading on the floor of
the New York Stock Exchange (currently 4:00 P.M. New York time) to determine the
net dollar amount of Shares which shall be purchased or redeemed at that Day's
closing net asset value per Share. LIFE COMPANY shall net all Purchase and
Redemption orders, and shall submit a net order ("Net Order") to TRUST by 10:00
a.m. New York time on the Business Day next following LIFE COMPANY's receipt of
such requests in accordance with the terms of Sections 1.2 and 1.3 hereof;
provided, however, that TRUST shall provide additional time to LIFE COMPANY in
the event that TRUST is unable to meet the 6:30 p.m. time stated in Section 1.5
hereof. Such additional time shall be equal to the additional time that TRUST
takes to make the net asset values available to LIFE COMPANY.
1.7 If LIFE COMPANY's Net Order requests the purchase of TRUST Shares,
LIFE COMPANY shall pay for such purchase by wiring federal funds to TRUST or its
designated custodial account on the day the order is transmitted by LIFE
COMPANY. If LIFE COMPANY's Net Order requests a net redemption resulting in a
payment of redemption proceeds to LIFE COMPANY, TRUST shall wire the redemption
proceeds to LIFE COMPANY by the next Business Day, unless doing so would require
TRUST to dispose of Portfolio securities or otherwise incur additional costs. In
any event, proceeds shall be wired to LIFE COMPANY within the time period
permitted by the '40 Act or the rules, orders or regulations thereunder, and
TRUST shall notify the person designated in writing by LIFE COMPANY as the
recipient for such notice of such delay by 3:00 p.m. New York time on the same
Business Day that LIFE COMPANY transmits the Net Redemption Order to TRUST. If
LIFE COMPANY's Net Order requests the application of redemption proceeds from
the redemption of Shares to the purchase of shares of another fund advised by
ADVISER, TRUST shall so apply such proceeds on the same Business Day that LIFE
COMPANY transmits such order to TRUST.
1.8 TRUST agrees that all Shares of the Portfolios will be sold only to
Participating Insurance Companies which have agreed to participate in TRUST to
fund their separate accounts and/or to Qualified Plans, all in accordance with
the requirements of Section 817(h)(4) of the
3
<PAGE>
Internal Revenue Code of 1986, as amended ("Code") and Treasury Regulation
1.817-5. Shares of the TRUST's Series will not be sold directly to the general
public.
1.9 TRUST may refuse to sell Shares of any Portfolio to any person, or
suspend or terminate the offering of the Shares of or liquidate any Portfolio of
TRUST if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board of Trustees of the TRUST
(the "Board"), acting in good faith and in light of its duties under federal and
any applicable state laws, deemed necessary, desirable or appropriate and in the
best interests of the Shareholders of such Portfolios.
1.10 Issuance and transfer of Shares will be by book entry only. Stock
certificates will not be issued to LIFE COMPANY or the Separate Accounts. The
TRUST will record, or cause to be recorded, Shares ordered from any Portfolio in
appropriate book entry titles for the Separate Accounts.
Article II. REPRESENTATIONS AND WARRANTIES
------------------------------
2.1 LIFE COMPANY represents and warrants that it is an insurance company
duly organized and in good standing under the laws of Texas and that it has
legally and validly established each Separate Account as a segregated asset
account under such laws, and that USAA Investment Management Company, the
principal underwriter for the Contracts, is registered as a broker-dealer under
the Securities Exchange Act of 1934.
2.2 LIFE COMPANY represents and warrants that it has registered or, prior
to any issuance or sale of the Contracts, will register each Separate Account as
a unit investment trust ("UIT") in accordance with the provisions of the '40 Act
to the extent required thereby, and cause each Separate Account to remain so
registered to serve as a segregated asset account for the Contracts, unless an
exemption from registration is available.
2.3 LIFE COMPANY represents and warrants that units of interest issued in
connection with the Contracts have been or will be registered under the '33 Act
unless an exemption from registration is available prior to any issuance or sale
of the Contracts, and that the Contracts will be issued and sold in compliance
in all material respects with all applicable federal and state laws and further
that the sale of the Contracts shall comply in all material respects with
applicable state insurance law suitability requirements.
2.4 Subject to TRUST's compliance with the duties and obligations set out
in Sections 2.6 and 2.7 hereof, LIFE COMPANY represents and warrants that the
Contracts have been or will be at the time of issuance treated as life
insurance, endowment or annuity contracts under applicable provisions of the
Code, that it will maintain such treatment and that it will notify TRUST
immediately upon having a reasonable basis for believing that the Contracts have
ceased to be so treated or that they might not be so treated in the future.
2.5 TRUST and ADVISER represent and warrant that the Shares offered and
sold pursuant to this Agreement will be registered under the '33 Act and sold in
accordance with all applicable federal laws, and TRUST shall be registered under
the '40 Act prior to and at the time
4
<PAGE>
of any issuance or sale of such Shares. TRUST, subject to Section 1.9 above,
shall amend its registration statements under the '33 Act and the '40 Act from
time to time as required in order to effect the continuous offering of its
Shares. TRUST shall register and qualify its Shares for sale in accordance with
the laws of the various states only if and to the extent deemed advisable by
TRUST.
2.6 TRUST and ADVISER represent and warrant that each Portfolio has
complied and will comply with the requirements set forth in Section 817(h) of
the Code, and the rules and regulations thereunder, including without limitation
Treasury Regulation 1.817-5, and will notify LIFE COMPANY immediately upon
having a reasonable basis for believing any Portfolio has ceased to comply and
will immediately take all reasonable steps to adequately diversify the Portfolio
to achieve compliance.
2.7 TRUST and ADVISER represent and warrant that each Portfolio invested
in by the Separate Account will be treated as a "regulated investment company"
under Subchapter M of the Code, and will notify LIFE COMPANY immediately upon
having a reasonable basis for believing it has ceased to so qualify or might not
so qualify in the future.
2.8 ADVISER represents and warrants that it shall perform its obligations
hereunder in compliance in all material respects with any applicable state and
federal laws.
Article III. PROSPECTUS AND OTHER TRUST DOCUMENTS
------------------------------------
3.1 TRUST shall prepare and be responsible for filing with the SEC and any
state regulators requiring such filing all Shareholder reports, notices, proxy
materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of TRUST.
TRUST shall bear the costs of registration and qualification of shares of the
Portfolios, preparation and filing of the documents listed in this Section 3.1
and all taxes and filing fees to which an issuer is subject on the issuance and
transfer of its shares.
3.2 TRUST or its designee shall provide LIFE COMPANY, free of charge, with
as many copies of the current prospectus (or prospectuses), including
supplements, statements of additional information, annual and semi-annual
reports and proxy materials for the Shares of the Portfolios as LIFE COMPANY
may reasonably request for distribution to existing Contract owners whose
Contracts are funded by Shares. TRUST or its designee shall provide LIFE
COMPANY, at LIFE COMPANY's expense, with as many copies of the current
prospectus (or prospectuses) for the Shares ("TRUST prospectus") as LIFE COMPANY
may reasonably request for distribution to prospective purchasers of Contracts.
If requested by LIFE COMPANY, TRUST or its designee shall provide the Trust
prospectus (including a "camera ready" copy of the current prospectus (or
prospectuses) as set in type or, at the request of LIFE COMPANY, as a diskette
in the form sent to the financial printer) and other assistance as is reasonably
necessary in order for the Parties once a year (or more frequently if the Trust
prospectus is supplemented or amended) to have the prospectus for the Contracts
("Contract prospectus") and the Trust prospectus printed together in one
document. The expenses of such printing will be apportioned between LIFE COMPANY
and TRUST in proportion to the number of pages of the Contract and TRUST
prospectuses, taking account of other relevant factors
5
<PAGE>
affecting the expense of printing, such as covers, columns, graphs and charts;
TRUST shall bear the cost of printing the TRUST prospectus portion of such
document for distribution only to owners of existing Contracts funded by the
Shares, and LIFE COMPANY shall bear the expense of printing the Contract
prospectus portion of such document, as well as the TRUST prospectus portion of
such document for distribution to prospective purchasers of Contracts. In the
event that LIFE COMPANY requests that TRUST or its designee provide the TRUST
prospectus in a "camera ready" or diskette format, TRUST shall be responsible
for providing the TRUST prospectus in the format in which it is accustomed to
formatting prospectuses and shall bear the expense of providing the TRUST
prospectus in such format (e.g. typesetting expenses), and LIFE COMPANY shall
bear the expense of adjusting or changing the format to conform with any of its
prospectuses.
3.3 TRUST will provide LIFE COMPANY with at least one complete copy of all
TRUST prospectuses, statements of additional information, annual and semi-annual
reports, proxy statements, exemptive applications and all amendments or
supplements to any of the above that relate to the Portfolios promptly after the
filing of each such document with the SEC or other regulatory authority. LIFE
COMPANY will provide TRUST with at least one complete copy of all Contract
prospectuses, statements of additional information, annual and semi-annual
reports, proxy statements, exemptive applications and all amendments or
supplements to any of the above that relate to a Separate Account promptly after
the filing of each such document with the SEC or other regulatory authority.
Article IV. SALES MATERIALS
---------------
4.1 LIFE COMPANY will furnish or will cause to be furnished, to TRUST and
ADVISER, each piece of sales literature in which TRUST or ADVISER is named, at
least fifteen (15) Business Days prior to its intended use. No such material
will be used if TRUST or ADVISER objects to its use in writing within ten (10)
Business Days after receipt of such material.
4.2 TRUST and ADVISER will furnish, or will cause to be furnished, to LIFE
COMPANY, each piece of sales literature in which LIFE COMPANY or any of its
Separate Accounts is named, at least fifteen (15) Business Days prior to its
intended use. No such material will be used if LIFE COMPANY objects to its use
in writing within ten (10) Business Days after receipt of such material.
4.3 TRUST and its affiliates and agents shall not give any information or
make any representations on behalf of LIFE COMPANY or concerning LIFE COMPANY,
the Separate Accounts, or the Contracts other than the information or
representations contained in a registration statement or Contract prospectus ,
as such registration statement and prospectus may be amended or supplemented
from time to time, or in reports of the Separate Accounts or reports prepared
for distribution to owners of such Contracts, or in sales literature approved
by LIFE COMPANY or its designee, except with the written permission of LIFE
COMPANY.
4.4 LIFE COMPANY and its affiliates and agents shall not give any
information or make any representations on behalf of TRUST or concerning TRUST
other than the information
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<PAGE>
or representations contained in a registration statement or TRUST prospectus, or
prospectus for any Portfolio, as such registration statement or prospectus may
be amended or supplemented from time to time, or in sales literature approved by
TRUST or its designee, except with the written permission of TRUST.
4.5 For purposes of this Agreement, the phrase "sales literature"
includes, without limitation, advertisements (such as material published, or
designed for use, in a newspaper, magazine or other periodical, radio,
television, telephone or tape recording, videotape display, signs or billboards,
motion pictures or other public media), sales literature (such as any written
communication distributed or made generally available to customers or the
public, including brochures, circulars, research reports, market letters, form
letters, seminar texts, or reprints or excerpts of any other advertisement,
sales literature, or published article), educational or training materials or
other communications distributed or made generally available to some or all
agents or employees, prospectuses, statements of additional information,
shareholder reports and proxy materials, and any other material constituting
sales literature or advertising under National Association of Securities
Dealers, Inc. ("NASD") rules, the '40 Act, the '33 Act, or rules thereunder.
Article V. POTENTIAL CONFLICTS
-------------------
5.1 The TRUST represents that it has received The Exemption Order from
the SEC granting relief from various provisions of the '40 Act and the rules
thereunder to the extent necessary to permit TRUST Shares to be sold to and held
by separate accounts of both affiliated and unaffiliated Participating
Insurance Companies and Qualified Plans. The Exemptive Order requires TRUST and
each Participating Insurance Company to comply with conditions and undertakings
substantially as provided in this Section 5. The TRUST agrees not to enter
into a participation agreement with any other Participating Insurance Company
unless it imposes the same conditions and undertakings as are imposed on LIFE
COMPANY hereby.
5.2 The Board will monitor TRUST for the existence of any material
irreconcilable conflict between the Variable Contract owners of all separate
accounts, including the Contract owners investing in the Separate Accounts, and
of participants of Qualified Plans investing in TRUST, and determine what
action, if any, should be taken in response to such conflicts. An
irreconcilable material conflict may arise for a variety of reasons, which may
include: (a) an action by any state insurance regulatory authority; (b) a change
in applicable federal or state insurance, tax, or securities laws or
regulations, or a public ruling, private letter ruling, no-action or
interpretive letter, or any similar action by insurance, tax or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of TRUST are being
managed; (e) a difference in voting instructions given by Variable Contract
owners; or (f) a decision by a Participating Insurance Company to disregard the
voting instructions of Variable Contract owners.
5.3 LIFE COMPANY will report any potential or existing conflicts of which
it becomes aware to the Board. LIFE COMPANY will be responsible for assisting
the Board in carrying out its responsibilities in this regard by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This responsibility includes,
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<PAGE>
but is not limited to, an obligation by the LIFE COMPANY to inform the Board
whenever it has determined to disregard Contract owners' voting instructions.
These responsibilities of LIFE COMPANY will be carried out with a view only to
the interests of the Contract owners.
5.4 If a majority of the Board, or majority of its disinterested Trustees,
determines that a material irreconcilable conflict exists affecting LIFE
COMPANY, LIFE COMPANY, at its expense and to the extent reasonably practicable
(as determined by a majority of the Board's disinterested Trustees), will take
any steps necessary to remedy or eliminate the material irreconcilable conflict,
including; (a) withdrawing the assets allocable to some or all of the Separate
Accounts from TRUST or any Portfolio thereof and reinvesting those assets in a
different investment medium, which may include another portfolio of TRUST ; (b)
submitting the question as to whether such segregation should be implemented to
a vote of all affected Contract owners and as appropriate, segregating the
assets of any appropriate group of Contract owners that votes in favor of such
segregation, or offering to the affected Contract owners the option of making
such a change; and (c) establishing a new registered management investment
company (or series thereof) or managed separate account. If a material
irreconcilable conflict arises because of LIFE COMPANY's decision to disregard
Contract owner voting instructions, and that decision represents a minority
position or would preclude a majority vote, LIFE COMPANY may be required, at the
election of TRUST, to withdraw a Separate Account's investment in TRUST, and no
charge or penalty will be imposed as a result of such withdrawal. The
responsibility to take such remedial action shall be carried out with a view
only to the interests of the Contract owners.
For the purposes of this Section 5.4, a majority of the disinterested Trustees
shall determine whether or not any proposed action adequately remedies any
material irreconcilable conflict, but in no event will TRUST or ADVISER (or any
other investment adviser of TRUST) be required to establish a new funding medium
for any Contract. Further, LIFE COMPANY shall not be required by this Section
5.4 to establish a new funding medium for any Contracts if an offer to do so has
been declined by a vote of a majority of Contract owners materially and
adversely affected by the material irreconcilable conflict.
5.5 The Board's determination of the existence of an irreconcilable
material conflict and its implications shall be made known promptly and in
writing to LIFE COMPANY.
5.6 No less than annually, LIFE COMPANY shall submit to the Board such
reports, materials or data as the Board may reasonably request so that the Board
may fully carry out its obligations. Such reports, materials, and data shall be
submitted more frequently if deemed appropriate by the Board.
Article VI. VOTING
------
6.1 LIFE COMPANY will provide pass-through voting privileges to all
Contract owners so long as the SEC continues to interpret the '40 Act as
requiring pass-through voting privileges for Contract owners. Accordingly, LIFE
COMPANY, where applicable, will vote Shares of any Portfolio held in its
Separate Account(s) in a manner consistent with voting instructions timely
received from its Contract owners. LIFE COMPANY will be responsible for
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<PAGE>
assuring that each of its registered Separate Account(s) that owns any Shares
calculates voting privileges in a manner consistent with other Participating
Insurance Companies. LIFE COMPANY will vote Shares that are not attributable to
Contract owners to whom pass-through voting privileges are extended, or that are
attributable to Contract owners from whom timely voting instructions were not
received, in the same proportion as it votes those Shares for which it has
received voting instructions. Notwithstanding the foregoing, LIFE COMPANY
reserves the right to vote Shares held in any Separate Account in its own right,
to the extent permitted by law. TRUST will promptly notify LIFE COMPANY of any
amendment to, or change in interpretation of, the Exemptive Order it has
obtained.
6.2 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or if
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the '40
Act or the rules thereunder with respect to mixed and shared funding on terms
and conditions materially different from any exemptions granted in the Exemptive
Order, then TRUST, and/or LIFE COMPANY, as appropriate, shall take such steps as
may be necessary to comply with Rule 6e-2 and Rule 6e-3(T), as amended, and Rule
6e-3, as adopted, to the extent such Rules are applicable.
Article VII. INDEMNIFICATION
---------------
7.1 Indemnification by LIFE COMPANY. LIFE COMPANY agrees to indemnify and
hold harmless TRUST, and ADVISER and each of their respective trustees,
directors, principals, officers, employees and agents (and former trustees,
directors, principals, officers, employees, and agents) and each person, if any,
who controls TRUST or ADVISER within the meaning of Section 15 of the '33 Act
(collectively, the "Indemnified Parties") against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of LIFE COMPANY, which consent shall not be unreasonably withheld) or
litigation or threatened litigation (including reasonable legal and other
expenses), to which the Indemnified Parties may become subject under any statute
or regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of Shares or the Contracts and:
(a) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the Contracts, any
Separate Account's registration statement or Contract prospectus
contained therein, or in any sales literature for the Contracts (or
any amendment or supplement to any of the foregoing), or arise out of
or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified Party if
such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished in
writing to LIFE COMPANY by or on behalf of TRUST, ADVISER or
DISTRIBUTOR for use in the Contracts, any Separate Account's
registration statement or Contract prospectus or sales literature for
the Contracts (or any amendment or supplement supplement to any of the
foregoing) or otherwise for use in connection with the sale of the
Contracts or Shares; or
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<PAGE>
(b) arise out of or result from (i) statements or representations
(other than statements or representations contained in any
registration statement, prospectus or sales literature for the TRUST,
or any Portfolio not supplied by LIFE COMPANY, or persons under its
control) or (ii) willful misfeasance, bad faith, negligence, or
reckless disregard of obligations or duties of LIFE COMPANY or persons
under its control, with respect to the sale or distribution of the
Contracts or Shares; or (c) arise out of any untrue statement or
alleged untrue statement of a material fact contained in any
registration statement, prospectus, or sales literature for the
TRUST, or any Portfolio, or any amendment or supplement to any of the
foregoing, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, if such statement or omission or
such alleged statement or omission was made in reliance upon and in
conformity with information furnished in writing to TRUST by or on
behalf of LIFE COMPANY for use in such materials; or
(d) arise as a result of any failure by LIFE COMPANY to provide
substantially the services and furnish the materials under the terms
of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by LIFE COMPANY in this Agreement
or arise out of or result from any other material breach of this
Agreement by LIFE COMPANY.
7.2 LIFE COMPANY shall not be liable under Section 7.1 hereof with respect
to any losses, claims, damages, liabilities or litigation incurred or assessed
against an Indemnified Party to the extent that such losses, claims, damages,
liabilities or litigation are attributable to such Indemnified Party's willful
misfeasance, bad faith, negligence in the performance of such Indemnified
Party's duties or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this Agreement or breach of this Agreement.
7.3 LIFE COMPANY shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified LIFE COMPANY in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify LIFE COMPANY of any
such claim shall not relieve LIFE COMPANY from any liability which it may have
to the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, LIFE COMPANY shall be entitled to participate at
its own expense in the defense of such action. LIFE COMPANY also shall be
entitled to assume the defense thereof, with counsel satisfactory to the
Indemnified Party named in the action. After notice from LIFE COMPANY to such
Indemnified Party of LIFE COMPANY's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and LIFE COMPANY will not be liable to such Indemnified Party
under this Agreement for any legal or other expenses subsequently
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<PAGE>
incurred by such Indemnified Party independently in connection with the defense
thereof other than reasonable costs of investigation.
7.4 Indemnification by TRUST and ADVISER. TRUST and ADVISER agree to
indemnify and hold harmless LIFE COMPANY and each of its directors, principals,
officers, employees, and agents (and former directors, principals, officers,
employees, and agents) and each person, if any, who controls LIFE COMPANY within
the meaning of Section 15 of the '33 Act (collectively, the "Indemnified
Parties") against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of TRUST and ADVISER which
consent shall not be unreasonably withheld) or litigation or threatened
litigation (including reasonable legal and other expenses) to which the
Indemnified Parties may become subject under any statute, or regulation, at
common law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the sale
or acquisition of Shares or the Contracts and:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration
statement or prospectus or sales literature for the TRUST or any
Portfolios (or any amendment or supplement to any of the foregoing),
or arise out of or are based upon the omission or the alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided that
this agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with information
furnished in writing to TRUST, ADVISER, or DISTRIBUTOR by or on behalf
of LIFE COMPANY for use in any registration statement, prospectus
or sales literature for the TRUST or any Portfolio (or any amendment
or supplement to any of the foregoing) or otherwise for use in
connection with the sale of the Contracts or Shares; or
(b) arise out of or result from (i) statements or representations (other
than statements or representations contained in any Separate Account's
registration statement or Contract prospectus, or sales literature for
the Contracts not supplied by TRUST, ADVISER or DISTRIBUTOR or persons
under their respective control) or (ii) willful misfeasance or bad
faith, negligence, or reckless disregard of obligations or duties of
ADVISER, TRUST or DISTRIBUTOR or persons under their respective
control, with respect to the sale or distribution of the Contracts or
Shares; or
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in any Separate Account's registration
statement or Contract prospectus, or sales literature for the
Contracts, or any amendment or supplement to any of the foregoing or
the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
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<PAGE>
information furnished in writing to LIFE COMPANY for inclusion therein
by or on behalf of TRUST, ADVISER or DISTRIBUTOR; or
(d) arise as a result of (i) a failure by TRUST, or ADVISER to provide
substantially the services and furnish the materials under the terms
of this Agreement; (ii) a failure by a Portfolio(s) to comply with
the diversification requirements of Section 817(h) of the Code; or
(iii) a failure by a Portfolio(s) to qualify as a "regulated
investment company" under Subchapter M of the Code; or
(e) arise out of or result from any material breach of any representation
and/or warranty made by TRUST, or ADVISER in this Agreement or arise
out of or result from any other material breach of this Agreement by
TRUST, or ADVISER.
7.5 TRUST and ADVISER shall not be liable under Section 7.4 hereof with
respect to any losses, claims, damages, liabilities or litigation incurred or
assessed against an Indemnified Party to the extent that such losses, claims,
damages, liabilities or litigation are attributable to such Indemnified Party's
willful misfeasance, bad faith, or negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's reckless
disregard of obligations and duties under this Agreement or breach of this
Agreement.
7.6 TRUST and ADVISER shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified TRUST and ADVISER in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify TRUST and ADVISER
of any such claim shall not relieve TRUST and ADVISER from any liability which
it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against an Indemnified Party, TRUST and ADVISER shall be
entitled to participate at its own expense in the defense of such action. TRUST
and ADVISER also shall be entitled to assume the defense thereof, with counsel
satisfactory to the Indemnified Party named in the action. After notice from
TRUST and ADVISER to such Indemnified Party of TRUST and ADVISER's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and TRUST and ADVISER will
not be liable to such Indemnified Party under this Agreement for any legal or
other expenses subsequently incurred by such Indemnified Party independently in
connection with the defense thereof other than reasonable costs of
investigation.
Article VIII. TERM: TERMINATION
-----------------
8.1 This Agreement shall be effective as of the date first written above
and shall continue in force until terminated in accordance with the provisions
herein.
8.2 This Agreement shall terminate in accordance with the following
provisions:
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<PAGE>
(a) At the option of LIFE COMPANY or TRUST at any time from the date
hereof upon 180 days' notice, unless a shorter time is agreed to in
writing by the Parties;
(b) At the option of LIFE COMPANY, if TRUST Shares are not reasonably
available to meet the requirements of the Contracts as determined by
LIFE COMPANY. Prompt notice of election to terminate shall be
furnished by LIFE COMPANY, said termination to be effective ten days
after receipt of notice unless TRUST makes available a sufficient
number of Shares to reasonably meet the requirements of the Contracts
within said ten-day period;
(c) At the option of LIFE COMPANY, upon the institution of formal
proceedings against TRUST or ADVISER by the SEC, the NASD, or any
other regulatory body, the expected or anticipated ruling, judgment or
outcome of which would, in LIFE COMPANY's reasonable judgment,
materially impair the ability of the TRUST, or ADVISER, to meet and
perform their respective obligations and duties hereunder. Prompt
notice of election to terminate shall be furnished by LIFE COMPANY
with said termination to be effective upon receipt of notice;
(d) At the option of TRUST or ADVISER, upon the institution of formal
proceedings against LIFE COMPANY and/or its broker-dealer affiliates
by the SEC, the NASD, or any other regulatory body, the expected or
anticipated ruling, judgment or outcome of which would, in TRUST or
ADVISER's reasonable judgment, materially impair LIFE COMPANY's
ability to meet and perform its obligations and duties hereunder.
Prompt notice of election to terminate shall be furnished by TRUST or
ADVISER with said termination to be effective upon receipt of notice;
(e) In the event TRUST's Shares are not registered, issued or sold in
accordance with applicable state and/or federal law, or such law
precludes the use of such Shares as the underlying investment medium
of Contracts issued or to be issued by LIFE COMPANY termination shall
be effective upon such occurrence without notice;
(f) In the event any Portfolio fails to qualify as a "regulated investment
company" under Subchapter M of the Code or otherwise fails to meet the
requirements of Section 817(h) of the Code and the regulations
thereunder. Termination shall be effective upon such occurrence
without notice;
(g) At the option of TRUST and ADVISER if the Contracts cease to qualify
as annuity contracts or life insurance contracts, as applicable, under
the Code, or if TRUST and ADVISER reasonably believes that the
Contracts may fail to so qualify. Termination shall be effective upon
receipt of notice by LIFE COMPANY;
(h) At the option of LIFE COMPANY, upon breach by TRUST or ADVISER of any
material provision of this Agreement, which breach has not been cured
to the
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<PAGE>
satisfaction of LIFE COMPANY within ten days after written notice of
such breach is delivered to TRUST or ADVISER;
(i) At the option of TRUST or ADVISER, upon LIFE COMPANY's breach of any
material provision of this Agreement, which breach has not been cured
to the satisfaction of TRUST or ADVISER within ten days after written
notice of such breach is delivered to LIFE COMPANY;
(j) At the option of TRUST, if the Contracts are not registered, issued or
sold in accordance with applicable federal and/or state law.
Termination shall be effective immediately upon such occurrence
without notice;
(k) In the event this Agreement is assigned without the prior written
consent of LIFE COMPANY, TRUST, and ADVISER, termination shall be
effective immediately upon such occurrence without notice.
8.3 Notwithstanding any termination of this Agreement pursuant to Section
8.2 hereof, TRUST at its option may elect to continue to make available
additional TRUST Shares, as provided below, for so long as TRUST desires
pursuant to the terms and conditions of this Agreement, for all Contracts in
effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without limitation, if TRUST
so elects to make additional Shares available, the owners of the Existing
Contracts or LIFE COMPANY, whichever shall have legal authority to do so, shall
be permitted to reallocate investments in TRUST, redeem investments in TRUST
and/or invest in TRUST upon the payment of additional premiums under the
Existing Contracts. In the event of a termination of this Agreement pursuant to
Section 8.2 hereof, TRUST and ADVISER, as promptly as is practicable under the
circumstances, shall notify LIFE COMPANY whether TRUST elects to continue to
make Shares available after such termination. If Shares continue to be made
available after such termination, the provisions of this Agreement shall remain
in effect and thereafter either TRUST or LIFE COMPANY may terminate the
Agreement, as so continued pursuant to this Section 8.3, upon sixty (60) days
prior written notice to the other Party.
8.4 Except as necessary to implement Contract owner initiated
transactions, or as required by state insurance laws or regulations, LIFE
COMPANY shall not redeem the Shares attributable to the Contracts (as opposed to
the Shares attributable to LIFE COMPANY's assets held in the Separate Accounts),
and LIFE COMPANY shall not prevent Contract owners from allocating payments to a
Portfolio that is otherwise available under the Contracts until thirty (30) days
after the LIFE COMPANY shall have notified TRUST of its intention to do so.
Article IX. NOTICES
-------
Any notice hereunder shall be given by registered or certified mail return
receipt requested to the other party at the address of such Party set forth
below or at such other address as such Party may from time to time specify in
writing to the other Party.
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If to TRUST:
BT Insurance Funds Trust
Attn.:
Phone:
Fax:
If to ADVISER:
Bankers Trust Company - Global Investment Management
130 Liberty Street
New York, NY 10006
Attn.:
Phone:
Fax:
If to LIFE COMPANY:
USAA Life Insurance Company
9800 Fredericksburg Road
San Antonio, TX 78288
Attn.: Dwain Akins
Phone: (210) 498-0676
Fax: (210) 498-0608
Notice shall be deemed given on the date of receipt by the addressee as
evidenced by the return receipt.
Article X. MISCELLANEOUS
-------------
10.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
10.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
10.3 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
10.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York. It
shall also be subject to the provisions of the federal securities laws and the
rules and regulations thereunder and to any orders of the SEC granting exemptive
relief therefrom and the conditions of such orders.
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10.5 It is understood and expressly stipulated that neither the
shareholders of shares of any Portfolio nor the Trustees or officers of TRUST or
any Portfolio shall be personally liable hereunder. No Portfolio shall be
liable for the liabilities of any other Portfolio. All persons dealing with
TRUST or a Portfolio must look solely to the property of TRUST or that
Portfolio, respectively, for enforcement of any claims against TRUST or that
Portfolio. It is also understood that each of the Portfolios shall be deemed to
be entering into a separate Agreement with LIFE COMPANY so that it is as if each
of the Portfolios had signed a separate Agreement with LIFE COMPANY and that a
single document is being signed simply to facilitate the execution and
administration of the Agreement.
10.6 Each Party shall cooperate with each other Party and all appropriate
governmental authorities (including without limitation the SEC, the NASD and
state insurance regulators) and shall permit such authorities reasonable access
to its books and records in connection with any investigation or inquiry
relating to this Agreement or the transactions contemplated hereby.
10.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the Parties hereto are entitled to under state and
federal laws.
10.8 If the Agreement terminates the Parties agree that Article VII and
Sections 10.5, 10.6 and 10.7 shall remain in effect after termination.
10.9 No provision of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by TRUST,
ADVISER and the LIFE COMPANY.
10.10 No failure or delay by a Party in exercising any right or remedy under
this Agreement will operate as a waiver thereof and no single or partial
exercise of rights shall preclude a further or subsequent exercise. The rights
and remedies provided in this Agreement are cumulative and not exclusive of any
rights or remedies provided by law.
IN WITNESS WHEREOF the Parties have caused their duly authorized officers to
execute this Agreement as of the date and year first above written.
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BT INSURANCE FUNDS TRUST
By:____________________________
Name:
Title:
BANKERS TRUST COMPANY
By:___________________________
Name:
Title:
USAA LIFE INSURANCE COMPANY
By:____________________________
Name:
Title:
44434v10
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<PAGE>
Appendix A
This appendix is an integral part of the Agreement to which it is attached.
Except as otherwise noted, defined terms used herein shall have the same meaning
as given them in the Agreement.
1. The Separate Account of USAA Life Insurance Company
2. The Life Insurance Separate Account of USAA Life Insurance Company
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Appendix B
This Appendix is an integral part of the Agreement to which it is attached.
Except as otherwise noted, defined terms used herein shall have the same meaning
as given them in the Agreement.
1. Equity 500 Index Fund
2. Small Cap Index Fund
3. EAFE(R) Equity Index Fund
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EXHIBIT 8(F)(II)
[logo] BANKERS TRUST COMPANY
130 Liberty Street, New York, New York 10006
FORM OF
Vinay Mendiratta
Vice President
Global Investment Management
Tel: 212-250-2884
Fax: 212-775-2189
___________, 1998
Mr. Dwain Akins, Esq.
Assistant Vice President and
Assistant Secretary
Life & Health Insurance Counsel
USAA Life Insurance Company
General Counsel - C3 West
9800 Fredricksburg Road, C-3-W
San Antonio, TX 78288
Dear Dwain:
USAA Life Insurance Company ("Life Company") will invest in one or more series
funds (each a "Portfolio") of the BT Insurance Funds Trust ("Trust"), which will
serve as an underlying funding vehicle for certain variable annuity contracts
and variable life insurance policies (collectively, the "Contracts") issued by
Life Company, pursuant to a Fund Participation Agreement by and among the Life
Company, Trust and Bankers Trust Company, dated _________, 1998. Bankers Trust
Company ("Bankers Trust") serves as the investment adviser to the Trust and in
such capacity provides investment advisory and administrative services to the
Trust and its Portfolios.
Life Company hereby agrees to provide the services enumerated herein on a sub-
administration basis to owners of Contracts ("Contract Owners") who are
beneficial owners of shares of each Portfolio. Such services shall consist of
the following:
1. Providing necessary personnel and facilities to establish and maintain
Contract Owner accounts and records.
2. Recording debits and credits to the accounts of Contract Owners.
3. Paying the proceeds of redemptions to Contract Owners either by check or by
wire.
4. Furnishing Fund prospectuses, statements of additional information, proxy
materials, annual and semi-annual reports to shareholders and other
communications from the Fund to Contract Owners, as provided in Article 3.2
of the Participation Agreement.
<PAGE>
5. Performing such shareholder servicing as may be required, which shall
include but not be limited to, responding to questions regarding account
balances and other account inquiries.
6. Federal and state income tax withholding and reporting.
7. Providing such other assistance and services as may reasonably be
requested by the Fund.
In recognition of Life Company providing such services and the administrative
cost savings to the Portfolios and the Trust, the Bankers Trust will pay Life
Company the fees set forth in Exhibit A hereto ("Fees").
In the event that the investment advisory and/or administration fees paid by
the Portfolio to Bankers Trust are reduced by the Board of Trustees of the Trust
pursuant to an amendment of the applicable agreement, or, in the good faith
opinion of the Trust, based upon an opinion of counsel reasonably acceptable to
Life Company, such payments are, will or may be deemed to be in contravention or
violation of any law, rule, regulation, court decision or order, or out-of-court
settlement of actual or threatened litigation or enforcement position of any
regulatory body having jurisdiction over the Trust (taken together, "Change in
Law"), the Fees shall be adjusted accordingly to conform to such Change in Law
on terms and conditions deemed fair and equitable by Bankers Trust, and
acceptable to Life Company. No Fee adjustment of any type, for any reason,
shall take effect until agreed upon, in writing, by both Bankers Trust and Life
Company.
Bankers Trust shall give Life Company written notice 30 days prior to seeking
approval by the Board of Trustees of the Trust of (a) any increase in the fees
to be paid to Bankers Trust or (b) any reduction or elimination of Bankers
Trust's voluntary fee waiver as reflected in Exhibit B hereto.
Either party may terminate this Agreement, without penalty, on 60 days'
written notice to the other party; except that the Fees set forth in Exhibit A
shall continue as long as the assets underlying the Contracts issued by Life
Company are allocated to the Trust. Unless so terminated, this Agreement shall
continue in effect for so long as Bankers Trust, or its successor(s) in
interest, continues to perform in an advisory capacity for the Trust and for so
long as any Contract values or any monies attributable to Life Company are in
the Trust.
Each party hereto shall indemnify and hold harmless ("Indemnifying Party") the
other party and each of its officers, directors, trustees, employees, and agents
(and former officers, directors, trustees, employees, and agents) and each
person, if any, who controls such other party within the meaning of Section 15
of the Securities Act of 1933 (individually and collectively, "Indemnified
Party") from and against any and all losses, claims, damages, liabilities,
costs, and expenses (including reasonable attorneys' fees) ("Losses") arising
out of (i) any violation by the Indemnifying Party of any law, rule, regulation,
court order or enforcement position of any regulatory body having jurisdiction
over either party, (ii) the Indemnifying Party's performance of or failure to
perform its obligations under, or in connection with this Agreement, except that
an Indemnifying Party shall have no liability to the extent such Losses result
from the willful
<PAGE>
misfeasance, bad faith, negligence, reckless disregard of obligations or duties
under this Agreement, or breach of this Agreement by an Indemnified Party. In no
event shall any party be liable for any special, consequential, or incidental
damages. The indemnification under this Agreement is in addition to (and not
duplicative of), and not in lieu of; any indemnification provided under any Fund
Participation Agreement entered into between the parties.
If you are in agreement with the foregoing, please sign a copy and return it
to the undersigned.
Bankers Trust Company
Accepted and Agreed: USAA Life Insurance Company
By:________________________ By:___________________________
(Print Name and Title) (Print Name and Title)
Date:_______________________ Date:__________________________
45460v9
<PAGE>
Exhibit A
---------
BT Insurance Funds Trust
------------------------
Fees
- ----
For each following Portfolio, Bankers Trust agrees to pay Life Company a
quarterly amount that is equal on an annual basis to the specified
percentage of the average combined daily net assets of all of the shares of
the Portfolio held in the Life Company's segregated asset accounts pursuant
to the applicable Participation Agreement:
Portfolio Fees for Administrative Services
Equity 500 Index Fund
---------------------
all assets .13%
Small Cap Index Fund
--------------------
on first $200 million .15%
on the balance .20%
EAFE Equity Index Fund
----------------------
on first $200 million .15%
on the balance .20%
<PAGE>
Exhibit B
---------
BT Insurance Funds Trust
------------------------
Advisory and Other Fees; Bankers Trust's Voluntary Fee Waiver
-------------------------------------------------------------
The annual fees and waivers below are expressed as a percentage of the
average daily net assets of the applicable Portfolio.
<TABLE>
<CAPTION>
Portfolio
<S> <C>
Equity 500 Index Fund
- ------------------------
Advisory .20
Admin & Service .13
Other .21
Waiver/Reimb (.24)
----
Expense Ratio .30
Small Cap Index Fund
- ------------------------
Advisory .35
Admin & Service .13
Other .25
Waiver/Reimb (.28)
----
Expense Ratio .45
EAFE Equity Index Fund
- ------------------------
Advisory .45
Admin & Service .13
Other .27
Waiver/Reimb (.20)
----
Expense Ratio .65
</TABLE>
<PAGE>
EXHIBIT 9
[LETTERHEAD OF USAA LIFE INSURANCE COMPANY]
July 21, 1994
Board of Directors
USAA Life Insurance Company
9800 Fredericksburg Road
San Antonio, Texas 78288
Board of Directors:
This option is furnished in connection with the filing by the USAA Life
Insurance Company ("USAA LIFE") and the Separate Account of USAA LIFE ("Separate
Account") of a registration statement under the Securities Act of 1933 (the
"1933 Act") and under the Investment Company Act of 1940 on Form N-4
("Registration Statement"). The securities being registered under the
Registration Statement are units of interest ("Units") to be issued by the
Separate Account pursuant to certain individual flexible premium variable
annuity contracts (the "Contracts"), described in the Registration Statement.
I have examined the Articles of Incorporation and Bylaws of USAA LIFE
and such corporate records and other documents and such laws as I consider
necessary and appropriate as a basis for the opinion hereinafter expressed. I
have examined the form of the Registration Statement to be filed with the
Securities and Exchange Commission in connection with the registration under the
1933 Act of an indefinite number of Units. I am familiar with the proceedings
taken and proposed to be taken in connection with the authorization, issuance,
and sale of the Units. On the basis of my examination of these documents and
such laws that I consider appropriate, it is my opinion that:
1. USAA LIFE is a corporation duly organized and validly existing under
the laws of Texas.
2. The Separate Account was duly created pursuant to the provisions of
Chapter 3, Article 3.75 of the Texas Insurance Code.
3. Under Texas law, the income, gains and losses, whether or not
realized, from assets allocated to the Separate Account must be credited to or
charged against such Account, without regard to the other income, gains or
losses of USAA LIFE.
4. The portion of the assets to be held in the Separate Account equal to
the reserves and other liabilities under the Contracts will not be chargeable
with liabilities arising out of any other business USAA LIFE may conduct.
<PAGE>
Board of Directors
July 21, 1994
Page 2
5. The Contracts have been duly authorized by USAA LIFE and, when issued
in the manner contemplated by the Registration Statement, the Units thereunder
will constitute validly issued and binding obligations of USAA LIFE in
accordance with the terms of the Contracts.
I hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the reference to me under the caption "Legal
Matters" in the Statement of Additional Information contained in the
Registration Statement. On giving this consent, I do not admit that I am in the
category of persons whose consent is required under Section 7 of the 1933 Act or
the rules and regulations of the Securities and Exchange Commission thereunder.
Respectfully submitted,
/s/ R.T. HALINSKI, JR.
- ----------------------------------
R. T. HALSINKI, JR.
ASSISTANT SECRETARY
USAA LIFE INSURANCE COMPANY
<PAGE>
EXHIBIT 10
The Board of Directors of USAA Life Insurance Company
and Contractowners of the Separate Account of
USAA Life Insurance Company
We consent to the use of our report, dated February 11, 1998, on the financial
statements of each Variable Fund Account of the Separate Account of USAA Life
Insurance Company, including the USAA Life Variable Annuity Money Market,
Income, Growth and Income, World Growth, Diversified Assets, Aggressive Growth
and International Fund Accounts, the Scudder VLIF Capital Growth Portfolio, and
the Alger American Growth Portfolio, which along with the report, appear in the
Separate Account's Annual Report, dated December 31, 1997. We also consent to
the incorporation of the report, by reference to the Annual Report, into Post-
Effective Amendment No. 4 under the Securities Act of 1933, and Amendment No. 5
under the Investment Company Act of 1940, to the Separate Account's Registration
Statement on Form N-4. We further consent to the references to our firm under
the headings "Financial Statements" and "Selected Accumulated Unit Data" in the
Registration Statement.
We also consent to the use of our report, dated March 20, 1998, on the
consolidated balance sheets of USAA Life Insurance Company as of December 31,
1997 and 1996, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1997, included as part of the Registration Statement and to the
references to our firm under the heading "Independent Auditors".
-----------------------------------
KPMG PEAT MARWICK LLP
San Antonio, Texas
April 28, 1998
<PAGE>
EXHIBIT 12(A)
SUBSCRIPTION AGREEMENT
This Subscription Agreement (the "Agreement") between USAA Life Insurance
Company (hereinafter "USAA LIFE"), a stock life insurance company existing under
and by virtue of the laws of the State of Texas, on behalf of the Separate
Account of USAA LIFE Insurance Company ("Separate Account"), and USAA Life
Investment Trust (hereinafter the "Trust"), a business trust organized and
existing under and by virtue of the laws of the State of Delaware.
In consideration of the mutual promises set forth herein, the parties agree as
follows:
1. The Trust agrees to sell to USAA LIFE, for the Separate Account, and USAA
LIFE agrees to purchase, on behalf of the Separate Account, for the aggregate
amount of $81,000,000.00, shares of beneficial interest of the five existing
series ("Funds") of the Trust (hereinafter the "Shares") at a price of ten
dollars ($10.00) per Share for each Fund, except the Money Market Fund, for
which the price is one dollar ($1.00) per Share, in the following amounts:
2,100,000 Shares of USAA Life Variable Annuity Money Market Fund
2,000,000 Shares of USAA Life Variable Annuity Income Fund
2,000,000 Shares of USAA Life Variable Annuity Growth and Income Fund
1,890,000 Shares of USAA Life Variable Annuity World Growth Fund
2,000,000 Shares of USAA Life Variable Annuity Diversified Assets Fund
Such sale and purchase will be consummated following the effectiveness of the
Trust's Form N-1A registration statement filed with the Securities and Exchange
Commission under the Securities Act of 1933 and prior to the commencement of the
Trust's offering of its Shares to the Separate Account.
2. USAA LIFE acknowledges that the Shares have not been registered under any
state or federal securities laws and that, therefore, the Trust is relying on
certain exemptions therein from such registration requirements, including
exemptions dependent on the intent of the undersigned in acquiring the Shares.
USAA LIFE also understands that any resale of the Shares, or any part thereof,
may be subject to restrictions under state and federal securities laws, and that
USAA LIFE may be required to bear the economic risk of an investment in the
Shares for an indefinite period of time.
3. USAA LIFE represents and warrants that it is acquiring the Shares solely
for its own account and solely for investment purposes and not with a view to
the resale or disposition of all or any part thereof, and that it has no present
plan or intention to sell or otherwise dispose of the Shares or any part
thereof.
4. USAA LIFE agrees that it will not sell or dispose of the Shares or any
part thereof unless registration statements with respect to such Shares are then
in effect under the Securities Act of 1933 and under any applicable state
securities laws or unless the undersigned
<PAGE>
shall have delivered to the Trust an opinion of counsel acceptable to the Trust,
in form and substance acceptable to the Trust, that no such registration is
necessary.
5. USAA LIFE further agrees to withdraw any request to redeem any of the
Shares to the extent the Trust informs the undersigned that the effect of such
redemption could have a material adverse effect on the Funds.
6. The parties acknowledge, with respect to the foregoing, that USAA Life
will bear the organizational expenses of the Trust.
IN WITNESS THEREOF, the parties hereto have executed this Agreement by their
duly authorized representatives this 16th day of December, 1994.
USAA LIFE INSURANCE COMPANY USAA LIFE INVESTMENT TRUST
By: /s/ EDWIN L. ROSANE By:/s/ EDWIN L. ROSANE
---------------- ---------------
EDWIN L. ROSANE EDWIN L. ROSANE
CEO, President CEO, President
Attest: /s/ R. T. HALINSKI, JR. Attest: /s/ R. T. HALINSKI, JR.
------------------- -------------------
R.T. HALINSKI, JR. R. T. HALINSKI, JR.
Assistant Secretary Assistant Secretary
9229
2
<PAGE>
EXHIBIT 16(A)
POWER OF ATTORNEY
STATE OF : TEXAS
COUNTY OF: BEXAR
Know all men by these presents that the undersigned Director of USAA Life
Insurance Company, a Texas corporation ("Corporation"), constitutes and appoints
Richard T. Halinski, Jr. and Dwain A. Akins, and each of them, as his true and
lawful attorney-in-fact and agent, with full power of substitution, for him and
in his name, place and stead, in any and all capacities to sign registration
statements on any form or forms filed under the Securities Act of 1933 and the
Investment Company Act of 1940 and any and all amendments thereto, with all
exhibits, instruments, and other documents necessary or appropriate in
connection therewith and to file them with the Securities and Exchange
Commission or any other regulatory authority as may be necessary or desirable,
hereby ratifying and confirming all that said attorney-in-fact and agent or his
substitute, may lawfully do or cause to be done by virtue hereof.
/s/ ROBERT T. HERRES July 22, 1994
- ------------------------------ --------------------------
Robert T. Herres Date
Chairman, Board of Directors
On this 22nd day of July, 1994, before me, Linda K. Wright the undersigned
Notary Public, personally appeared Robert T. Herres, known to me to be the
person whose name is subscribed to the above Power of Attorney, and acknowledged
that he executed it.
WITNESS my hand and official seal
/s/ LINDA K. WRIGHT
--------------------------
(seal) Notary Public
<PAGE>
POWER OF ATTORNEY
STATE OF : TEXAS
COUNTY OF: BEXAR
Know all men by these presents that the undersigned Director of USAA Life
Insurance Company, a Texas corporation ("Corporation"), constitutes and appoints
Richard T. Halinski, Jr. and Dwain A. Akins, and each of them, as his true and
lawful attorney-in-fact and agent, with full power of substitution, for him and
in his name, place and stead, in any and all capacities to sign registration
statements on any form or forms filed under the Securities Act of 1933 and the
Investment Company Act of 1940 and any and all amendments thereto, with all
exhibits, instruments, and other documents necessary or appropriate in
connection therewith and to file them with the Securities and Exchange
Commission or any other regulatory authority as may be necessary or desirable,
hereby ratifying and confirming all that said attorney-in-fact and agent or his
substitute, may lawfully do or cause to be done by virtue hereof.
/s/ EDWIN L. ROSANE July 25, 1994
- ------------------------------------- --------------------------
Edwin L. Rosane Date
Vice Chairman, Board of Directors
President and Chief Executive Officer
On this 25th day of July, 1994, before me, Linda K. Wright the undersigned
Notary Public, personally appeared Edwin L. Rosane, known to me to be the person
whose name is subscribed to the above Power of Attorney, and acknowledged that
he executed it.
WITNESS my hand and official seal
/s/ LINDA K. WRIGHT
--------------------------
(seal) Notary Public
<PAGE>
POWER OF ATTORNEY
STATE OF : TEXAS
COUNTY OF: BEXAR
Know all men by these presents that the undersigned Director of USAA Life
Insurance Company, a Texas corporation ("Corporation"), constitutes and appoints
Richard T. Halinski, Jr. and Dwain A. Akins, and each of them, as his true and
lawful attorney-in-fact and agent, with full power of substitution, for him and
in his name, place and stead, in any and all capacities to sign registration
statements on any form or forms filed under the Securities Act of 1933 and the
Investment Company Act of 1940 and any and all amendments thereto, with all
exhibits, instruments, and other documents necessary or appropriate in
connection therewith and to file them with the Securities and Exchange
Commission or any other regulatory authority as may be necessary or desirable,
hereby ratifying and confirming all that said attorney-in-fact and agent or his
substitute, may lawfully do or cause to be done by virtue hereof.
/s/ MICHAEL J.C. ROTH July 26, 1994
- ------------------------------ -----------------------
Michael J.C. Roth, Director Date
On this 26th day of July, 1994, before me, Brenda C. Fitzgerald the undersigned
Notary Public, personally appeared Michael J.C. Roth, known to me to be the
person whose name is subscribed to the above Power of Attorney, and acknowledged
that he executed it.
WITNESS my hand and official seal
/s/ Brenda C. Fitzgerald
------------------------
(seal) Notary Public
<PAGE>
POWER OF ATTORNEY
STATE OF : TEXAS
COUNTY OF: BEXAR
Know all men by these presents that the undersigned Director of USAA Life
Insurance Company, a Texas corporation ("Corporation"), constitutes and appoints
Richard T. Halinski, Jr. and Dwain A. Akins, and each of them, as his true and
lawful attorney-in-fact and agent, with full power of substitution, for him and
in his name, place and stead, in any and all capacities to sign registration
statements on any form or forms filed under the Securities Act of 1933 and the
Investment Company Act of 1940 and any and all amendments thereto, with all
exhibits, instruments, and other documents necessary or appropriate in
connection therewith and to file them with the Securities and Exchange
Commission or any other regulatory authority as may be necessary or desirable,
hereby ratifying and confirming all that said attorney-in-fact and agent or his
substitute, may lawfully do or cause to be done by virtue hereof.
/s/ JAMES A. ROBINSON July 25, 1994
- ------------------------------------------ ----------------------
James A. Robinson, Date
Senior Vice president, Treasurer,
Principal Financial and Accounting Officer
On this 25th day of July, 1994, before me, Linda K. Wright the undersigned
Notary Public, personally appeared James A. Robinson, known to me to be the
person whose name is subscribed to the above Power of Attorney, and acknowledged
that he executed it.
WITNESS my hand and official seal
/s/ Linda K. Wright
-----------------------
(seal) Notary Public
47162
<PAGE>
EXHIBIT 16(b)
POWER OF ATTORNEY
STATE OF: TEXAS
COUNTY OF: BEXAR
Know all men by these presents that the undersigned Director of USAA
Life Insurance Company, a Texas corporation ("Corporation"), constitutes and
appoints Richard T. Halinski, Jr. and Dwain A. Akins, and each of them, as his
true and lawful attorney-in-fact and agent, with full power of substitution, for
him and in his name, place and stead, in any and all capacities to sign
registration statements on any form or forms filed under the Securities Act of
1933 and the Investment Company Act of 1940 and any and all amendments thereto,
with all exhibits, instruments, and other documents necessary or appropriate in
connection therewith and to file them with the Securities and Exchange
Commission or any other regulatory authority as may be necessary or desirable,
hereby ratifying and confirming all that said attorney-in-fact and agent or his
substitute, may lawfully do or cause to be done by virtue hereof.
/s/ Josue Robles, Jr. December 19, 1994
- ----------------------------------- --------------------------
Josue Robles, Jr. Date
Director
On this 19th day of December 1994, before me, Vickie Y. Gimblet the
undersigned Notary Public, personally appeared Josue Robles, Jr., known to me to
be the person whose name is subscribed to the above Power of Attorney, and
acknowledged that he executed it.
WITNESS my hand and official seal
/s/ Vickie Y. Gimblet
--------------------------
Notary Public
(seal)
<PAGE>
EXHIBIT 16(E)
POWER OF ATTORNEY
STATE OF : TEXAS
COUNTY OF: BEXAR
Know all men by these presents that the undersigned Director of USAA Life
Insurance Company, a Texas corporation ("Corporation"), constitutes and appoints
Richard T. Halinski, Jr. and Dwain A. Akins, and each of them, as her true and
lawful attorney-in-fact and agent, with full power of substitution, for her and
in her name, place and stead, in any and all capacities to sign registration
statements on any form or forms filed under the Securities Act of 1933 and the
Investment Company Act of 1940 and any and all amendments thereto, with all
exhibits, instruments, and other documents necessary or appropriate in
connection therewith and to file them with the Securities and Exchange
Commission or any other regulatory authority as may be necessary or desirable,
hereby ratifying and confirming all that said attorney-in-fact and agent or her
substitute, may lawfully do or cause to be done by virtue hereof.
/s/ JANICE E. MARSHALL April 15 , 1998
- ------------------------------- ---------------------------
Janice E. Marshall Date
Director
On this 15th day of April, 1998, before me, Leticia L. Casiano the undersigned
Notary Public, personally appeared Janice E. Marshall, known to me to be the
person whose name is subscribed to the above Power of Attorney, and acknowledged
that she executed it.
WITNESS my hand and official seal
/s/LETICIA L. CASIANO
----------------------
Notary Public
(seal)
<PAGE>
POWER OF ATTORNEY
STATE OF : TEXAS
COUNTY OF: BEXAR
Know all men by these presents that the undersigned Director of USAA Life
Insurance Company, a Texas corporation ("Corporation"), constitutes and appoints
Richard T. Halinski, Jr. and Dwain A. Akins, and each of them, as his true and
lawful attorney-in-fact and agent, with full power of substitution, for him and
in his name, place and stead, in any and all capacities to sign registration
statements on any form or forms filed under the Securities Act of 1933 and the
Investment Company Act of 1940 and any and all amendments thereto, with all
exhibits, instruments, and other documents necessary or appropriate in
connection therewith and to file them with the Securities and Exchange
Commission or any other regulatory authority as may be necessary or desirable,
hereby ratifying and confirming all that said attorney-in-fact and agent or his
substitute, may lawfully do or cause to be done by virtue hereof.
/s/ WILLIAM B. TRACY April 20, 1998
- -------------------------- ---------------------
William B. Tracy Date
Director
On this 20th day of April, 1998, before me, Barbara B. Charo the undersigned
Notary Public, personally appeared William B. Tracy, known to me to be the
person whose name is subscribed to the above Power of Attorney, and acknowledged
that he executed it.
WITNESS my hand and official seal
/s/Barbara B. Charo
--------------------
Notary Public
(seal)
<PAGE>
POWER OF ATTORNEY
STATE OF : TEXAS
COUNTY OF: BEXAR
Know all men by these presents that the undersigned Director of USAA Life
Insurance Company, a Texas corporation ("Corporation"), constitutes and appoints
Richard T. Halinski, Jr. and Dwain A. Akins, and each of them, as his true and
lawful attorney-in-fact and agent, with full power of substitution, for him and
in his name, place and stead, in any and all capacities to sign registration
statements on any form or forms filed under the Securities Act of 1933 and the
Investment Company Act of 1940 and any and all amendments thereto, with all
exhibits, instruments, and other documents necessary or appropriate in
connection therewith and to file them with the Securities and Exchange
Commission or any other regulatory authority as may be necessary or desirable,
hereby ratifying and confirming all that said attorney-in-fact and agent or his
substitute, may lawfully do or cause to be done by virtue hereof.
/s/ DONALD R. WALKER April 14, 1998
- --------------------------- ---------------------
Donald R. Walker Date
Director
On this 14th day of April 1998, before me, Susan Stoutamire the undersigned
Notary Public, personally appeared Donald R. Walker, known to me to be the
person whose name is subscribed to the above Power of Attorney, and acknowledged
that he executed it.
WITNESS my hand and official seal
/s/ Susan Stoutamire
----------------------
Notary Public
(seal)
47166
