<PAGE>
As filed with the Securities and Exchange Commission on February 26, 1999.
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. 5 X
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 6 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.
RICHARD T. CHOI, 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
[ ] On (date) pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[X] On May 1, 1999 pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following:
[ ] This post-effective amendment designates a new effective date
for previously filed post-effective amendment.
Title of Securities Being Registered: Units of Interest in Separate Account of
USAA Life Insurance Company under Flexible Premium Deferred Combination Fixed
and Variable Annuity Contract.
<PAGE>
[Logo of USAA
Appears Here]
USAA Life Insurance Company
VARIABLE ANNUITY
MAY 1, 1999
<PAGE>
USAA Life Insurance Company
Variable Annuity
- --------------------------------------------------------------------------------
Table of Contents
SECTION
- -------
A. Flexible Premium Deferred Combination
Fixed and Variable Annuity Contract Prospectus
B. USAA Life Investment Trust Prospectus
C. Scudder Variable Life Investment Fund Prospectus
(Capital Growth Portfolio)
D. Alger American Fund Prospectus
(American Growth Portfolio)
E. BT Insurance Funds Trust Prospectuses
(BT Equity 500 Index Fund)
(BT Small Cap Index Fund)
(BT EAFE(R) Equity Index Fund)
1
<PAGE>
This page left blank intentionally.
2
<PAGE>
VARIABLE ANNUITY
Prospectus
May 1, 1999
[Logo of USAA
Appears Here]
USAA Life Insurance Company
9800 Fredericksburg Road
San Antonio, Texas 78288
Telephone: [1-800-531-2923]
USAA Life Insurance Company ("USAA LIFE") is offering a flexible premium
deferred combination fixed and variable annuity contract ("CONTRACT") to the
general public. This prospectus contains information about the Contract that
you should know before investing. Please keep it for future reference.
The Contract offers 13 investment choices, including a Fixed Fund Account,
which pays a guaranteed rate of interest, and 12 Variable Fund Accounts of our
Separate Account, each of which invests in one of the following mutual funds
("FUNDS"):
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
-------------------------------------
Capital Growth Portfolio
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
USAA Life ("WE") have filed a statement of additional information, dated May 1,
1999, with the Securities and Exchange Commission. It contains more information
about the Contract and is legally part of this Prospectus. Its table of
contents appears on page __A. For a free copy, call 1-800-531-2923.
Investments in the Variable Fund Accounts are not
deposits or other obligations of, or guaranteed by, the
IMPORTANT USAA Federal Savings Bank, are not insured by the
NOTICES Federal Deposit Insurance Corporation (FDIC) or any
other government agency, are subject to investment
risks, and may lose value.
The Securities and Exchange Commission has not approved
or disapproved the securities described in this
prospectus or passed upon the adequacy of this
prospectus. Anyone who tells you otherwise is
committing a federal crime.
3A
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
INDEX OF IMPORTANT TERMS........................
THE CONTRACT AT A GLANCE........................
THE CONTRACT WORKS..............................
EXPENSES........................................
CONTRACT FEATURES INVESTMENT CHOICES..............................
SPECIAL SERVICES................................
Dollar Cost Averaging Program.................
Systematic Withdrawal Program.................
Automatic Payment Plan........................
YOUR CONTRACT VALUE.............................
ANNUITY BENEFITS................................
DEATH BENEFITS..................................
HOW DO I:
Buy a Contract................................
Invest more money.............................
Access my money...............................
Change my investment choices..................
TRANSACTIONS Change my premium allocations.................
Change my annuity date........................
Change my annuitant...........................
Change my beneficiary.........................
Transfer or assign ownership..................
Place a telephone request.....................
Cancel my Contract............................
Keep track of my investments..................
Start receiving annuity payments..............
Report a death................................
Contact USAA Life.............................
PROCESSING DATES................................
POSTPONEMENT OF PAYMENTS........................
MORE INFORMATION ABOUT:
USAA Life.....................................
The Separate Account..........................
OTHER INFORMATION The Funds.....................................
The Contract..................................
Charges and Deductions........................
Year 2000.....................................
TAX INFORMATION.................................
FINANCIAL INFORMATION...........................
PERFORMANCE INFORMATION.........................
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.
4A
<PAGE>
INDEX OF IMPORTANT TERMS
- --------------------------------------------------------------------------------
TERM PAGE
- ---- ----
ACCUMULATION UNIT........................................................
ANNUITANT................................................................
ANNUITY DATE.............................................................
ANNUITY UNIT.............................................................
BENEFICIARY..............................................................
CONTRACT.................................................................
CONTRACT YEAR............................................................
DISTRIBUTION OPTION......................................................
EFFECTIVE DATE...........................................................
FIXED ANNUITY PAYMENTS...................................................
FIXED FUND ACCOUNT.......................................................
FIXED FUND ACCOUNT VALUE.................................................
FREE LOOK................................................................
FUND.....................................................................
GENERAL ACCOUNT..........................................................
NONQUALIFIED.............................................................
PLAN.....................................................................
PROOF OF DEATH...........................................................
QUALIFIED PLAN...........................................................
VARIABLE ANNUITY PAYMENTS................................................
VARIABLE FUND............................................................
ACCOUNT..................................................................
VARIABLE FUND ACCOUNT VALUE..............................................
5A
<PAGE>
THE CONTRACT AT A GLANCE
- --------------------------------------------------------------------------------
The following is a snapshot of the Contract. Please read the remainder of this
prospectus for more information.
<TABLE>
<S> <C>
FLEXIBLE PAYMENTS You can purchase a Contract with as little as $1000. You
can add to your Contract as often and as much as you
like, but each payment must be at least $100. You must
maintain a minimum account size of $1000. In summary:
Minimum initial payment: $1,000
Minimum subsequent payment: $100
Minimum account size: $1,000
Lower minimums apply to USAA employees and Contracts held
in IRA and other tax-qualified plans.
- -------------------------------------------------------------------------------------------
FREE LOOK You may cancel your Contract within 10 days of receipt
(or a longer period depending on where you reside) ("FREE
LOOK PERIOD").
- -------------------------------------------------------------------------------------------
EXPENSES You will bear the following expenses:
. 0.75% total separate account annual fees (as a
percentage of net assets)
. $30 annual contract maintenance charge
. No charge for withdrawals from any Variable Fund
Account
. 0 to 7% range of charges for withdrawals from the
Fixed Fund Account
. State premium tax (if your state imposes one)
In addition, total fund annual expenses range from
.30% to 1.10% (as a percentage of net assets).
- -------------------------------------------------------------------------------------------
SPECIAL SERVICES For your convenience, we offer these special services:
. Automatic Payment Plan
. Dollar Cost Averaging Program
. Systematic Withdrawal Program
- -------------------------------------------------------------------------------------------
INVESTMENT CHOICES The Contract offers 13 investment choices including:
. 1 Fixed Fund Account (guaranteed to earn at least 3%
interest )
. 12 Variable Fund Accounts investing in mutual fund
portfolios managed by these professional money managers:
. USAA Investment Management Company ("USAA IMCO")
. Scudder Kemper Investments, Inc. ("SCUDDER")
. Fred Alger Management, Inc. ("ALGER MANAGEMENT")
. Bankers Trust Company ("BANKERS TRUST")
To find out current rates being paid on the Fixed Fund
Account, call us at 1-800-531-2923. To find out how the
Variable Fund Accounts have performed, check out
"Performance Information" beginning on page ____, or call
us for more current information.
- -------------------------------------------------------------------------------------------
</TABLE>
6A
<PAGE>
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
ANNUITY BENEFITS You can choose from a variety of annuity payment options:
. 5 fixed annuity payment options
. 3 variable annuity payment options
. 1 systematic withdrawal option
- -------------------------------------------------------------------------------------------
DEATH BENEFITS If you die before annuity payments begin, we will pay a
death benefit that is the greater of:
(1) the value of your Contract ("CONTRACT VALUE") on the
date we receive proof of death, or
(2) total premiums paid less withdrawals and premium
taxes.
If you die on or after the day annuity payments begin,
your Beneficiary may or may not receive death benefits,
depending on the annuity payment option you selected.
- -------------------------------------------------------------------------------------------
TRANSFERS You may transfer your money among your investment choices
up to 6 times per Contract year. You must transfer at
least $100 or, if less, the remaining balance in the
Fixed or Variable Fund Account from which you are
transferring. You may incur a charge if you transfer
money from the Fixed Fund Account.
- -------------------------------------------------------------------------------------------
WITHDRAWALS You may withdraw some or all of your money at anytime
before annuity payments begin. The minimum amount you may
withdraw is $500, or, if less, the remaining balance in
the Fixed or Variable Fund Account from which you are
withdrawing. A 10% federal tax penalty may apply if you
withdraw before you are 59 1/2 years old. A
withdrawal charge may apply if you withdraw money from
the Fixed Fund Account.
- -------------------------------------------------------------------------------------------
</TABLE>
7A
<PAGE>
HOW THE CONTRACT WORKS
- --------------------------------------------------------------------------------
The Contract basically works in two ways.
First, the Contract can help you save for retirement because you can invest
in up to 13 investment choices and pay no federal income taxes on any earnings
until you withdraw them. You do this during what we call the "ACCUMULATION
PHASE" of the Contract. The Accumulation Phase begins when you buy a Contract
(we call this the "EFFECTIVE DATE") and continues to the date you begin
receiving annuity payments (we call that the "ANNUITY DATE"). During the
Accumulation Phase, if you invest in the Fixed Fund Account, you will earn a
fixed rate of interest (not less than 3%) that we declare periodically. If you
invest in the Variable Fund Accounts, your investment return will vary up or
down depending on the performance of the corresponding Funds.
Second, the Contract can help you plan for retirement because you can use
it to receive retirement income for life, or for a pre-set number of years, by
selecting one of the annuity payment options described on page __A. You do this
during what we call the "DISTRIBUTION PHASE" of the Contract. The Distribution
Phase is the period beginning on and continuing after the Annuity Date. During
the Distribution Phase, if you select a fixed annuity payment option, we
guarantee the amount of your payments, which will remain fixed. If you select a
variable annuity payment option, based on up to four of the Variable Fund
Accounts, the amount of your payments will vary up or down depending on the
performance of the corresponding Funds.
You can use the Contract with a "NONQUALIFIED PLAN" or a "QUALIFIED PLAN."
A Nonqualified Plan is a retirement plan that permits deferral of federal income
tax on earnings. A Qualified Plan is a personal retirement savings plan, such
as an IRA or tax-sheltered annuity ("TSA") that permits (1) money to be
contributed on a pre federal income tax basis, and (2) deferral of federal
income tax on earnings.
The timeline below illustrates how you might use your Contract.
<TABLE>
<CAPTION>
EFFECTIVE
DATE ACCUMULATION PHASE ANNUITY DATE DISTRIBUTION PHASE
<S> <C> <C> <C> <C>
.__________________________________________+_____________________+_______________________________
You save for retirement ?
You buy You start You can receive Or you can receive
a Contract receiving annuity payments annuity payments
annuity for a set period for as long as you live
payments or
receive a lump
sum payment
</TABLE>
As the Contract owner, you exercise all of the rights and privileges
provided by the Contract. That means it is up to you to select or change (to
the extent permitted):
. the investment choices during the Accumulation and Distribution Phases;
. the amount and timing of your premium payments and withdrawals;
. the special services you want to use to invest or withdraw money;
. the annuity payment option you want to use to receive retirement income;
. the annuitant (either yourself or someone else) on whose life the
annuity payments will be based ("ANNUITANT");
. the beneficiary or beneficiaries who will receive the benefits that the
Contract provides when you or the Annuitant dies ("BENEFICIARIES"); and
. any other rights that the Contract provides.
If you die, the Annuitant or Beneficiary will exercise the rights and
privileges provided by the Contract. See "More Information - The Contract."
In addition, if you die before the Annuity Date, we will pay a death benefit to
your Annuitant or Beneficiary according to the Contract.
Please call us at 1-800-531-4265 if you have any question about how the
Contract works.
8A
<PAGE>
EXPENSES
- --------------------------------------------------------------------------------
The table below lists the expenses that you will bear directly or
indirectly under the Contract. The table does not show premium taxes imposed by
the state where you reside. For more information about Separate Account
expenses, see "Charges and Deductions," below. For more information about Fund
expenses, see the prospectuses for the Funds.
---------------------------------------------------------------------------
TRANSACTION EXPENSES
<TABLE>
<S> <C>
Sales Load Imposed on Premium Payments................... None
Deferred Sales Load...................................... None
Withdrawal Fee for Variable Fund Account................. None
Withdrawal Fee for Fixed Fund Account(1)................. 0%-7%
Transfer Fee(1).......................................... None
Contract Maintenance Charge(2)........................... $30.00
---------------------------------------------------------------------------
SEPARATE ACCOUNT ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Mortality and Expense Risk Charge(3)..................... 0.65%
Administrative Expense(3)................................ 0.10%
-----
Total Separate Account Annual Expenses(3)................ 0.75%
=====
</TABLE>
---------------------------------------------------------------------------
Annual Expenses of the Funds (as a percentage of average net assets)(4)
<TABLE>
<CAPTION>
Other Expenses
Name of Fund After Total Fund
Management Expense Annual
Fees 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 .15 .35
- ----------------------------------------------------------------------------------------------------------------------------
USAA Life World Growth Fund .20 .45 .65
- ----------------------------------------------------------------------------------------------------------------------------
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 .20 .65
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) We may deduct a charge of up to 7% from transfers or withdrawals from the
Fixed Fund Account depending upon how long the money transferred or
withdrawn has been on deposit with us.
(2) Applies annually during the Accumulation Phase.
(3) Applies only to the Variable Fund Accounts.
(4) The figures shown in the Table are as of each funds most recently completed
fiscal year. These expenses are reflected in the daily price of each
Fund's shares.
(5) USAA Life has agreed to assume the expenses of the USAA Life Investment
Trust Funds that exceed, annually, .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. We may stop assuming these expenses by giving the USAA Life
Investment Trust 120 days advance notice. Absent our agreement to assume
these expenses, the expenses of the USAA Life Money Market, Income, Growth
& Income, World Growth, Diversified Assets, Aggressive Growth, and
International Funds for the 1998 fiscal year would have been: .80%, .55%,
.37%, .66%, .45%, .84% and 1.35%, respectively. Bankers Trust has agreed to
reimburse the BT Equity 500 Index Fund, BT Small Cap Index Fund, and BT
EAFE(R) Equity Index Fund to the extent their total operating expenses
exceed 0.30%, 0.45%, and 0.65%, respectively. Bankers Trust may stop
reimbursing these Funds at any time. Without this
9A
<PAGE>
reimbursement arrangement, the expenses for the 1998 fiscal year for the BT
Equity 500 Index Fund, BT Small Cap Index Fund, and BT EAFE(R) Equity Index
Fund would have been 1.19%, 1.58% and 1.66% respectively.
- --------------------------------------------------------------------------------
EXAMPLE:
The example below shows the dollar amount of expenses that you would bear
directly or indirectly if you:
. invested $1,000 in a Variable Fund Account,
. earned a 5% annual return on your investment, and
. surrendered your Contract or chose to receive annuity payments at the end
of each time period.
Please remember that you are looking at an example. Your actual expenses may be
lower or greater than those shown.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
NAME OF VARIABLE FUND ACCOUNT 1 YR. 3 YRS. 5 YRS. 10 YRS.
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
USAA Life Money Market Fund Account 12 38 67 152
- ------------------------------------------------------------------------------------------------------------------------------
USAA Life Income Fund Account 12 38 67 152
- ------------------------------------------------------------------------------------------------------------------------------
USAA Life Growth and Income Fund Account 12 38 67 152
- ------------------------------------------------------------------------------------------------------------------------------
USAA Life World Growth Fund Account 15 48 84 190
- ------------------------------------------------------------------------------------------------------------------------------
USAA Life Diversified Assets Fund Account 12 38 67 152
- ------------------------------------------------------------------------------------------------------------------------------
USAA Life Aggressive Growth Fund Account 16 49 86 197
- ------------------------------------------------------------------------------------------------------------------------------
USAA Life International Fund Account 20 62 109 248
- ------------------------------------------------------------------------------------------------------------------------------
Scudder VLIF Capital Growth Portfolio Account 14 43 76 172
- ------------------------------------------------------------------------------------------------------------------------------
Alger American Growth Portfolio Account 17 52 92 208
- ------------------------------------------------------------------------------------------------------------------------------
BT Equity 500 Index Fund Account 12 36 64 145
- ------------------------------------------------------------------------------------------------------------------------------
BT Small Cap Index Fund Account 13 41 72 165
- ------------------------------------------------------------------------------------------------------------------------------
BT EAFE(R) Equity Index Fund Account 15 48 84 190
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The example above assumes a $39,030 average Contract account size to express the
$30 Contract Maintenance Charge as a percentage.
ACCUMULATION UNIT DATA
- -----------------------
The accumulation unit data for the Variable Fund Accounts appear under the
heading "Financial Information" in this prospectus.
10A
<PAGE>
INVESTMENT CHOICES
- --------------------------------------------------------------------------------
During the Accumulation Phase, you may select up to 13 investment choices,
including 12 Variable Fund Accounts and our Fixed Fund Account. You may allocate
your premium payments among the investment choices in amounts no smaller than
1/10 of 1%, so long as the total equals 100%. During the Distribution Phase,
you may base your annuity payments on any 4 Variable Fund Accounts and our Fixed
Fund Account.
VARIABLE FUND ACCOUNTS
- -----------------------
The Contract offers 12 Variable Fund Accounts. Each Variable Fund Account
invests in a corresponding Fund. A brief description of the Funds appears below.
More complete information, including a discussion of risks, appears in each
Fund's prospectus. Please read each Fund prospectus carefully.
<TABLE>
<CAPTION>
NAME OF FUND INVESTMENT OBJECTIVE IS TO SEEK: FUND ADVISER:
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
USAA Life the highest level of current income consistent with preservation
Money Market Fund of capital and maintenance of liquidity.
- ----------------------------------------------------------------------------------------------------
USAA Life maximum current income without undue risk to principal.
Income Fund
- ----------------------------------------------------------------------------------------------------
USAA Life capital growth and current income.
Growth and Income Fund
- ---------------------------------------------------------------------------------------------------- USAA IMCO
USAA Life long-term capital appreciation. 9800 Fredericksburg Road,
World Growth Fund San Antonio, Texas 78288
- ----------------------------------------------------------------------------------------------------
USAA Life long-term capital growth, consistent with preservation of capital
Diversified Assets Fund and balanced by current income.
- ----------------------------------------------------------------------------------------------------
USAA Life appreciation of capital.
Aggressive Growth Fund
- ----------------------------------------------------------------------------------------------------
USAA Life capital appreciation with current income as a secondary objective.
International Fund
- -----------------------------------------------------------------------------------------------------------------------------------
Scudder VLIF to maximize long-term capital growth. Scudder
Capital Growth Portfolio Two International Place,
Class A Shares Boston, Massachusetts 02110
- ----------------------------------------------------------------------------------------------------------------------------------
Alger American long-term capital appreciation. ALGER MANAGEMENT
Growth Portfolio 75 Maiden Lane
New York, New York 10038
- ----------------------------------------------------------------------------------------------------------------------------------
BT Equity 500 Index Fund 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 to replicate as closely as possible (before deduction of Fund BANKERS TRUST
expenses) the total return of the Russell 2000 Small Stock Index. 130 Liberty Street
- ---------------------------------------------------------------------------------------------------- New York, New York, 10006
BT EAFE(R) Equity Index Fund 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.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
USAA IMCO is a wholly owned indirect subsidiary of USAA. Scudder Kemper
Investments, Inc., Fred Alger Management, Inc., and Bankers Trust Company are
not affiliated with USAA.
11A
<PAGE>
FIXED FUND ACCOUNT
- -------------------
THE FIXED FUND ACCOUNT IS NOT AVAILABLE TO RESIDENTS OF MARYLAND,
MASSACHUSETTS, PENNSYLVANIA, OREGON, OR WASHINGTON. THE FIXED FUND ACCOUNT ALSO
IS NOT AVAILABLE WITH CONTRACTS ISSUED UNDER THE TEXAS OPTIONAL RETIREMENT
PROGRAM. AMOUNTS INVESTED IN THE FIXED FUND ACCOUNT AS WELL AS AMOUNTS
SUPPORTING FIXED ANNUITY PAYMENTS ARE PART OF OUR GENERAL ACCOUNT ("GENERAL
ACCOUNT"). WE HAVE NOT REGISTERED THE INTERESTS IN THE GENERAL ACCOUNT WITH THE
SEC, NOR HAVE WE REGISTERED THE GENERAL ACCOUNT WITH THE SEC AS AN INVESTMENT
COMPANY. THE STAFF OF THE SEC HAS NOT REVIEWED THE DISCLOSURES IN THIS
PROSPECTUS THAT RELATE TO THE FIXED FUND ACCOUNT OR FIXED ANNUITY PAYMENTS. AT
THE SAME TIME, WE HAVE LEGAL RESPONSIBILITY FOR THE ACCURACY AND COMPLETENESS OF
THIS PROSPECTUS.
The money that you invest in or transfer to the Fixed Fund Account during
any month ("NEW MONEY") will earn interest at what we call the "NEW MONEY
INTEREST RATE." We declare this rate of interest at the beginning of each month
and it applies to all New Money that we receive that month. We credit the New
Money Interest Rate through the end of the current calendar year in which you
invest the New Money in the Fixed Fund Account.
The Contract Value in your Fixed Fund Account that is not attributable to
New Money will earn interest at what we call the "PORTFOLIO INTEREST RATE." We
declare this rate of interest at the beginning of each calendar year for that
year. We also may declare, before the beginning of each month, additional
interest on all amounts in the Fixed Fund Account other than New Money.
We guarantee both the New Money Interest Rate and the Portfolio Interest
Rate. These rates 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 you 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,
for the remainder of the year in which the transfer occurred. You should be
aware, however, that because any amounts transferred in this manner would be
considered New Money, they would again be subject to the Fixed Fund Account
Withdrawal Charge. (See "Charges and Deductions - Fixed Fund Account Withdrawal
Charge," below.)
Our General Account assets support our obligations with respect to the
Fixed Fund Account, and also support our obligations under other insurance
contracts. We own the investments purchased with amounts allocated to the
Fixed Fund Account. You have no legal rights in such investments.
SPECIAL SERVICES
- --------------------------------------------------------------------------------
To begin or end any of the special services described below, simply call or
write to us at the phone number or address on the cover of this prospectus. We
will provide you with instructions and a copy of any forms you need to complete.
During the Accumulation Phase, we may suspend, terminate, or modify the dollar
cost averaging or systematic withdrawal programs by giving you 30 days advance
notice. The suspension or termination of a program will not affect you if you
are already in a program.
AUTOMATIC PAYMENT PLAN
- ----------------------
This plan allows you to make regular premium payments from your checking or
savings account. We will automatically withdraw the amount you specify and
invest it according to your instructions on file with us.
DOLLAR COST AVERAGING PROGRAM
- -----------------------------
This program allows you to regularly transfer money from one or more
Variable Fund Accounts (for example, the Money Market Variable Fund Account) to
your other investment choices. We will automatically transfer the amount or
percentage you specify and invest it according to your instructions on file with
us. The program does not permit transfers from the Fixed Fund Account. The
program is available only during the Accumulation Phase.
12A
<PAGE>
To begin the 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 you may transfer is $100, or, if less, the remaining balance of your
investment in the Variable Fund Account from which you are transferring. You
must schedule transfers over a period of at least 12 months at monthly,
quarterly, or semiannual intervals.
Transfers under the program do not count toward your limit of six transfers
per Contract Year. A "CONTRACT YEAR" is the 12-month period following the
Effective Date and each 12-month period thereafter.
SYSTEMATIC WITHDRAWAL PROGRAM
- -----------------------------
This program allows you to withdraw pre-set amounts monthly, quarterly,
semiannually, or annually from the Fixed and/or Variable Fund Accounts. We will
withdraw the amounts you specify proportionately from all of your investment
choices or only from the investment choices you specify. You may change the
amount or frequency of withdrawals once each Contract Year.
You must have a minimum Contract Value of $20,000 to participate in the
program ($5,000 if the Contract funds a Qualified Plan). The minimum amount
you may withdraw from the Fixed or a Variable Fund Account is $250, or, if less,
the remainder of the Account.
A withdrawal charge and federal income taxes and penalties may apply to
your systematic withdrawals. See "Charges and Deductions - Fixed Fund Account
Withdrawal Charge" and "Tax Information." You should seek the advice of a tax
adviser before choosing this program.
Currently, there is no charge for this program. We reserve the right,
however, to charge for this program during the Accumulation Phase of the
Contract. We do not intend to profit from any such charge.
YOUR CONTRACT VALUE
- --------------------------------------------------------------------------------
Your Contract Value during the Accumulation Phase equals the sum of the
values you have invested in the Fixed and Variable Fund Accounts.
FIXED FUND ACCOUNT VALUE
- ------------------------
The value of your Contract in the Fixed Fund Account ("FIXED FUND ACCOUNT
VALUE") on any business day will equal the sum of premium payments you invested
in 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
- ----------------------------
We measure the value of your Variable Fund Accounts ("VARIABLE FUND ACCOUNT
VALUE") using a unit of measure we call the "ACCUMULATION UNIT." When you invest
in a Variable Fund Account, we credit your Contract with a number of
Accumulation Units. Your Variable Fund Account Value on any business day will
equal the number of Accumulation Units credited to you multiplied by the price
of the Accumulation Unit on that date.
EXAMPLE:
--------
You pay us $6,000 in premium on Wednesday. You allocate the premium to the
USAA Life Growth and Income Variable Fund Account. When the New York Stock
Exchange closes that day, we determine that the value of an Accumulation
Unit for that Variable Fund Account is $20.00. We then divide your $6,000
payment by $20.00 and credit your Contract with 300 Accumulation Units.
13A
<PAGE>
We calculate the value of an Accumulation Unit ("ACCUMULATION UNIT VALUE")
for each Variable Fund Account after the New York Stock Exchange closes each
business day based on the formula below. To receive a quotation of daily
Accumulation Unit Values, call us at 1-800-531-4265.
To calculate the Accumulation Unit Value of a Variable Fund Account each
business day, we:
(1) calculate the change in market value from the previous day for the
underlying fund.
(2) subtract insurance charges such as mortality and expense risk charge
and administrative charge.
(3) add or subtract the result to the prior day's Accumulation Unit Value.
MINIMUM CONTRACT VALUE
- ----------------------
If your Contract Value during the Accumulation Phase is less than $1,000
and we haven't received premium payments for two years, we may cancel your
Contract. This minimum does not apply to Contracts issued in connection with
Qualified Plans. We will notify you 30 days before we cancel your Contract. You
will have an opportunity to satisfy the minimum requirement before we cancel
your Contract. If we cancel your Contract, we will pay you a lump sum and we
will have no further obligations.
ANNUITY BENEFITS
- --------------------------------------------------------------------------------
You may choose to receive annuity payments during the Distribution Phase.
We will pay you according to the annuity payment option or "DISTRIBUTION OPTION"
you select. Payments will start on the Annuity Date and will continue for the
period specified in the Distribution Option you select.
ANNUITY DATE
- ------------
You select your Annuity Date when you apply for a Contract. If you are
using your Contract as a Qualified Plan, the Annuity Date may not be later than
the date required by federal income tax law. (See "Tax Information.") If you
are using your Contract as a Nonqualified Plan, the Annuity Date may not be
later than the Annuitant's 95th birthday. The Annuity Date must also be at
least six months after the Effective Date, unless we choose to waive this
requirement. You may change the Annuity Date by submitting a written request,
at least 30 days before the Annuity Date.
TYPES OF ANNUITY PAYMENTS
- -------------------------
You may choose:
(1) fixed annuity payments,
(2) variable annuity payments,
(3) a combination of fixed and variable annuity payments, or
(4) systematic withdrawals.
Fixed annuity payments are monthly payments of fixed amount that we
guarantee for the number of years that you choose. Variable annuity payments
are monthly payments that vary in amount, depending on the performance of the
Variable Fund Accounts you have selected. We do not guarantee the amount of any
variable annuity payment.
AMOUNT OF ANNUITY PAYMENTS
- --------------------------
The amount of your first annuity payment, whether fixed or variable, will
depend on the amount of Contract Value you apply to a Distribution Option. Your
Contract contains tables showing examples of the first monthly annuity payment
that you would receive for each $1,000 of Contract Value you apply to a
Distribution Option.
14A
<PAGE>
The amount of each subsequent fixed annuity payment is fixed by the terms
of the Distribution Option you chose. To calculate the amount of your
subsequent variable annuity payments, we use a unit of measure called an
"ANNUITY UNIT." The amount of each subsequent variable annuity payment will
equal the product of:
(1) the number of Annuity Units credited to you multiplied by
(2) the values of those Annuity Units ("ANNUITY UNIT VALUES").
Number of Annuity Units. When you apply your Contract Value to a
Distribution Option, we credit you with a number of Annuity Units for each
Variable Fund Account that you select. To determine the number of Annuity Units
to credit you, we divide the amount of your first variable annuity payment by
the Annuity Unit Values of each Variable Fund Account on the business day we
determine the credit. The number of Annuity Units for each Variable Fund
Account will remain constant thereafter.
Annuity Unit Values. To determine the Annuity Unit Values of each Variable
Fund Account on a given business day, we take the previous day's Values and
adjust them to reflect:
(1) the performance of the corresponding Funds (including any dividends or
capital gains distributions),
(2) any charges or credits for any income or other taxes relating to the
Variable Fund Account operations,
(3) Separate Account charges, and
(4) an assumed annual rate of return of 3% on the Variable Fund Accounts
(we call this the "3% ASSUMED RATE"). If the actual performance of a
Variable Fund Account for the month is at an annual rate that exceeds
the 3% assumed rate, your annuity payments will increase. Conversely,
if the actual performance is at an annual rate below the 3% assumed
rate, your annuity payment will decrease.
DISTRIBUTION OPTIONS
- --------------------
The Contract offers 6 Distribution Options ("OPTIONS"). You may receive
payments under other options, including a lump sum, that you and we agree upon
in writing. Also, we may, at our option, offer more favorable Distribution
Options in the future. Once annuity payments have begun, a Distribution Option
may be commuted only if we agree.
If you want to receive fixed annuity payments, you may select any one of
the Options 1 through 5. If you want to receive variable annuity payments, you
must select Option 1, 2, or 3. Option 6 provides for systematic withdrawals.
Please note that, although Distribution 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 Variable
Fund Accounts you select is poor, the amount of future annuity payments could
fall substantially, possibly to zero.
<TABLE>
<S> <C>
OPTION 1.
INCOME PAYMENTS FOR LIFE Annuity payments for as long as the Annuitant is alive. Please note that the Annuitant or
other payee could receive only one annuity payment if the Annuitant dies before the second
annuity payment.
- --------------------------------------------------------------------------------------------------------------------------------
OPTION 2.
INCOME PAYMENTS FOR LIFE WITH A Annuity payments for a certain period of time even if the Annuitant dies before that period
CERTAIN PERIOD GUARANTEED of time has expired.
- --------------------------------------------------------------------------------------------------------------------------------
OPTION 3.
JOINT AND SURVIVOR LIFE INCOME Annuity payments for as long as the Annuitant or the Joint Annuitant is alive. Please note
that an Annuitant or other payee could receive only one annuity payment if both Annuitants
die before the second annuity payment. If one of these persons dies before the Annuity
Date, the survivor becomes the sole Annuitant and may elect to receive any one or more of
the other Distribution Options.
- --------------------------------------------------------------------------------------------------------------------------------
OPTION 4.
INCOME FOR SPECIFIED PERIOD Equal payments for an agreed upon period of time (not longer than 30 years). We determine
the amount of each payment pursuant to an annuity payment table contained in the Contract.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
15A
<PAGE>
<TABLE>
<S> <C>
OPTION 5.
INCOME OF FIXED AMOUNT A sum of money is transferred to us. In exchange, we agree, 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 for as long as the
principal and interest earnings last.
- --------------------------------------------------------------------------------------------------------------------------------
OPTION 6.
SYSTEMATIC WITHDRAWALS Substantially equal monthly, quarterly, semi-annual, or annual payments made over the life
expectancy of the Annuitant or a shorter period of time. See "Special Services -
Systematic Withdrawal Program" in this prospectus for details.
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
No partial or full withdrawals are permitted under Options 1 through 5
after the Annuity Date.
If you are using this Contract to fund a Qualified Plan and if you are
required to take distributions under federal income tax law, we offer a service
to determine the minimum amount of distribution that you must take each year.
You may arrange with us to have this amount distributed by systematic
withdrawal.
DEATH BENEFITS
- --------------------------------------------------------------------------------
DEATH BENEFITS PRIOR TO THE ANNUITY DATE
- -----------------------------------------
If you are the Contract owner as well as the Annuitant and you die before
the Annuity Date, we will pay a death benefit to your Beneficiary. If you are
the Contract owner but not the Annuitant and you die before the Annuity Date, we
will pay a death benefit to the Annuitant, or the Beneficiary if the Annuitant
does not survive you.
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 the Contract, less the
amount of any withdrawals and less any required premium tax.
We will pay the death benefit in a lump sum. Instead of receiving the death
benefit in a lump sum, the Beneficiary or the Annuitant, if entitled, may choose
a Distribution Option.
If you are the Contract owner and you die before the Annuity Date, federal
income tax law requires your death benefits to be paid out as follows:
(1) If you are also the Annuitant and you did not designate a Beneficiary
or no Beneficiary survived you, then full distribution to your estate must
occur within five years after your death.
(2) If you are also the Annuitant and the Beneficiary is your spouse, or
if you are not the Annuitant but your spouse is, then your 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 your
surviving spouse's life or life expectancy, in which case payments must
begin within one year after your death.
(3) If you are also the Annuitant and the Beneficiary is not your spouse,
then distribution must begin within one year after your 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 your death.
(4) If you are not the Annuitant and the Annuitant is not your spouse,
then distribution must begin within one year after your 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 you, or, in the
alternative, full distribution must occur within five years after your
death.
16A
<PAGE>
DEATH BENEFITS ON OR AFTER THE ANNUITY DATE
- -------------------------------------------
Under current federal income tax law, if you are the Contract owner as well
as the Annuitant and you die on or after the Annuity Date, any payment that
remains under the terms of the Contract must continue at least as rapidly as
before your 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
(2) If permitted under the Distribution Option, receive higher payments,
but over a shorter period of time, than the Annuitant was receiving; or
(3) If permitted under the Distribution Option, take full distribution of
the remaining value at the Annuitant's death.
17A
<PAGE>
HOW DO I
- --------------------------------------------------------------------------------
BUY A CONTRACT
- --------------
To buy a Contract, you must complete an application and submit it, along
with your initial premium payment, to us at the address on the cover of this
prospectus. You must be of legal age and reside in a state where we are offering
the Contract. The Contract is not available to you if you have attained the age
of 85.
If a premium payment accompanies your application and it is complete, we
will either accept it and issue a Contract to you, or reject it and return the
premium payment, within two days after we receive it. If your application is
not complete, or is incorrectly completed, we will ask you to complete it within
five days after we receive it. If we do not receive a correctly completed
application within this five-day period, we will return your premium payment to
you immediately, unless you consent to our retaining the premium payment until
you complete the application. We will credit your initial premium payment
within two business days after we receive the last information we need to
process your application.
The current minimum initial and additional premium payments we accept are
as follows:
<TABLE>
<CAPTION>
MINIMUM MINIMUM
TYPE OF PLAN INITIAL PREMIUM SUBSEQUENT PREMIUM
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Nonqualified Annuity $1,000* $100*
- ---------------------------------------------------------------------------------------------------
IRA and SEP-IRA $ 100 $ 50*
- ---------------------------------------------------------------------------------------------------
SAR-SEP IRA $ 25 $ 25
- ---------------------------------------------------------------------------------------------------
TSA or ORP $ 50 $ 50
- ---------------------------------------------------------------------------------------------------
</TABLE>
* 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, IRAs and SEP-IRAs.
INVEST MORE MONEY
- -----------------
As long as your Contract Value does not fall below $1,000 (other than for
Contracts issued as part of Qualified Plans), you need not make any more premium
payments. You may, however, make subsequent premium payments at any time before
the Annuity Date. Simply send us your subsequent premium payments at the
address on the cover of this prospectus. We will allocate them among the
various Fixed and Variable Fund Accounts in the same way as the initial premium
payment. The minimum amount we will accept is shown in the table above.
ACCESS MY MONEY
- ---------------
You may withdraw some or all of your money at any time during the
Accumulation Phase. The minimum amount that you may withdraw is $500, or, if
less, the remaining balance in the Fixed and/or Variable Fund Account from which
you are withdrawing.
To withdraw money, simply contact us at the telephone number or address on
the cover page of this prospectus. Unless you are withdrawing all of your
Contract Value, you must specify the Fixed and/or Variable Fund Accounts that
you want to withdraw from. If you do not specify the Variable Fund Accounts,
we will withdraw money proportionately from your Contract Value in each Variable
Fund Account.
There is no charge for withdrawing money from a Variable Fund Account.
However, we will deduct the $30 Contract Maintenance Charge if you withdraw all
of your money from the Contract. We also may deduct a withdrawal charge from the
18A
<PAGE>
amount you withdraw from the Fixed Fund Account. (See "Charges and Deductions -
Fixed Fund Account Withdrawal Charge," below.) A 10% federal income tax penalty
may apply if you withdraw money before age 59 1/2. You also will pay taxes on
any earnings that you withdraw. For a discussion of tax aspects, see "Tax
Information," below. You should seek the advice of a tax adviser before
withdrawing money.
CHANGE MY INVESTMENT CHOICES
- ----------------------------
During the Accumulation Phase, you may change your investment choices by
transferring money among the Fixed and Variable Fund Accounts. There is no
charge to transfer money from a Variable Fund Account, but money that you
transfer from the Fixed Fund Account may be subject to a withdrawal charge. (See
"Charges and Deductions - Fixed Fund Account Withdrawal Charge," below.) The
following restrictions apply during the Accumulation Phase:
(1) You may make six transfers each Contract Year.
(2) The minimum amount of value that you may transfer from one Account to
another is $100, or, if less, your total remaining Account balance.
(3) Your 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.
During the Distribution Phase, 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 made during the Distribution Phase are subject to
restriction 3 noted above, as well as the following restrictions:
(1) You may make up to 3 transfers per Contract Year from a Variable Fund
Account to another Variable Fund Account or to a Fixed Annuity.
(2) You may not transfer from a Fixed Annuity to a Variable Annuity or to
a new Distribution Option.
(3) The minimum amount that you may transfer from a Variable Fund Account
is $100.
(4) Once you have transferred Annuity Unit Value to the Fixed Fund
Account, it is locked in and cannot be transferred out.
We can terminate, suspend, or modify these transfer privileges without
prior notice.
CHANGE MY PREMIUM ALLOCATIONS
- -----------------------------
You may change the allocation of your subsequent premium payments at any
time by calling or writing to us at the number or address on the cover page of
this prospectus. A request to change subsequent premium payment allocations
will be effective with the first premium payment we receive on or after the
business day we receive the request.
CHANGE MY ANNUITY DATE
- ----------------------
You may change the Annuity Date by sending a written request to us at the
address on the cover of this prospectus at least 30 days before the Annuity
Date.
CHANGE MY ANNUITANT
- -------------------
You may change your Annuitant by sending a written request to us at the
address on the cover of this prospectus. We must receive you request at least
15 days before the Annuity Date. The change will take effect as of the business
day we receive your request.
19A
<PAGE>
CHANGE MY BENEFICIARIES
- -----------------------
During the Annuitant's life, you may change your Beneficiaries by sending a
written request to us at the address on the cover of this prospectus. The
change will take effect as of the date you sign the request. If we make any
payments before receiving your request to change the Beneficiary, we will
receive credit against our obligations under the Contract.
TRANSFER OR ASSIGN OWNERSHIP
- ----------------------------
You may transfer or assign ownership of the Contract, subject to legal
restrictions. To transfer or assign ownership, you must notify us in writing at
the address on the cover page of this prospectus. An assignment is not
effective until we receive it at our address. We are not responsible for
determining the validity of an assignment.
PLACE A TELEPHONE REQUEST
- -------------------------
Simply call 1-800-531-4265 to:
. change your premium payment allocation,
. withdraw money, or
. transfer money among your investment choices.
We will ask you for your: (1) name, (2) USAA number or Contract number, and
(3) social security number. We treat requests made by facsimile, telegraph, or
other electronic transmission device as telephone requests, so please be sure
to provide the same identifying information on those requests as well.
We will use reasonable procedures to confirm that instructions given by
telephone are genuine, and only if we do not, will we be liable for any losses
because of unauthorized or fraudulent instructions. In addition to asking you
for identifying information, we record all telephone communications that concern
purchases, redemptions or transfers. We also send confirmations of all
transactions to the Contract owner's address. We may modify, suspend or
discontinue this telephone transaction privilege at any time without prior
notice.
CANCEL MY CONTRACT
- -------------------
You may return your Contract to us within the Free Look Period. If you
return your Contract within the Free Look Period, we will give you a refund. We
will refund any premium payment allocated to the Fixed Fund Account, plus the
greater of:
. premium payments allocated to the Variable Fund Accounts, or
. the value of the Variable Fund Accounts as of the day we receive your
cancellation request plus any mortality and expense risk charge,
administrative expense charge and any premium taxes that we have
deducted.
We will void the Contract and treat it as if we had not issued it.
KEEP TRACK OF MY INVESTMENTS
- ----------------------------
At least once each Contract Year, we will send you a statement of
information about your Contract. The statement will show the number of
Accumulation Units we recently credited to your Contract for each Variable Fund
Account and the dollar value of the Accumulation Units. We may send you a
statement more frequently. We also will send you semiannual reports for the
Funds that correspond to the Variable Fund Accounts in which you have invested,
periodic reports for the Separate Account, and any other information that the
law requires us to send to you.
START RECEIVING ANNUITY PAYMENTS
- --------------------------------
To receive annuity payments, you must notify us in writing at least 30 days
before the Annuity Date of:
20A
<PAGE>
. the Distribution Option you want to use to begin annuity payments,
. the type of annuity payments you want (fixed, variable, a combination of
fixed and variable annuity payments, or systematic withdrawals), and
. if you want to receive variable annuity payments, the Variable Fund
Accounts (up to 4) you want to use to fund your payments.
Once we have the necessary information, we will apply your Contract Value,
less any required premium tax, to the Distribution Option that you have
selected.
If you have not chosen a Distribution Option at least 30 days before the
Annuity Date, we will apply your Contract Value, less any required premium tax,
to Distribution Option 2, with monthly payments guaranteed for 10 years. In
addition, we will apply any Fixed Fund Account Value to provide you with fixed
annuity payments. Similarly, we will apply any Variable Fund Account Value to
provide variable annuity payments funded from the same Variable Fund Accounts to
which you have allocated your Contract Value as of the Annuity Date and in the
same proportions. We will apply your Contract Value as of the end of the
business day immediately preceding the tenth day before the Annuity Date.
If you have assigned your Contract, the amount due the assignee must be
paid in a lump sum before we can determine or begin any annuity payments.
If at the time you want to begin annuity payments, your Contract Value is
less than $2,000 or would provide a monthly distribution payment of less than
$20 per month, we may cancel your Contract. In that event, we will pay the
Annuitant the Contract Value in a lump sum and be released of any further
obligations.
REPORT A DEATH
- --------------
To report a death, you (or someone else) must notify us in writing at the
address on the cover of this prospectus. Also, you (or someone else) must send
proof of death, which can be:
. a death certificate,
. 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 that we find satisfactory.
We will not pay any death benefit unless we receive a written request and
proof of death.
CONTACT USAA LIFE
- -----------------
If you have any other questions about your Contract, you can call us at 1-
800-531-4265 or write to us at 9800 Fredericksburg Road, San Antonio, Texas
78288.
21A
<PAGE>
PROCESSING DATES
- --------------------------------------------------------------------------------
Generally, we will process the following transactions using the Fixed and
Variable Fund Account Values (including Accumulation and Annuity Unit Values)
computed on the business day that we receive your payment, request, notice,
and/or other documents or information necessary to complete your transaction:
. premium payments,
. transfers of money or Annuity Units among investment choices (including
transfers in the dollar cost averaging program),
. withdrawals of money (including withdrawals in the systematic withdrawal
program), and
. death benefit claims.
If we receive your payment, request, etc. before 3 p.m. Central time on a
business day, we will process your transaction using that day's Fixed and
Variable Fund Account Values. If you miss the 3 p.m. deadline that day, we will
process your transaction using the next business day's Fixed and Variable Fund
Account Values.
In this prospectus, we use the term "business day" to mean any day Monday
through Friday when the New York Stock Exchange is open for regular trading.
The Exchange usually closes at 4 p.m. New York time (3 p.m. Central time) and is
not open on federal holidays. Business day does not include:
(1) any day when the funds do not compute the value of their shares, or
(2) any day when we do not receive an order to purchase, withdraw, or
transfer Accumulation Units or purchase or transfer Annuity Units.
Please keep in mind that we cannot process your telephone or written
requests if you do not provide all of the information we need to complete the
transaction. If the transaction requires you to notify us in writing, you must
sign your written request.
SPECIAL PROCESSING
- ------------------
Initial Premium Payments
------------------------
. If your initial premium payment accompanies a completed application, we
will credit your payment within two business days after we receive the
payment and completed application.
. If your initial premium payment accompanies an incomplete application,
we will credit your initial premium payment within two business days
after we receive the last information we need to process your
application.
. If you allocate any part of your initial premium payment to the Fixed
Fund Account, we will credit it to that Account on the Effective Date.
. If you allocate any part of your initial premium payment to any of the
Variable Fund Accounts, we will credit it to the USAA Life Money Market
Fund Account on the Effective Date. Your premium will remain in the USAA
Life Money Market Fund Account for the Free Look Period plus five
calendar days. On the business day immediately after the end of that
period, we will allocate your initial premium payment, together with any
subsequent premium payments that you have made, plus any earnings, to
the Variable Fund Accounts as you directed on the application.
Initial Annuity Payments
------------------------
To calculate the amount of the initial annuity payment, we use the Contract
Value and Annuity Unit Values of the business day preceding the 10th day before
the Annuity Date.
22A
<PAGE>
POSTPONEMENT OF PAYMENTS
- --------------------------------------------------------------------------------
We will normally pay amounts withdrawn from a Contract within 7 days after
we receive your written or telephone request. In addition, we will normally
process your transactions using the Fixed or Variable Fund Account Values as of
the business day we receive your request.
However, we may not be able to determine the value of the assets of the
Variable Fund Accounts if:
. the New York Stock Exchange is closed for other than customary weekends
and holidays,
. trading on the New York Stock Exchange is restricted, or
. an emergency exists and 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 also may postpone payments or defer such other
transactions where the SEC permits us to do so for the protection of Contract
owners. In addition, we will defer requests for withdrawals that would be
derived from a premium payment made to us by a check that has not cleared the
banking system, to the extent permitted by law at the time, until payment of the
check has been honored.
We can defer the payment of a withdrawal from the Fixed Fund Account for up
to six months from the business day we receive your written or telephone
request.
MORE INFORMATION ABOUT
- --------------------------------------------------------------------------------
USAA LIFE
- ---------
USAA Life is a Texas insurance company organized in 1963. We are
principally engaged in writing life insurance policies, annuity contracts and
health insurance policies. We are authorized to transact insurance business
in all states including the District of Columbia but excluding New York. On a
consolidated statutory basis, in accordance with Generally Accepted Accounting
Principles ("GAAP"), we had total assets of $_________ on December 31, 1998. We
are a wholly owned 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. Our Home Office is 9800 Fredericksburg Road,
San Antonio, Texas 78288.
As of the date of this Prospectus, both we and USAA held the highest
ratings from A.M. Best Company (A++ Superior) and Standard & Poor's Corporation
(AAA Superior). Both we and USAA also held the second-highest and highest
ratings (AA1 Excellent and Aaa Exceptional), respectively, from Moody's
Investors Service. The ratings published by these independent financial rating
agencies serve as measurements of an insurer's financial condition. The ratings
are based on an evaluation of many factors, including our profitability, asset
quality, adequacy of reserves, capitalization and management practices. These
ratings are not a rating of investment performance that our customers have
experienced or are likely to experience in the future.
THE SEPARATE ACCOUNT
- --------------------
We own the assets of the Separate Account. The Separate Account is a
segregated asset account under Texas law. That means we account for the
Separate Account's income, gains, and losses separately from the results of our
other operations. It also means that only the assets of the Separate Account
that are in excess of the reserves and other Contract liabilities with respect
to the Separate Account are subject to liabilities relating to our other
operations. The Separate Account consists of 12 Variable Fund Accounts, each of
which invests in a corresponding Fund.
THE FUNDS
- ---------
23A
<PAGE>
Substitution of Funds
---------------------
If the shares of any Fund should no longer be available for investment by
the Separate Account, or if in our judgment further investment in such shares
would be undesirable in view of the purposes of the Contracts, we may eliminate
that 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. We also may add new Variable Fund Accounts that invest in additional
mutual funds.
Dividends and Capital Gain Distributions
----------------------------------------
We have elected to automatically reinvest any dividends or capital gain
distributions paid on a Fund's shares in additional shares of the Fund at the
net asset value of the Fund's shares on the date payable. Dividends and
distributions lower the net asset value of each share of the corresponding Fund,
other than the Money Market Fund, but also increase the number of outstanding
shares of the Fund. The value of your interest in the corresponding Variable
Fund Account does not change as a result of any dividends or distributions.
Voting Privileges
-----------------
Based on our present view of the law, we will vote the shares of the Funds
that we hold directly or indirectly through the Separate Account in accordance
with instructions that we receive from Contract owners entitled to give such
instructions. The persons entitled to give voting instructions and the number
of shares that a person has a right to instruct will be determined based on
Variable Fund Account Values as of the record date of the meeting.
We will vote shares attributable to Contracts for which we have not
received instructions, as well as shares attributable to us, in the same
proportion as we vote shares for which we have received instructions, unless we
determine that we may vote such shares in our own discretion. None of the Funds
hold regular shareholder meetings.
Special Considerations
----------------------
The Funds managed by Scudder, Alger Management, and Bankers Trust offer
shares to separate accounts of unaffiliated life insurance companies to fund
benefits under variable annuity contracts and variable life insurance policies.
The Funds managed by USAA IMCO offer shares only to our separate accounts to
fund benefits under the Contracts and the variable life insurance policies that
we offer. The boards of directors or trustees of these Funds monitor for
possible conflicts among separate accounts buying shares of the Funds. Conflicts
could develop for a variety of reasons. For example, differences in treatment
under tax and other laws or the failure by a separate account to comply with
such laws could cause a conflict.
To eliminate a conflict, a Fund's board of directors or trustees may require
a separate account to withdraw its participation in a Fund. A Fund's net asset
value could decrease if it had to sell investment securities to pay redemption
proceeds to a separate account withdrawing because of a conflict.
THE CONTRACT
- ------------
Our obligations arising under the Contracts are general corporate
obligations. We have the responsibility for administration of the Contracts.
Among other things, this responsibility includes application and premium
processing, issuing the Contracts, and maintaining the required Contract owner's
records.
Our affiliate, USAA IMCO, is the principal underwriter of the Contracts.
USAA IMCO has agreed to offer the Contracts for sale and distribution through
certain of 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.
Contract Agreement
------------------
The Contract and the application form the entire agreement between you and
USAA Life. 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 you to changes in the Contract;
and then only in writing.
We reserve the right to change the Contract to comply with all federal and
state laws that apply to variable annuity contracts. Among other things, we may
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.
24A
<PAGE>
Contract Owner
--------------
The rights and privileges of the Contract belong to the Contract owner
during the Annuitant's lifetime. The Contract owner is the Annuitant unless the
application designates a different Contract owner and we have approved. If the
Contract 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 Contract owner and dies, then the rights and
privileges of ownership will vest in the Beneficiary.
Annuitant
---------
The Annuitant must be a natural person. The maximum age of the Annuitant
on the Annuity Date is age 95. If an Annuitant who is not the Contract owner
dies before the owner prior to the Annuity Date, then the Beneficiary becomes
the Annuitant, unless the Contract owner designates another Annuitant by written
request. An Annuitant who is not the Contract owner 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 chosen 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 we provide upon the Contract
owner's or 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, we will
pay any remaining payments due to the Beneficiary's estate.
Unless otherwise provided, we will pay benefits as follows:
(1) If two or more Beneficiaries have been named, we will pay all
benefits in equal shares to those living at the time of the
Annuitant's death; and
(2) If no Beneficiary survives the Annuitant, we will pay benefits to the
Annuitant's estate.
CHARGES AND DEDUCTIONS
- ----------------------
As a Contract owner, you will bear, directly or indirectly, the charges and
expenses described below.
Premium Taxes
-------------
We will deduct any premium taxes or other similar assessments that states,
municipalities or other governmental entities may impose. Premium taxes
currently imposed range from 0% to 3.5%. We will deduct these charges from
your Contract Value either when we receive the premium payment or when annuity
payments start, as required by state law. The amount of any premium tax charge
will depend on your state of residence. You may not deduct any premium tax
charge on your federal income tax return.
Contract Maintenance Charge
---------------------------
We will deduct a $30 Contract Maintenance Charge from your Contract Value
on each Contract anniversary. If you surrender your Contract, we will deduct
the entire Contract Maintenance Charge for that year. We will deduct the charge
proportionately from your investment in the Fixed and Variable Fund Accounts.
We will not deduct this charge:
. once you have elected to receive annuity payments under the Contract,
. from death benefits paid on the death of a Contract owner or Annuitant,
. from a lump sum payment in lieu of annuitization, or
. upon termination due to insufficient Contract Value.
We also will waive the charge for Contracts issued under the Texas Optional
Retirement Program.
25A
<PAGE>
Administrative Expense Charge
-----------------------------
We assess 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, along with the Contract Maintenance Charge, reimburses us for
the expenses we incur in the issuance 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 Contract 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 Contract owner servicing; and
. all accounting, valuation, regulatory and reporting requirements.
We do not intend to profit from this charge. We will reduce it to the
extent it is in excess of what is necessary to reimburse us for administrative
expenses. Should this charge prove to be insufficient, we will not increase
this charge (or the Contract Maintenance Charge) and we will bear the loss.
Alger Management and Bankers Trust, or their affiliates, reimburse us for
the cost of administrative services that we provide to the Funds they manage as
investment choices under the Contracts. Compensation is paid out of fee
earnings, based on a percentage of each of these Fund's average net assets
attributable to a Contract.
Mortality and Expense Risk Charge
---------------------------------
To compensate us for assuming mortality and expense risks, we assess 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. We assume mortality risks:
. by our contractual obligation to make annuity payments after the Annuity
Date for the life of the Annuitant based on annuity rates guaranteed in
the Contracts under Distribution Options that involve life
contingencies, and
. by our contractual obligation to pay a death benefit upon the death of
an Annuitant or Contract owner prior to the Distribution Phase.
The expense risk we assume 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.
We guarantee the Mortality and Expense Risk Charge. We cannot increase it.
If the Mortality and Expense Risk Charge is insufficient to cover the actual
costs associated with the Contracts, we will bear the loss. Conversely, if the
amount deducted proves more than sufficient, the excess will be our profit. We
expect to profit from this charge.
Income Taxes
------------
We reserve 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
---------------------
Expenses paid out of the assets of the Funds are described in detail in
the accompanying prospectuses for the Funds.
Transfer Fee
------------
We do not charge a fee for transfers among the Variable Fund Accounts, or
for transfers from a Variable Fund Account to the Fixed Fund Account. Transfers
from the Fixed Account to a Variable Fund Account may be subject to a withdrawal
charge. (See "Fixed Fund Account Withdrawal Charge," below.)
Fixed Fund Account Withdrawal Charge
------------------------------------
26A
<PAGE>
We will deduct a charge from some premium payments or other payments
withdrawn or transferred from the Fixed Fund Account. In setting interest rates
for the Fixed Fund Account, we take numerous factors into account, including the
length of time that we expect Owners to leave funds in the Fixed Fund Account.
Generally speaking, a high degree of Contract 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 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 percentage will
depend on how many years have passed since the Payment being withdrawn or
transferred was credited to the Fixed Fund Account, according to the following
schedule:
Number of Years: less than 1 1 2 3 4 5 6 7 or more
Charge: 7% 6% 5% 4% 3% 2% 1% 0%
The Fixed Fund Account Withdrawal Charge does not apply to the Variable
Fund Accounts.
In determining the charge, we consider a year to be a period of 365 days
unless a leap year is involved. In addition, we treat Payments that you
withdraw or transfer on a first-in first-out ("FIFO") basis. This means the
earliest Payments will be considered withdrawn first and before any earnings are
deemed to be withdrawn. We calculate the Fixed Fund Account Withdrawal Charge
separately for each Payment into the Fixed Fund Account. We will calculate the
Fixed Fund Account Withdrawal Charge in accordance with applicable state law.
Please refer to your Contract for more information.
The Fixed Fund Account Withdrawal Charge will not apply:
. to payments of death benefits prior to the Annuity Date;
. to payments of a lump sum in lieu of a Distribution Option;
. upon termination of a Contract due to insufficient Contract Value;
. upon commencement of a Distribution Option;
. to any Payment received 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 future Contract Years.
YEAR 2000
- ----------
Like other organizations around the world, USAA Life could be adversely
affected by the so-called "Year 2000 problem." The problem exists because many
computer programs use only the last two digits to refer to a year and may not
properly recognize a year that begins with a "20" instead of a "19." As a
result, such programs might not properly process and calculate information that
relates to dates beginning January 1, 2000 and beyond. USAA Life has spent much
effort and money to confront the Year 2000 problem and we expect to have our
computer systems ready for the year 2000 by mid-1999. In addition, we are
assessing the Year 2000 readiness of the Funds in which the Separate Account
invests. Although we cannot say that you will experience no effect from this
situation, we can tell you that we are making a large effort to avoid any ill
effects upon our Contract owners.
27A
<PAGE>
TAX INFORMATION
- --------------------------------------------------------------------------------
We base this discussion of taxes on current federal income tax law and
interpretations. Congress has in the past changed and may again in the future
change the tax treatment of annuities. The Treasury Department may issue new or
amended regulations or other interpretations of that law. The courts may also
interpret the law. These changes could affect you retroactively. The following
is for general information purposes only. You should consult a qualified tax
advisor for tax advice about the Contracts.
This discussion does not address state or local tax, estate and gift tax, or
social security tax consequences of the Contracts.
NONQUALIFIED PLAN CONTRACTS
- ---------------------------
The following discussion applies to Contracts under Nonqualified Plans.
Increases in Value
------------------
General Rule. Generally, Section 72 of the Internal Revenue Code of 1986
("Code") governs the federal income taxation of annuities. If you are a natural
person, you will not be taxed currently on increases in your Contract's Fixed
Fund Account Value or Variable Fund Account Value.
Owners Other Than Natural Persons. If you are not a natural person, such
as a corporation, the Code taxes you currently on increases in a contract's
Fixed Fund Account Value or Variable Fund Account Value. The Code also contains
exceptions to this rule.
Diversification. The Code and underlying Treasury Regulations set forth
requirements for investment diversification that each Variable Fund Account must
meet. Generally, a Variable Fund Account will satisfy these requirements if its
corresponding Fund satisfies them. A Fund's failure to meet the diversification
requirements will subject the Contract owner that invests in a Variable Fund
Account corresponding to that Fund to current taxation on any increases in the
Contract's Fixed Fund Account Value and Variable Fund Account Value for the
period of such diversification failure, and any subsequent period.
Contract Owner Control. The Treasury Department has stated that it may
issue guidelines that limit a Contract owner's control of investments underlying
a variable annuity. If a Contract failed to meet those guidelines, you would be
taxed on the Contract's current income. The Treasury Department has said
informally that those guidelines may limit the number of investment funds and
the frequency of transfers among those funds. The issuance of such guidelines
may require us to limit your right to control the investment. The guidelines may
apply only prospectively, although they could apply retroactively if they do not
reflect a new Treasury Department position.
Withdrawals During the Accumulation Phase
-----------------------------------------
During the Accumulation Phase, you will be taxed on partial and full
withdrawals from a Nonqualified Plan Contract to the extent of any income in the
Contract. Income in the Contract equals income earned on previous premium
payments. The amount of any partial or full withdrawal exceeding income in the
Contract is not taxable. We combine all Contracts we have issued to you in the
same calendar year in determining the amount of any withdrawal that is
includible in your income for tax purposes.
Assignments
-----------
An assignment of a Nonqualified Plan Contract will receive the same tax
treatment as a partial withdrawal, discussed immediately above.
Distributions During the Distribution Phase
-------------------------------------------
During the Distribution Phase, each annuity payment from a Nonqualified
Plan Contract is taxable in part and nontaxable in part. You calculate the
nontaxable part first.
For fixed annuity payments, the nontaxable part of each payment is the
product of (1) the amount of the payment times (2) the ratio of (a) the
investment in the Contract to (b) the total value of expected payments.
Investment in the Contract is the total of all your premium payments less any
previous distributions that were not included in your income.
28A
<PAGE>
For variable annuity payments, the nontaxable part of each payment is (1)
the investment in the contract divided by (2) the total number of expected
payments.
The taxable part of each payment is the balance left after you subtract the
nontaxable part. The taxable part is taxed at ordinary income tax rates.
Penalty on Distributions
------------------------
Distributions prior to age 59 1/2 during either the Accumulation or
Distribution Phase are subject to a penalty tax equal to 10% of the amount
includible in income. The penalty tax will not apply to certain distributions,
including those:
. made on or after the recipient reaches age 59 1/2;
. made after the death of the Contract owner, or, where the owner is not a
natural person, the death of the Annuitant;
. made on account of the recipient's disability;
. that are part of a series of substantially equal periodic payments made
at least annually for the life (or life expectancy) of the recipient's
Beneficiary (under current Internal Revenue Service interpretation,
distributions under a systematic withdrawal program will not qualify for
this exception); and
. made under an immediate annuity, which the Code defines in Section
72(u)(4).
There is a similar penalty, also subject to exceptions, on certain
distributions from Contracts from Qualified Plans.
Death Benefits
--------------
Special rules apply to the distribution of death benefits under the
Contract either during the Accumulation Phase or during the Distribution Phase.
(See "Death Benefits.")
Tax-Free Exchanges
------------------
The Code allows a tax-free exchange of one annuity Contract for another
annuity if the annuitant and the owner are the same under each Contract. This
rule also applies to variable annuity Contracts.
Transfers
---------
The Code does not currently tax transfers between investment options.
QUALIFIED PLAN CONTRACTS
- -------------------------
The following discussion applies to Contracts under Qualified Plans.
You may use the Contracts with several types of Qualified Plans. The tax
rules applicable to Owners, Annuitants, and other benefit recipients vary
according to the type of Qualified Plan and the terms and conditions of the
Qualified Plan. These terms and conditions may limit the rights otherwise
available to you under the Contracts.
Accumulation Phase
------------------
In general, purchase payments made under a Qualified Plan on your behalf
are excludable from your gross income during the Accumulation Phase. The
portion, if any, of any purchase payment excluded from your gross income during
the Accumulation Phase constitutes your "investment in the contract."
Distribution Phase
------------------
When payments during the Distribution Phase begin, you will begin to
receive back your "investment in the contract," if any, as a tax-free return of
capital. The Code's rules for which portion of each payment is taxable and which
is nontaxable may vary depending on the type of Qualified Plan.
29A
<PAGE>
Types of Qualified Plans
------------------------
The Contracts are available with the following types of Qualified Plans:
. Individual Retirement Annuity ("IRA");
. Roth IRA;
. Simplified Employee Pension-Individual Retirement Annuity ("SEP-IRA");
. Salary Reduction Simplified Employee Pension-Individual Retirement
Annuity (SARSEP-IRA"). Beginning in 1997, employers may no longer
establish a new SARSEP-IRA, but may maintain an existing SARSEP-IRA;
. Simple Retirement Accounts;
. Tax-Sheltered Annuity ("TSA"). 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); and
. the Texas Optional Retirement Program ("ORP").
FEDERAL INCOME TAX WITHHOLDING
- ------------------------------
Amounts distributed from a Contract are subject to federal income tax
withholding, to the extent includible in a recipient's taxable income. A
recipient may choose not to have taxes withheld or to have taxes withheld at a
different rate by filing a withholding exemption form with us.
30A
<PAGE>
FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
The financial statements for the Separate Account appear in its Annual
Report. USAA Life financial statements appear in the Statement of Additional
Information. To obtain a copy of the Annual Report or Statement of Additional
Information, call us at the phone number on the cover page of this prospectus.
These financial statements have been included in reliance thereon of KPMG LLP,
and the firm's authority as experts in accounting and auditing. You should
consider our financial statements only as bearing on our ability to meet our
obligations under the Contracts. Our financial statements do not bear on the
investment performance of the Separate Account.
ACCUMULATION UNIT DATA
- ----------------------
The table below shows the Accumulation Unit Values of the Variable Fund
Accounts at various periods. Please note that a Variable Fund Account's
Accumulation Unit Values are not the same as the share price of the
corresponding Fund in which that Account invests. This difference between the
two is due to the deduction of the Separate Account annual expenses from the
Accumulation Unit Values. Please read the Separate Account's financial
statements for more complete information.
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------
Accum. No. of Accum. Unit No. of Accum. Accum. No. of Accum.
Unit Value Accum. Units Value Units (000) Unit Value Units (000)
(000) (000)
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
USAA LIFE MONEY MARKET $ 1.178565 18,760 $ 1.127755 13,416 $ 1.082816 10,383
FUND ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
USAA LIFE INCOME FUND $14.089499 1,280 $13.002940 545 $11.785992 430
ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
USAA LIFE GROWTH $20.468785 3,697 $19.287258 3,242 $15.432048 1,515
AND INCOME FUND ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
USAA LIFE WORLD GROWTH $17.860722 1,066 $16.144375 1,168 $14.314911 692
FUND ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
USAA LIFE DIVERSIFIED $17.974654 1,841 $16.518656 1,401 $13.844197 696
ASSETS FUND ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
USAA LIFE AGGRESSIVE $13.993064 317 $11.735078 197 - -
GROWTH FUND ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
USAA LIFE INTERNATIONAL $10.417977 153 $10.113861 153 - -
FUND ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
SCUDDER VLIF CAPITAL $24.448446 1,543 $19.989715 1,125 $14.894774 689
GROWTH PORTFOLIO FUND
ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
ALGER AMERICAN GROWTH $26.806157 2,053 $18.239579 1,722 $14.672583 1,639
PORTFOLIO FUND ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
BT EQUITY 500 INDEX FUND $11.003536 1,136 - - - -
ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
BT SMALL CAP INDEX FUND $ 8.825971 257 - - - -
ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
BT EAFE(R) EQUITY INDEX $10.386978 55 - - - -
FUND ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995 STARTING DATE*
- -------------------------------------------------------------------------------------
Accum. No. of Accum. Unit
Unit Value Accum. Units Value
(000)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
USAA LIFE MONEY MARKET $ 1.040729 5,478 $ 1.00
FUND ACCOUNT
- -------------------------------------------------------------------------------------
USAA LIFE INCOME FUND $11.848795 89 $10.00
ACCOUNT
- -------------------------------------------------------------------------------------
USAA LIFE GROWTH $12.579981 205 $10.00
AND INCOME FUND ACCOUNT
- -------------------------------------------------------------------------------------
USAA LIFE WORLD GROWTH $11.947438 161 $10.00
FUND ACCOUNT
- -------------------------------------------------------------------------------------
USAA LIFE DIVERSIFIED $12.243941 86 $10.00
ASSETS FUND ACCOUNT
- -------------------------------------------------------------------------------------
USAA LIFE AGGRESSIVE - - $10.00
GROWTH FUND ACCOUNT
- -------------------------------------------------------------------------------------
USAA LIFE INTERNATIONAL - - $10.00
FUND ACCOUNT
- -------------------------------------------------------------------------------------
SCUDDER VLIF CAPITAL $12.543192 93 $10.00
GROWTH PORTFOLIO FUND
ACCOUNT
- -------------------------------------------------------------------------------------
ALGER AMERICAN GROWTH $13.095503 630 $10.00
PORTFOLIO FUND ACCOUNT
- -------------------------------------------------------------------------------------
BT EQUITY 500 INDEX FUND - - $10.00
ACCOUNT
- -------------------------------------------------------------------------------------
BT SMALL CAP INDEX FUND - - $10.00
ACCOUNT
- -------------------------------------------------------------------------------------
BT EAFE(R) EQUITY INDEX - - $10.00
FUND ACCOUNT
- -------------------------------------------------------------------------------------
</TABLE>
* Accumulation Unit Value at starting date. The starting date for the Variable
Fund Accounts listed, other than the USAA Life Aggressive Growth Fund, the
USAA Life International Fund, the BT Equity 500 Index Fund Account, the BT
Small Cap Index Fund Account, and the BT EAFE(R) Equity Index Fund Account,
was February 6, 1995. The starting date for the Aggressive Growth and
International Fund Accounts was May 1, 1997. The starting date for the BT
Equity 500 Index, BT Small Cap Index and the BT EAFE(R) Equity Index Fund
Accounts was May 1, 1998.
31A
<PAGE>
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
YIELD AND TOTAL RETURN
- ----------------------
We 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.
We also may advertise the "effective yield" of the Money Market Variable Fund
Account, which is calculated similarly but, when annualized, the income earned
by an investment in the Money Market 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 Variable Fund Accounts' performance reported 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 also may 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 by
using a formula required by the SEC. Table II shows the cumulative total
returns of each Variable Fund Account for the periods indicated.
EFFECT OF TAX-DEFERRED ACCUMULATIONS
- ------------------------------------
Unlike taxable investments, variable annuities, such as the Contract,
enable you to defer paying federal income taxes on any earnings on your premium
payments until you withdraw them. In addition, if you are using variable
annuities, such as the Contract, with a Qualified Plan, you can defer paying
federal income taxes on your premium payments until you withdraw them. The
chart below shows how investing on a tax-deferred basis can increase the
accumulation power of savings over time. The more taxes saved and reinvested,
the more money you are able to accumulate over the years. The "Variable Annuity
Surrender Value" shown represents the lump-sum net withdrawal after payment of
federal income tax.
Assuming a 28% federal tax bracket and an annual fixed yield (before the
deduction of any fees or charges) of 10% under a Qualified Plan in which tax
savings are reinvested has an equivalent annual fixed yield of 13.9% under a
conventional savings program. This example helps demonstrate the advantage of
tax-deferred savings. The 10% yield on the Qualified Plan would be reduced by
the assumed impact of income tax upon withdrawal. The amount of this reduction
in yield will vary depending upon when withdrawals are made. The first chart
below shows the actual after-tax amounts that would be received upon full
withdrawal at the end of the periods shown.
32A
<PAGE>
As discussed above, contributions to Qualified Plans are not subject to
federal income tax unless and until withdrawn. Accumulations under 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.
VARIABLE FUND ACCOUNT PERFORMANCE TABLE I
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN (THROUGH DECEMBER 31, 1998)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
YEAR ENDED
NAME OF VARIABLE FUND ACCOUNT SINCE INCEPTION* DECEMBER 31, 1998*
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
USAA Life Money Market Fund Account 4.20% 4.32%
- ----------------------------------------------------------------------------------------------------
USAA Life Income Fund Account 9.10 8.19
- ----------------------------------------------------------------------------------------------------
USAA Life Growth and Income Fund Account 20.08 6.02
- ----------------------------------------------------------------------------------------------------
USAA Life World Growth Fund Account 15.95 10.50
- ----------------------------------------------------------------------------------------------------
USAA Life Diversified Assets Fund Account 16.14 8.69
- ----------------------------------------------------------------------------------------------------
USAA Life Aggressive Growth Fund Account 22.26 19.16
- ----------------------------------------------------------------------------------------------------
USAA Life International Fund Account 2.43 2.91
- ----------------------------------------------------------------------------------------------------
Scudder VLIF Capital Growth Portfolio Fund Account 25.68 22.20
- ----------------------------------------------------------------------------------------------------
Alger American Growth Portfolio Fund Account 28.68 46.83
- ----------------------------------------------------------------------------------------------------
BT Equity 500 Index Fund Account 9.94 9.94
- ----------------------------------------------------------------------------------------------------
BT Small Cap Index Fund Account -11.83 -11.83
- ----------------------------------------------------------------------------------------------------
BT EAFE(R) Equity Index Fund Account 3.78 3.78
- ----------------------------------------------------------------------------------------------------
TABLE II
- ----------------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN (THROUGH DECEMBER 31, 1998)
- ----------------------------------------------------------------------------------------------------
YEAR ENDED
NAME OF VARIABLE FUND ACCOUNT SINCE INCEPTION* DECEMBER 31, 1998*
- ----------------------------------------------------------------------------------------------------
USAA Life Money Market Fund Account 17.43% 4.32%
- ----------------------------------------------------------------------------------------------------
USAA Life Income Fund Account 40.44 8.19
- ----------------------------------------------------------------------------------------------------
USAA Life Growth and Income Fund Account 104.20 6.02
- ----------------------------------------------------------------------------------------------------
USAA Life World Growth Fund Account 78.14 10.50
- ----------------------------------------------------------------------------------------------------
USAA Life Diversified Assets Fund Account 79.25 8.69
- ----------------------------------------------------------------------------------------------------
USAA Life Aggressive Growth Fund Account 39.84 19.16
- ----------------------------------------------------------------------------------------------------
USAA International Fund Account 4.09 2.91
- ----------------------------------------------------------------------------------------------------
Scudder VLIF Capital Growth Portfolio Fund Account 143.93 22.20
- ----------------------------------------------------------------------------------------------------
Alger American Growth Portfolio Fund Account 167.45 46.83
- ----------------------------------------------------------------------------------------------------
BT Equity 500 Index Fund Account 9.94 9.94
- ----------------------------------------------------------------------------------------------------
BT Small Cap Index Fund Account -11.83 -11.83
- ----------------------------------------------------------------------------------------------------
BT EAFE(R) Equity Index Fund Account 3.78 3.78
- ----------------------------------------------------------------------------------------------------
</TABLE>
* Each of the Variable Fund Accounts, shown above (with the exception of the
USAA Life Aggressive Growth and International Fund Accounts and the Funds
managed by Bankers Trust) started operations on February 6, 1995. The
Aggressive Growth and International Fund Accounts started operations on May 1,
1997. The Funds managed by Bankers Trust started operations on May 1, 1998.
Average Annual Total Return figures for the BT Fund Accounts are not
annualized.
33A
<PAGE>
Effect of Tax-Deferred Accumulations
- -------------------------------------
The first chart below compares the potential difference in savings between
a (1) taxable investment and (2) a Contract purchased with pre-tax dollars under
a Qualified Plan. The second chart below compares the potential difference in
savings between (1) a taxable investment and (2) a Nonqualified Contract
purchased with after-tax dollars. 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 might apply.
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.
34A
<PAGE>
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.
35A
<PAGE>
CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
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 ACCUMULATION UNIT VALUES
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
FOR A COPY CALL 1-800-531-2923 OR WRITE US AT:
USAA Life Insurance Company
9800 Fredericksburg Road
San Antonio, Texas 78288
36A
<PAGE>
USAA Life Insurance Company
9800 Fredericksburg Road
San Antonio, Texas 78288
(C) Copyright, 1999, USAA. All rights reserved.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
USAA
LOGO APPEARS VARIABLE ANNUITY
HERE
FLEXIBLE PREMIUM DEFERRED COMBINATION
FIXED AND VARIABLE ANNUITY CONTRACT
MAY 1, 1999
OFFERED BY:
USAA LIFE INSURANCE COMPANY
9800 FREDERICKSBURG ROAD
SAN ANTONIO, TEXAS 78288
This Statement of Additional Information ("Statement") is not a prospectus,
but should be read in conjunction with the prospectus, dated May 1, 1999 for the
Separate Account of USAA Life Insurance Company ("USAA Life"). Capitalized terms
used in this Statement that are not otherwise defined herein have the same
meanings given to them in the prospectus. You may obtain a copy of the
prospectus by writing USAA Life at the address above, or by calling 1-800-531-
2923.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
PAGE
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 ACCUMULATION UNIT VALUES..............................
CALCULATION OF PERFORMANCE INFORMATION...............................
USAA Life 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.................................................
<PAGE>
GENERAL INFORMATION
USAA Life is a stock insurance company incorporated in 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 the District of Columbia and all states, 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 organization).
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.
1
<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 should they become available 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 Contract
owner ("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 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
2
<PAGE>
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, 1998 and 1997
and for each of the years in the three-year period ended December 31, 1998 have
been included in the Annual Report and the registration statement in reliance
upon the accompanying reports thereon of KPMG 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 ACCUMULATION UNIT VALUES
Each Variable Annuity Fund Account's Accumulation Units are valued separately.
Initially, the Accumulation Unit Value of each Variable Annuity Fund Account was
set at $10, except for the Money Market Fund Variable Annuity Fund Account,
which was set at $1. Thereafter, the Accumulation Unit Value of a Variable
Annuity 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 Valuation Period is the period of time from the end of one Valuation Date to
the end of the next Valuation date. The Valuation Date is 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.
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:
3
<PAGE>
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).
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 $39,030 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 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, 1998, the current yield of the
USAA Life Money Market Fund Account was 4.16%.
4
<PAGE>
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:
P (1 + T)n = 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.
The standardized average annual total returns and the cumulative total returns
for each Variable Fund Account for periods ended December 31, 1998 were as
follows:
5
<PAGE>
<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 4.20% 4.32% 17.43% 4.32%
USAA Life Income 9.10% 8.19% 40.44% 8.19%
USAA Life Growth and Income 20.08% 6.02% 104.20% 6.02%
USAA Life World Growth 15.95% 10.50% 78.14% 10.50 %
USAA Life Diversified Assets 16.14% 8.69% 79.25% 8.69%
USAA Life Aggressive Growth 22.26% 19.16% 39.84% 19.16%
USAA Life International 2.43% 2.91% 4.09% 2.91%
Scudder VLIF Capital Growth Portfolio 25.68% 22.20% 143.93% 22.20%
Alger American Growth Portfolio 28.68% 46.83% 167.45% 46.83%
BT Equity 500 Index Fund 9.94%** 9.94%** 9.94% 9.94%**
BT Small Cap Index Fund -11.83%** -11.83%** -11.83% -11.83%**
BT EAFE(R) Equity Index Fund 3.78%** 3.78%** 3.78% 3.78%**
</TABLE>
* Each of the Variable Fund Accounts indicated above (with the exception of the
USAA Life Aggressive Growth Fund, the USAA Life International Fund, the BT
Equity 500 Index Fund, BT Small Cap Index Fund and the BT EAFE(R) Equity Index
Fund) commenced operations on February 6, 1995. The Aggressive Growth and
International Fund Accounts commenced operation on May 1, 1997. The BT Fund
Accounts commenced operation on May 1, 1998.
** Average Annual Total Return Figures for the BT 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 December 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% 12.83%
USAA Life Income 5.83% 18.53%
USAA Life Growth and Income 17.52% 62.32%
USAA Life World Growth 14.24% 49.10%
USAA Life Diversified Assets 13.55% 46.40%
USAA Life Aggressive Growth N/A N/A
USAA Life International N/A N/A
Scudder VLIF Capital Growth Portfolio 24.82% 94.47%
Alger American Growth Portfolio 26.87% 104.23%
BT Equity 500 Index Fund N/A N/A
BT Small Cap Index Fund N/A N/A
BT EAFE(R) Equity Index Fund N/A N/A
</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
<PAGE>
YIELD =2 [(a-b +1)/6/ -1]
---
[ (cd ) ]
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>
<CAPTION>
<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>
7
<PAGE>
Illustration of Annuity Payments
- --------------------------------
Annuity at age 65: Life with 120 payments certain:
<TABLE>
<CAPTION>
<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>
8
<PAGE>
FINANCIAL STATEMENTS
The financial statements of the Company as of December 31, 1998 and 1997, and
for each of the years in the three-year period ended December 31, 1998, 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.
They do not bear on the investment performance of the Separate Account. The most
recent audited financial statements of the Separate Account and the accompanying
Report of Independent Auditors are incorporated into this Statement by reference
to the Separate Account's Annual Report, dated December 31, 1998, which
accompanies this Statement.
[TO BE FILED BY AMENDMENT]
9
<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, 1998,
and December 31, 1997, 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, 1998.
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, 1998 and 1997, and
each of the years in the three-year period ended December 31, 1998:
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
(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.) /3/
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. /3/
4. (a) Form of Flexible Premium Deferred Combination Fixed and Variable
Annuity Contract, including endorsements. /3/
(b) TSA Loan Endorsement. /3/
5. (a) Forms of Applications for Flexible Premium Deferred Combination
Fixed and Variable Annuity Contract. /3/
(b) Telephone Authorization Form. /3/
(c) Section 1035 Exchange Form. /3/
1
<PAGE>
6. (a) Articles of Incorporation of USAA Life Insurance Company, as
amended. /3/
(b) Bylaws of USAA Life Insurance Company. /3/
7. Not Applicable.
8. (a) 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. /3/
(b) 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, amended and restated to encompass variable
universal life insurance, February 26, 1998, and amended and restated,
November 18, 1998. (Filed herewith.)
(c) (i) Amended Participation Agreement by and between Scudder Variable
Life Investment Fund and USAA Life Insurance Company, dated
February 3, 1995, and amended, May 21, 1998. (Filed herewith.)
(ii) Amended Participating Contract and Policy Agreement by and
between Scudder Investor Services, Inc. and USAA Investment
Management Company, dated February 3, 1995, and amended, April
29, 1998. (Filed herewith.)
(iii) Amended Reimbursement Agreement by and between Scudder Kemper
Investments, Inc. and USAA Life Insurance Company, dated February
3, 1995, and amended, May 21, 1998. (Filed herewith.)
(iv) Amended Letter Agreement by and between Scudder Kemper
Investments, Inc., Scudder Investor Services, Inc., Scudder
Variable Life Investment Fund, USAA Life Insurance Company and
USAA Investment Management Company, dated February 3, 1995, and
amended, March 16, 1998. (Filed herewith.)
(d) (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. /3/
(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. /3/
(e) (i) Participation Agreement by and between BT Insurance Funds Trust,
Bankers Trust Company and USAA Life Insurance Company, dated
April 30, 1998. (Filed herewith.)
(ii) Expense Allocation Agreement by and between Bankers Trust Company
and USAA Life Insurance Company, dated April 30, 1998. (Filed
herewith.)
9. Opinion and Consent of Counsel concerning the legality of the securities
being registered. /3/
10. Consent of KPMG LLP, Independent Auditors. (To be filed by amendment.)
11. Not Applicable.
2
<PAGE>
12. (a) Subscription Agreement by and between USAA Life Insurance Company
and USAA Life Investment Trust, dated December 16, 1994. /3/
(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. (a) 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.).
16. (a) Powers of Attorney for: Robert T. Herres, Edwin L. Rosane, Michael
J.C. Roth, and James A. Robinson. /3/
(b) Power of Attorney for Josue Robles, Jr. /3/
(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. /3/
17. Persons Controlled By or Under Common Control with Registrant. (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).
- ------------
/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.
/3/ Previously filed on April 29, 1998 in Post-Effective Amendment No. 4 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
Donald R. Walker Director
3
<PAGE>
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
James E. Goral Vice President
Richard T. Halinski, Jr. Vice President and
Assistant Secretary
Ronald W. Holtkamp Vice President and
Assistant Treasurer
King Mawhinney Vice President
Pattie S. McWilliams Vice President
James M. Middleton Vice President
Stephen N. Patzman Vice President
Bradford W. Rich Vice President and Secretary
Leldon W. (Jack) Ward Vice President
Dwain A. Akins Assistant Vice President and
Assistant Secretary
Bobby L. Casey Assistant Vice President
Bruce W. Clements Assistant Vice President and
Assistant Secretary
Michael A. Moczygemba Assistant Vice President
Allen R. Pierce Assistant Vice President
Layne C. Roetzel Assistant Vice President
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE DEPOSITOR OR
REGISTRANT
Registrant is a separate account of USAA Life that invests exclusively in
mutual funds. Registrant may be deemed to be a control person of one or more of
these mutual funds to the extent that it beneficially owns more than 25% of the
voting securities thereof. It also may be deemed to be under common control with
companies affiliated with its depositor, USAA Life. For further information,
please refer to the organizational chart that is filed as Exhibit 17 hereto and
incorporated by reference in response to this item.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of January 31, 1999, there were 7,350 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
4
<PAGE>
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
David G. Peebles Director
John W. Saunders, Jr. Director
OFFICERS: POSITIONS WITH USAA IMCO:
--------- -------------------------
Michael J.C. Roth CEO and President
John J. Dallahan Senior Vice President
David G. Peebles Senior Vice President
John W. Saunders, Jr. Senior Vice President
Carl (Bill) W. Shirley Senior Vice President
Patricia P. Cavazos Vice President
Alex M. Ciccone Vice President and Assistant Secretary
Christopher W. Claus Vice President
Sherron A. Kirk Vice President and Treasurer
David G. Miller Vice President
William R. Pedersen Vice President
Thomas Ramos Vice President
Michael D. Wagner Vice President, Secretary and Counsel
Kenneth E. Willmann Vice President
Pamela K. Bledsoe Assistant Vice President
Karl Borgerding Assistant Vice President
John K. Cabell Assistant Vice President
Eric M. Efron Assistant Vice President
R. Matthew Freund Assistant Vice President
Clifford A. Gladson Assistant Vice President
Mark S. Howard Assistant Vice President and Assistant Secretary
Mark W. Johnson Assistant Vice President
Stephen J. Klaffke Assistant Vice President
5
<PAGE>
Terri L. Luensmann Assistant Vice President
Paul H. Lundmark Assistant Vice President
Patrick O'Hare Assistant Vice President
Robert R. Pariseau Assistant Vice President
David G. Parsons Assistant Vice President
Curt Rohrman Assistant Vice President
Albert C. Sebastian Assistant Vice President
W. Travis Selmier, II Assistant Vice President
Albert C. Sebastian Assistant Vice President
R. David Ullom 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
("Statement"), 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 Statement;
(c) Registrant undertakes to deliver any Statement 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.
6
<PAGE>
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.
7
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, as amended, Registrant 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 22nd day of February, 1999.
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
8
<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 February 22, 1999
Edwin L. Rosane Vice Chairman, Chief Executive Officer, February 22, 1999
and President
Bradford W. Rich Director February 22, 1999
Josue Robles, Jr. Director February 22, 1999
Michael J.C. Roth Director February 25, 1999
Janice E. Marshall Director February 23, 1999
*Donald R. Walker Director February 25, 1999
James A. Robinson Senior Vice President and Treasurer February 22, 1999
(Principal Financial and Accounting Officer)
</TABLE>
* Signed by Dwain A. Akins, Attorney-in-fact.
9
<PAGE>
EXHIBIT INDEX
EXHIBIT
- -------
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, amended and restated to
encompass variable universal life insurance, February 26, 1998, and
amended and restated, November 18, 1998.
8(d)(i) Amended Participation Agreement by and between Scudder Variable Life
Investment Fund and USAA Life Insurance Company, dated February 3,
1995, and amended, May 21, 1998.
8(d)(ii) Amended Participating Contract and Policy Agreement by and between
Scudder Investor Services, Inc. and USAA Investment Management
Company, dated February 3, 1995, and amended, April 29, 1998.
8(d)(iii) Amended Reimbursement Agreement by and between Scudder Kemper
Investments, Inc. and USAA Life Insurance Company, dated February 3,
1995, and amended, May 21, 1998.
8(d)(iv) Amended Letter Agreement by and between Scudder Kemper Investments,
Inc., Scudder Investor Services, Inc., Scudder Variable Life
Investment Fund, USAA Life Insurance Company and USAA Investment
Management Company, dated February 3, 1995, and amended, March 16,
1998.
8(f)(i) Participation Agreement by and between BT Insurance Funds Trust,
Bankers Trust Company and USAA Life Insurance Company, dated April
30, 1998.
8(f)(ii) Expense Allocation Agreement by and between Bankers Trust Company and
USAA Life Insurance Company, dated April 30, 1998.
10 Consent of KPMG LLP, Independent Auditors. (To be filed by
amendment.)
17 Persons Controlled By or Under Common Control with Registrant.
<PAGE>
EXHIBIT 8(c)
AMENDED AND RESTATED
UNDERWRITING AND ADMINISTRATIVE
SERVICES AGREEMENT
<PAGE>
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, amended and restated as of the 18th day of February,
1998, and amended and restated as of the 18th day of November, 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
2
<PAGE>
the 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
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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.
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(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
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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.
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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
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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, accounting, and recordkeeping
services necessary or appropriate to conduct the Trust's business and day-to-day
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, as
conceptualized by the SEC, Contractowners) and Trustees and reports to and
other filings with the SEC (including, without limitation, the Trust's
annual report to 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, together with the preparation
of related financial statements (the Underwriter and Trust agreeing to
supply or cause to be supplied to
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the Company all necessary financial and other information in connection
with the foregoing);
(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, together with the preparation of related financial statements,
(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 providing accounting services in connection with Section 7.2, the
Company may arrange with the Underwriter to delegate to the Underwriter the
performance of some or all of the accounting services.
7.4 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
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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, except for reimbursement of expenses for surrender of such documents,
upon request by the Trust or upon termination of this Agreement.
7.5 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.
7.6 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.
7.7 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;
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(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;
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 providing all management, administrative, legal,
clerical, accounting, and recordkeeping services necessary or appropriate to
conduct the Trust's business and day-to-day operations, including the expenses
of the services of individuals under Section 7.2(vi), These expenses shall
include 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;
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(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;
(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 (other than any such expenses referred to in
Section 8.3 below) involved in registering and maintaining registrations of the
Trust and its shares with the Securities and Exchange Commission and various
states and other jurisdictions, and in preparing and or filing on behalf of the
Trust (or assisting counsel and/or auditors in the preparation of) all required
tax returns and reports to and other filings with the SEC (including, without
limitation, the Trust's annual report to the SEC), and any other governmental
agency, together with the preparation of related financial statements (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);
(k) membership or association dues for the Investment Company Institute or
similar organization;
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(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), together with the
preparation of related financial statements, relating to the Trust and the
processing, including tabulation, of the results of voting instructions and
proxy solicitations;
(n) furnishing, or causing to be furnished, to each Shareholder (to the
extent not provided elsewhere in this Section 8.2) statements of account and/or
financial and share ownership information including, but not limited to, the
number and value of shares owned by each Shareholder;
(o) postage; and
(p) the expenses of the services provided by the Company under Section 7.4,
above.
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:
(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,
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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.
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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) 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
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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 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
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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 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
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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 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
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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.
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 January 1, 1999 and shall
remain in force until January 1, 2001 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
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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.
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
25
<PAGE>
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.
26
<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: MICHAEL J.C. ROTH
-----------------
ATTEST: MICHAEL J.C. ROTH
President
/s/MICHAEL D. WAGNER
- --------------------
MICHAEL D. WAGNER
Secretary
27
<PAGE>
EXHIBIT 8(d)(i)
AMENDED PARTICIPATION AGREEMENT
<PAGE>
PARTICIPATION AGREEMENT
PARTICIPATION AGREEMENT (the "Agreement") made by and between SCUDDER
VARIABLE LIFE INVESTMENT FUND (the "Fund"), a Massachusetts business trust
created under a Declaration of Trust dated March 15, 1985, as amended, with a
principal place of business in Boston, Massachusetts and USAA LIFE INSURANCE
COMPANY, a Texas corporation (the "Company"), with a principal place of business
in San Antonio, Texas on behalf of the Separate Account of USAA Life Insurance
Company, a separate account of the Company, and any other separate account of
the Company as designated by the Company from time to time, upon written notice
to the Fund in accordance with Section 10 herein (each, an "Account").
WHEREAS, the Fund acts as the investment vehicle for the separate accounts
established for variable life insurance policies and variable annuity contracts
(collectively referred to herein as "Variable Insurance Products") to be offered
by insurance companies which have entered into participation agreements
substantially identical to this Agreement ("Participating Insurance Companies")
and their affiliated insurance companies; and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares of beneficial interest ("Shares"), and additional series of Shares may
be established, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities; and
WHEREAS, it is in the best interest of Participating Insurance Companies to
make capital contributions if required so that the annual expenses of each
Portfolio of the Fund in which a
<PAGE>
Participating Insurance Company is a shareholder will not exceed a fixed
percentage of the Portfolio's average annual net assets; and
WHEREAS, the Parties desire to evidence their agreement as to certain other
matters,
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements hereinafter contained, the parties hereto agree as follows:
1. Additional Definitions.
For the purposes of this Agreement, the following definitions shall apply:
(a) The "expenses of a Portfolio" for any fiscal year shall mean the
expenses for such fiscal year as shown in the Statement of Operations (or
similar report) certified by the Fund's independent public accountants;
(b) A "Portfolio's average daily net assets" for each fiscal year
shall mean the sum of the net asset values determined throughout the year for
the purpose of determining net asset value per Share, divided by the number of
such determinations during such year;
(c) The Company's "Required Contribution" on behalf of each Account in
respect of a Portfolio for any fiscal year shall mean an amount equal to the
expenses of that Portfolio for such year minus the below-indicated percentage of
that Portfolio's average daily net assets for the year:
International Portfolio. . . . . . . . . . 1.50%
Each other Portfolio. . . . . . . . . . . . 0.75%
multiplied by a fraction the denominator of which is the average daily net
assets of that Portfolio and the numerator of which is
2
<PAGE>
the average daily net asset value of the Shares of that Portfolio owned by each
Account (referred to herein as a "Participating Shareholder"). The Company's
Required Contribution in respect of a Portfolio shall be pro-rated based on the
number of business days on which this Agreement is in effect for periods of less
than a fiscal year.
(d) The "average daily net asset value of the Shares of the Portfolio"
owned by the Account for any fiscal year of the Fund shall mean the greater of
(i) $500,000 or (ii) the sum of the aggregate net asset values of the Shares so
owned determined during the fiscal year, as of each determination of the net
asset value per Share, divided by the total number of determinations of net
asset value during such year.
(e) "Shares" means shares of beneficial interest, without par value,
of any Portfolio, now or hereafter created, of the Fund.
2. Capital Contribution.
The Company on behalf of each Account shall, within sixty days after the
end of each fiscal year of the Fund, make a capital contribution to the Fund in
respect of each Portfolio equal to the Required Contribution for that Portfolio
for such year; provided, however, that in the event that both clauses (i) and
(ii) of paragraph (d) of Section 1 of this Agreement or similar agreements are
applicable to different Participating Insurance Companies during the same fiscal
year, there shall be a proportionate reduction of the Required Contribution of
each Participating Insurance Company to which said clause (ii) is applicable so
that the total of all required capital contributions to the Fund on
3
<PAGE>
behalf of any Portfolio is not greater than the excess of the expenses of that
Portfolio for that fiscal year less the percentage of that Portfolio's total
expenses set forth in paragraph (c) of Section 1 of this Agreement for such
fiscal year.
3. Duty of Fund to Sell.
The Fund shall make its Shares available for purchase at the applicable net
asset value per Share by Participating Insurance Companies and their affiliates
and separate accounts on those days on which the Fund calculates its net asset
value pursuant to rules of the Securities and Exchange Commission; provided,
however, that the Trustees of the Fund may refuse to sell Shares of any
Portfolio to any person, or suspend or terminate the offering of Shares of any
Portfolio, if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Trustees, necessary in the
best interest of the shareholders of any Portfolio.
4. Requirement to Execute Participation Agreement; Requests.
Each Participating Insurance Company shall, prior to purchasing Shares in
the Fund, execute and deliver a participation agreement in a form substantially
identical to this Agreement.
The Fund shall make available, upon written request from the Participating
Insurance Company given in accordance with Paragraph 10, to each Participating
Insurance Company which has executed an Agreement and which Agreement has not
been terminated pursuant to Paragraph 8 (i) a list of all other Participating
Insurance Companies, and (ii) a copy of the Agreement as executed by any other
Participating Insurance Company.
4
<PAGE>
The Fund shall also make available upon request to each Participating
Insurance Company which has executed an Agreement and which Agreement has not
been terminated pursuant to Paragraph 8, the net asset value of any Portfolio of
the Fund as of any date upon which the Fund calculates the net asset value of
its Portfolios for the purpose of purchase and redemption of Shares.
5. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Fund and each of
its Trustees and officers and each person, if any, who controls the Fund within
the meaning of Section 15 of the Securities Act of 1933 (the "Act") against any
and all losses, claims, damages, liabilities or litigation (including legal and
other expenses), arising out of the acquisition of any Shares by any person, to
which the Fund or such Trustees, officers or controlling person may become
subject under the Act, under any other statute, at common law or otherwise,
which (i) may be based upon any wrongful act by the Company, any of its
employees or representatives, any affiliate of or any person acting on behalf of
the Company or a principal underwriter of its insurance products, or (ii) may be
based upon any untrue statement or alleged untrue statement of a material fact
contained in a registration statement or prospectus covering Shares or any
amendment thereof or supplement thereto or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading if such a statement or omission was made
in reliance upon information furnished to the Fund by the Company, or (iii) may
be based on any untrue statement or alleged untrue statement of a material fact
contained in a
5
<PAGE>
registration statement or prospectus covering insurance products sold by the
Company or any insurance company which is an affiliate thereof, or any
amendments or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statement or statements therein not misleading, unless such statement or
omission was made in reliance upon information furnished to the Company or such
affiliate by or on behalf of the Fund; provided, however, that in no case (i) is
the Company's indemnity in favor of a Trustee or officer or any other person
deemed to protect such Trustee or officer or other person against any liability
to which any such person would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of his duties or
by reason of his reckless disregard of obligations and duties under this
Agreement or (ii) is the Company to be liable under its indemnity agreement
contained in this Paragraph 5 with respect to any claim made against the Fund or
any person indemnified unless the Fund or such person, as the case may be, shall
have notified the Company in writing pursuant to Paragraph 10 within a
reasonable time after the summons or other first legal process giving
information of the nature of the claims shall have been served upon the Fund or
upon such person (or after the Fund or such person shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it has to the
Fund or any person against whom such action is brought otherwise than on account
of its indemnity agreement contained in this Paragraph 5. The Company shall be
entitled to participate, at its own expense,
6
<PAGE>
in the defense, or, if it so elects, to assume the defense of any suit brought
to enforce any such liability, but, if it elects to assume the defense, such
defense shall be conducted by counsel chosen by it and satisfactory to the Fund,
to its officers and Trustees, or to any controlling person or persons, defendant
or defendants in the suit. In the event that the Company elects to assume the
defense of any such suit and retain such counsel, the Fund, its officers and
Trustees or controlling person or persons, defendant or defendants in the suit,
shall bear the fees and expenses of any additional counsel retained by them,
but, in case the Company does not elect to assume the defense of any such suit,
the Company will reimburse the Fund, or such officers and Trustees or
controlling person or persons, defendant or defendants in such suit, for the
reasonable fees and expenses of any counsel retained by them. The Company agrees
promptly to notify the Fund pursuant to Paragraph 10 of the commencement of any
litigation or proceedings against it in connection with the issue and sale of
any Shares.
(b) The Fund agrees to indemnify and hold harmless the Company and each of
its directors and officers and each person, if any, who controls the Company
within the meaning of Section 15 of the Act against any and all losses, claims,
damages, liabilities or litigation (including legal and other expenses) to which
it or such directors, officers or controlling person may become subject under
the Act, under any other statute, at common law or otherwise, arising out of the
acquisition of any Shares by any person which (i) may be based upon any wrongful
act by the Fund, any of its employees or representatives or a principal
underwriter of the
7
<PAGE>
Fund, or (ii) may be based upon any untrue statement or alleged untrue statement
of a material fact contained in a registration statement or prospectus covering
Shares or any amendment thereof or supplement thereto or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading unless such statement or
omission was made in reliance upon information furnished to the Fund by the
Company or (iii) may be based on any untrue statement or alleged untrue
statement of a material fact contained in a registration statement or prospectus
covering insurance products sold by the Company, or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the Fund; provided,
however, that in no case (i) is the Fund's indemnity in favor of a director or
officer or any other person deemed to protect such director or officer or other
person against any liability to which any such person would otherwise be subject
by reason of willful misfeasance, bad faith, or gross negligence in the
performance of his duties or by reason of his reckless disregard of obligations
and duties under this Agreement or (ii) is the Fund to be liable under its
indemnity agreement contained in this Paragraph 5 with respect to any claims
made against the Company or any such director, officer or controlling person
unless it or such director, officer or controlling person, as the case may be,
shall have notified the Fund in writing pursuant to Paragraph 10 within a
reasonable time after the summons
8
<PAGE>
or other first legal process giving information of the nature of the claim shall
have been served upon it or upon such director, officer or controlling person
(or after the Company or such director, officer or controlling person shall have
received notice of such service on any designated agent), but failure to notify
the Fund of any claim shall not relieve it from any liability which it may have
to the person against whom such action is brought otherwise than on account of
its indemnity agreement contained in this Paragraph. The Fund will be entitled
to participate at its own expense in the defense, or, if it so elects, to assume
the defense of any suit brought to enforce any such liability, but if the Fund
elects to assume the defense, such defense shall be conducted by counsel chosen
by it and satisfactory to the Company, its directors, officers or controlling
person or persons, defendant or defendants, in the suit. In the event the Fund
elects to assume the defense of any such suit and retain such counsel, the
Company, its directors, officers or controlling person or persons, defendant or
defendants in the suit, shall bear the fees and expenses of any additional
counsel retained by them, but, in case the Fund does not elect to assume the
defense of any such suit, it will reimburse the Company or such directors,
officers or controlling person or persons, defendant or defendants in the suit,
for the reasonable fees and expenses of any counsel retained by them. The Fund
agrees promptly to notify the Company pursuant to Paragraph 10 of the
commencement of any litigation or proceedings against it or any of its officers
or Trustees in connection with the issuance or sale of any Shares.
9
<PAGE>
6. Procedure for Resolving Irreconcilable Conflicts.
(a) The Trustees of the Fund will monitor the operations of the Fund for
the existence of any material irreconcilable conflict among the interests of all
the contract holders and policy owners of Variable Insurance Products (the
"Participants") of all separate accounts investing in the Fund. An
irreconcilable material conflict may arise, among other things, from: (a) an
action by any state insurance regulatory authority; (b) a change in applicable
insurance laws or regulations; (c) a tax ruling or provision of the Internal
Revenue Code or the regulations thereunder; (d) any other development relating
to the tax treatment of insurers, contract holders or policy owners or
beneficiaries of Variable Insurance Products; (e) the manner in which the
investments of any Portfolio are being managed; (f) a difference in voting
instructions given by variable annuity contract holders, on the one hand, and
variable life insurance policy owners, on the other hand, or by the contract
holders or policy owners of different participating insurance companies; or (g)
a decision by an insurer to override the voting instructions of Participants.
(b) The Company will be responsible for reporting any potential or existing
conflicts to the Trustees of the Fund. The Company will be responsible for
assisting the Trustees in carrying out their responsibilities under this
Paragraph 6(b) and Paragraph 6(a), by providing the Trustees with all
information reasonably necessary for the Trustees to consider the issues raised.
The Fund will also request its investment adviser to report to the Trustees any
such conflict which comes to the attention of the adviser.
10
<PAGE>
(c) If it is determined by a majority of the Trustees of the Fund, or a
majority of its disinterested Trustees, that a material irreconcilable conflict
exists involving the Company, the Company shall, at its expense, and to the
extent reasonably practicable (as determined by a majority of the disinterested
Trustees), take whatever steps are necessary to eliminate the irreconcilable
material conflict, including withdrawing the assets allocable to some or all of
the separate accounts from the Fund or any Portfolio and reinvesting such assets
in a different investment medium, including another Portfolio of the Fund,
offering to the affected Participants the option of making such a change or
establishing a new funding medium including a registered investment company.
For purposes of this Paragraph 6(c), the Trustees, or the disinterested
Trustees, shall determine whether or not any proposed action adequately remedies
any irreconcilable material conflict. In the event of a determination of the
existence of an irreconcilable material conflict, the Trustees shall cause the
Fund to take such action, such as the establishment of one or more additional
Portfolios, as they in their sole discretion determine to be in the interest of
all shareholders and Participants in view of all applicable factors, such as
cost, feasibility, tax, regulatory and other considerations. In no event will
the Fund be required by this Paragraph 6(c) to establish a new funding medium
for any variable contract or policy.
The Company shall not be required by this Paragraph 6(c) to establish a new
funding medium for any variable contract or policy if an offer to do so has been
declined by a vote of a majority of the Participants materially adversely
affected by the material
11
<PAGE>
irreconcilable conflict. The Company will recommend to its Participants that
they decline an offer to establish a new funding medium only if the Company
believes it is in the best interest of the Participants.
(d) The Trustees' determination of the existence of an irreconcilable
material conflict and its implications promptly shall be communicated to all
Participating Insurance Companies by written notice thereof delivered or mailed,
first class postage prepaid.
7. Voting Privileges.
The Company shall be responsible for assuring that its separate account or
accounts participating in the Fund shall use a calculation method of voting
procedures substantially the same as the following: those Participants
permitted to give instructions and the number of Shares for which instructions
may be given will be determined as of the record date for the Fund shareholders'
meeting, which shall not be more than 60 days before the date of the meeting.
Whether or not voting instructions are actually given by a particular
Participant, all Fund shares held in any separate account or sub-account thereof
and attributable to policies will be voted for, against, or withheld from voting
on any proposition in the same proportion as (i) the aggregate record date cash
value held in such sub-account for policies giving instructions, respectively,
to vote for, against, or withhold votes on such proposition, bears to (ii) the
aggregate record date cash value held in the sub-account for all policies for
which voting instructions are received. Participants continued in effect under
lapse options will not be permitted to give voting instructions.
12
<PAGE>
Shares held in any other insurance company general or separate account or sub-
account thereof will be voted in the proportion specified in the second
preceding sentence for shares attributable to policies.
8. Duration and Termination.
This Agreement shall remain in force for the period ending five years from
the date of its execution (such date and any anniversary of such date being
hereinafter called a "Renegotiation Date"), and from year to year thereafter
provided that neither the Company nor the Fund shall have given written notice
to the other within thirty (30) days prior to a Renegotiation Date that it
desires to renegotiate the amount of contribution to capital due hereunder
("Renegotiation Notice"). If a Renegotiation Notice is properly given as
aforesaid and the Fund and the Company shall fail, within sixty (60) days after
the Renegotiation Date, either to enter into an amendment to this Agreement or a
written acknowledgment that the Agreement shall continue in effect, this
Agreement shall terminate as of the one hundred twentieth day after such
Renegotiation Date. If this Agreement is so terminated, the Fund may, at any
time thereafter, automatically redeem the Shares of any Portfolio held by a
Participating Shareholder. This Agreement may be terminated at any time, at the
option of either of the Company or the Fund, when neither the Company, any
insurance company nor the separate account or accounts of such insurance company
which is an affiliate thereof which is not a Participating Insurance Company own
any Shares of the Fund or may be terminated by either party to the Agreement
upon a determination by a majority of the Trustees of the Fund, or a majority of
its disinterested
13
<PAGE>
Trustees, following certification thereof by a Participating Insurance Company
given in accordance with Paragraph 10 that an irreconcilable conflict exists
among the interests of (i) all contract holders and policy holders of Variable
Insurance Products of all separate accounts or (ii) the interests of the
Participating Insurance Companies investing in the Fund. Notwithstanding
anything to the contrary in this Agreement or its termination as provided
herein, the Company's obligation to make a capital contribution to the Fund in
accordance with this Agreement at the time in effect shall continue (i)
following a properly given Renegotiation Notice, in the absence of agreement
otherwise, until termination of this Agreement, and (ii) (except termination due
to the existence of an irreconcilable conflict), following termination of this
Agreement, until the later of the fifth anniversary of the date of this
Agreement or the date on which the Company, its separate account(s) or the
separate account(s) of any affiliated insurance company owns no Shares.
9. Compliance.
The Fund will comply with the provisions of Section 4240(a) of the New York
Insurance Law.
Each Portfolio of the Fund will comply with the provisions of Section
817(h) of the Internal Revenue Code of 1986, as amended (the "Code"), relating
to diversification requirements for variable annuity, endowment and life
insurance contracts. Specifically, each Portfolio will comply with either (i)
the requirement of Section 817(h)(1) of the Code that its assets be adequately
diversified, or (ii) the "Safe Harbor for Diversification" specified in Section
817(h)(2) of the Code, or (iii) the
14
<PAGE>
diversification requirement of Section 817(h)(1) of the Code by having all or
part of its assets invested in U.S. Treasury securities which qualify for the
"Special Rule for Investments in United States Obligations" specified in Section
817(h)(3) of the Code.
The provisions of Paragraphs 6 and 7 of this Agreement shall be interpreted
in a manner consistent with any Rule or order of the Securities and Exchange
Commission under the Investment Company Act of 1940, as amended, applicable to
the parties hereto.
No Shares of any Portfolio of the Fund may be sold to the general public.
10. Notices.
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
Scudder Variable Life Investment Fund
Two International Place
Boston, Massachusetts 02110
(617) 295-2275
Attn.: William M. ThomasWilliam M. Thomas
If to the Company:
USAA Life Insurance Company
9800 Fredericksburg Road
San Antonio, Texas 78288
Attn.: Dwain A. Akins, Esq.
11. Massachusetts Law to Apply.
This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of The Commonwealth of Massachusetts.
15
<PAGE>
12. Miscellaneous.
The name "Scudder Variable Life Investment Fund" is the designation of the
Trustees for the time being under a Declaration of Trust dated March 15, 1985,
as amended, and all persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Trustees, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund. No Portfolio
shall be liable for any obligations properly attributable to any other
Portfolio.
The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or otherwise
affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which taken together shall
constitute one and the same instrument.
13. Entire Agreement.
This Agreement and the letter agreement dated April ___, 1998 together
incorporate the entire understanding and agreement among the parties hereto, and
supersede any and all prior understandings and agreements between the parties
hereto with respect to the subject matter hereof.
16
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed hereto as of the 21st day of May, 1998.
SEAL SCUDDER VARIABLE LIFE
INVESTMENT FUND
By: /s/ William M. Thomas
---------------------
William M. Thomas
President
SEAL USAA LIFE INSURANCE COMPANY
By: /s/ Edwin L. Rosane
---------------------
Edwin L. Rosane
Its:President
17
<PAGE>
EXHIBIT 8(d)(ii)
AMENDED PARTICIPATING CONTRACT AND POLICY AGREEMENT
<PAGE>
Scudder Investor Services, Inc.
Two International Place
Boston, Massachusetts 02110
PARTICIPATING CONTRACT AND POLICY AGREEMENT
-------------------------------------------
Ladies and Gentlemen:
We (sometimes hereinafter referred to as "Investor Services") are the
Principal Underwriter of shares of Scudder Variable Life Investment Fund (the
"Fund"), a no-load, open-end, diversified registered management investment
company established in 1985 as a Massachusetts business trust. The Fund is a
series fund consisting of the Balanced Portfolio, Bond Portfolio, Capital Growth
Portfolio, International Portfolio, Money Market Portfolio and Growth and Income
Portfolio (individually or collectively hereinafter referred to as the
"Portfolio" or the "Portfolios"). Additional Portfolios may be created from
time to time. The Fund is the funding vehicle for variable annuity contracts
and variable life insurance policies ("Participating Contracts and Policies") to
be offered to the separate accounts or sub-accounts (the "Accounts") of certain
life insurance companies ("Participating Insurance Companies"). Owners of
Participating Contracts and Policies will designate a portion of their premium
to be invested in Accounts which invest in, or represent an investment in,
directly or indirectly, shares of beneficial interest ("Shares") of the
Portfolios of the Fund. You are a registered broker-dealer which intends to
offer and sell Participating Contracts and Policies. In connection with such
offer and sale you will be obligated to deliver the prospectuses of such
Participating Contracts and Policies and, contemporaneously therewith, the
prospectus of the Fund. Sales of Shares to Participating Insurance
<PAGE>
Companies or their affiliates or the separate accounts of either shall be
effected solely by us as principal underwriter of the Fund, and not by you;
provided, however, that you shall be our agent in connection with the receipt of
purchase orders for Fund Shares and not in connection with their offer and sale.
The relationship between us shall be further governed by the following terms and
conditions:
1. To the extent, if any, that your activities or the activities of the
Participating Insurance Companies in connection with the sale of
Participating Contracts and Policies may constitute the sale of
Shares, you and we agree that (i) we are the sole "principal
underwriter" of the Fund and the sole "underwriter" of the Shares as
those terms are defined in the Investment Company Act of 1940 (the
"1940 Act") and the Securities Act of 1933 (the "1933 Act"),
respectively, and (ii) neither you nor the Participating Insurance
Companies or the Accounts shall be deemed to be "principal
underwriters" of the Fund or "underwriters" of the Fund within the
meaning of the 1940 Act and the 1933 Act, respectively.
2. You hereby represent and warrant to us as follows:
(a) You are a corporation duly organized and validly existing in good
standing under the laws of the State of Delaware and have full
power and authority to enter into this Agreement.
(b) This Agreement has been duly authorized, executed and delivered
by you and is a valid and binding obligation enforceable against
you in accordance with its terms.
(c) Your compliance with the provisions of this Agreement will not
conflict with or result in a violation of the provisions of your
charter or by-laws, or any statute or any judgment, decree,
order, rule or regulation of any court or governmental agency or
body having jurisdiction.
3. We hereby represent and warrant to you as follows:
(a) A registration statement (File No. 2-96461) on Form N-1A with
respect to the Shares (x) has been prepared by the Fund in
conformity with the requirements of the 1940 Act and the 1933 Act
and all applicable published instructions, rules and regulations
(the "Rules and Regulations") of the Securities and Exchange
Commission (the
2
<PAGE>
"Commission"), (y) has been filed with the Commission, and (z) is
currently effective. The registration statement, including
financial statements and exhibits, and the final prospectus,
including the statement of additional information, as
subsequently amended and supplemented, are herein respectively
referred to as the "Registration Statement" and the "Prospectus".
(b) The Registration Statement and the Prospectus and any amendment
or supplement thereto will contain all statements required to be
stated therein and will comply in all material respects with the
requirements of the 1940 Act, the 1933 Act and the Rules and
Regulations, and the Registration Statement and any post-
effective amendment thereto will not contain or incorporate by
reference any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and the
Prospectus and any amendment or supplement thereto will not
contain or incorporate by reference any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were
made, not misleading.
(c) We are a corporation duly organized and validly existing in good
standing under the laws of The Commonwealth of Massachusetts and
have full power and authority to enter into this Agreement.
(d) This Agreement has been duly authorized, executed and delivered
by us and is a valid and binding obligation enforceable against
us in accordance with its terms.
(e) Our compliance with all of the provisions of this Agreement will
not conflict with or result in a violation of the provisions of
our charter or by-laws, or any statute or any judgment, decree,
order, rule or regulation of any court or governmental agency or
body having jurisdiction over us.
4. You hereby covenant and agree with us as follows:
(a) You shall be an independent contractor and neither you nor any of
your directors, officers or employees as such, is or shall be an
employee of us or of the Fund. You are responsible for your own
conduct and the employment, control and conduct of your agents
and employees and for injury to such agents or employees or to
others through your agents or employees.
3
<PAGE>
(b) You or one or more Participating Insurance Companies will be
responsible for insuring compliance with all applicable laws and
regulations of any regulatory body having jurisdiction over you
or Participating Contracts and Policies.
(c) No person is authorized to make any representations concerning
Shares except those contained in the Prospectus relating thereto
and in such printed information as issued by us for use as
information supplemental to the prospectus. In offering
Participating Contracts and Policies you shall, with respect to
the Fund and the Shares, rely solely on the representations
contained in the Prospectus and in the above-mentioned
supplemental information.
(d) You are not entitled to any compensation whatsoever from us or
the Fund with respect to offers of Participating Contracts and
Policies.
5. We hereby covenant and agree with you as follows:
(a) If, at any time when a Prospectus relating to the Shares is
required to be delivered under the 1940 Act, the 1933 Act or the
Rules and Regulations, we become aware of the occurrence of any
event as a result of which the Prospectus as then amended or
supplemented would include any untrue statement of a material
fact, or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which
made, not misleading, or if we become aware that it has become
necessary at any time to amend or supplement the Prospectus to
comply with the 1940 Act, the 1933 Act or the Rules and
Regulations, we will promptly notify you and promptly request the
Fund to prepare and to file with the Commission an amendment to
the Registration Statement or supplement to the Prospectus which
will correct such statement or omission or an amendment or
supplement which will effect such compliance, and deliver to you
copies of any such amendment or supplement.
(b) We will cooperate with you by taking such action as may be
necessary for the Fund to qualify the Shares for offer and sale
under the securities or Blue Sky laws of any state or
jurisdiction as you may request and as may be required by
applicable law, and will continue such qualification in effect so
long as is required by applicable law in connection with the
distribution of Shares.
6. We reserve the right in our discretion, without notice, to suspend
sales or withdraw the offering of Shares entirely, as to any person or
generally. We reserve the right to amend this Agreement at any time
and you agree
4
<PAGE>
that the sale of Participating Contracts and Policies, after notice of
any such amendment has been sent to you, shall constitute your
agreement to any such amendment.
7. If we elect to provide to you for the purpose of your offering
Participating Contracts and Policies copies of any Prospectus relating
to the Shares and printed information supplemental thereto, we shall
furnish you with such copies as you reasonably request upon the
payment of reasonable charges therefor by you or one or more
Participating Insurance Companies. If we elect not to provide such
copies of such documents, you or one or more Participating Insurance
Companies shall bear the entire cost of printing copies for your use.
You shall not use such copies of such documents printed by you or one
or more Participating Insurance Companies until you shall have
furnished us with a copy thereof and we either have given you written
approval for use or twenty days shall have elapsed following our
receipt thereof and we have not objected thereto in writing.
8. (a) You will indemnify and hold harmless Investor Services and each
of its directors and officers and each person, if any, who
controls Investor Services within the meaning of Section 15 of
the 1933 Act, against any loss, liability, damages, claim or
expense (including the reasonable cost of investigating or
defending any alleged loss, liability, damages, claim or expense
and reasonable counsel fees incurred in connection therewith),
arising by reason of any person's acquiring any Shares, which may
be based upon the 1933 Act or any other statute or common law,
and which (i) may be based upon any wrongful act by you, any of
your employees or representatives, or (ii) may be based upon any
untrue statement or alleged untrue statement of a material fact
contained in a registration statement or prospectus covering
Shares or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading if such a statement or omission was made
in reliance upon information furnished to us or the Fund by you,
or (iii) may be based on any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement or prospectus covering insurance products sold by you,
or any amendments or supplement thereto, or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statement or statements
therein not misleading, unless such statement or omission was
made in reliance upon information furnished to you or a
Participating Insurance Company by or on behalf of Investor
Services or the Fund; provided, however, that in no case
5
<PAGE>
(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.
(b) Investor Services will indemnify and hold harmless you and each
of your directors and officers and each person, if any, who
controls you within the meaning of Section 15 of the 1933 Act,
against any loss, liability, damages, claim or expense (including
the reasonable cost of investigating or defending any alleged
loss, liability, damages, claim or expense and reasonable counsel
fees incurred in connection
6
<PAGE>
therewith), arising by reason of any person's acquiring any
Shares, which may be based upon the 1933 Act or any other statute
or common law, and which (i) may be based upon any wrongful act
by Investor Services, any of its employees or representatives, or
(ii) may be based upon any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement or prospectus covering Shares or any amendment thereof
or supplement thereto or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading unless
such statement or omission was made in reliance upon information
furnished to Investor Services or the Fund by you or (iii) may be
based on any untrue statement or alleged untrue statement of a
material fact contained in a registration statement or prospectus
covering insurance products sold by you, or any amendment or
supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statement or statements therein not
misleading, if such statement or omission was made in reliance
upon information furnished to you by or on behalf of Investor
Services or the Fund; provided, however, that in no case (i) is
the indemnity by Investor Services in favor of any person
indemnified to be deemed to protect you or any such person
against any liability to which you or any such person would
otherwise be subject by reason of willful misfeasance, bad faith
or gross negligence in the performance of your or his duties by
reason of your or his reckless disregard of your or his
obligations and duties under this Agreement, or (ii) is Investor
Services to be liable under its indemnity agreement contained in
this paragraph with respect to any claim made against you or any
person indemnified unless you or such person, as the case may be,
shall have notified Investor Services in writing within a
reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been
served upon you or upon such person (or after you or such person
shall have received notice of such service on any designated
agent), but failure to notify Investor Services of any such claim
shall not relieve Investor Services from any liability to which
Investor Services may have to you or any person against whom such
action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. Investor Services shall be
entitled to participate, at its own expense, in the defense, or,
if it so elects, to assume the defense of any suit brought to
enforce any such liability, but, if it elects to assume the
defense, such defense shall be conducted by counsel
7
<PAGE>
chosen by Investor Services and satisfactory to you, or to your
officers or directors, or to any controlling person or persons,
defendant or defendants in the suit. In the event that Investor
Services assumes the defense of any such suit and retains such
counsel, you or such officers or directors or controlling person
or persons, defendant or defendants in the suit, shall bear the
fees and expenses of any additional counsel retained by you, but,
in case Investor Services does not elect to assume the defense of
any such suit, Investor Services shall reimburse you and such
officers, directors or controlling person or persons, defendant
or defendants in such suit, for the reasonable fees and expenses
of any counsel retained by you. Investor Services agrees promptly
to notify you of the commencement of any litigation or
proceedings against it in connection with the offer, issue and
sale of any Shares.
9. The indemnities, representations, warranties, covenants and agreements
of each party to this Agreement as set forth in this Agreement will
remain in full force and effect regardless of any investigation made
by or on behalf of either of such parties or any of their respective
officers, directors, partners or any controlling person, and will
survive delivery of and payment for the Shares.
10. Any provision of this Agreement which may be determined by competent
authority to be prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction. To the extent permitted by
applicable law, each party hereto waives any provision of law which
renders any provision hereof prohibited or unenforceable in any
respect.
11. This Agreement, as amended by the letter agreement dated February 3,
1995, as amended, together constitutes the entire agreement among the
parties concerning the subject matter hereof, and supersede any and
all prior understandings.
12. This Agreement shall automatically terminate in the event of its
assignment. This Agreement may be terminated at any time by either
party by written notice given to the other party, provided that the
obligation of each party to indemnify the other party pursuant to
paragraph 8 hereof shall apply with respect to any Shares sold before
or after such termination.
8
<PAGE>
13. Any notice hereunder shall be duly given if mailed or telegraphed to
the other party hereto at the address specified below. This Agreement
shall be governed by and construed in accordance with the laws of The
Commonwealth of Massachusetts.
14. This Agreement may be executed in any number of counterparts which,
taken together shall constitute one and the same instrument. This
Agreement shall become effective upon receipt by us of your acceptance
hereof.
15. This Agreement may not be modified or amended except by a written
instrument duly executed by the parties hereto.
SCUDDER INVESTOR SERVICES, INC.
By:/s/ Mark S. Casady
----------------
Mark S. Casady
President
Two International Place
Boston, Massachusetts 02110
The undersigned hereby accepts the offer set forth
in the above letter.
USAA INVESTMENT MANAGEMENT COMPANY
Dated:4/29/98 By:/s/ John J. Dallahan
------- ----------------
John J. Dallahan
Senior Vice President,
Investments Services
Authorized Representative
10750 Robert F. McDermott Freeway
San Antonio, Texas 78288
47111
9
<PAGE>
EXHIBIT 8(d)(iii)
AMENDED REIMBURSEMENT AGREEMENT
<PAGE>
REIMBURSEMENT AGREEMENT
REIMBURSEMENT AGREEMENT (the "Agreement") made by and between SCUDDER
KEMPER INVESTMENTS, INC., a Delaware corporation ("Scudder Kemper"), with a
principal place of business in Boston, Massachusetts and USAA LIFE INSURANCE
COMPANY, a Texas corporation (the "Company"), with a principal place of business
in San Antonio, Texas on behalf of the Separate Account of USAA Life Insurance
Company, a separate account of the Company, and any other separate account of
the Company as designated by the Company from time to time, upon written notice
to the Fund in accordance with Section 8 herein (the "Account").
WHEREAS, Scudder Kemper has caused to be organized Scudder Variable Life
Investment Fund (the "Fund"), a Massachusetts business trust created under a
Declaration of Trust dated March 15, 1985, as amended, the beneficial interest
in which is divided into several series, each designated a "Portfolio" and
representing the interest in a particular managed portfolio of securities; and
WHEREAS, the purpose of the Fund is to act as the investment vehicle for
the separate accounts established for variable life insurance policies and
variable annuity contracts to be offered by insurance companies which have
entered into reimbursement agreements substantially identical to this Agreement;
and
WHEREAS, the parties desire to express their agreement as to certain
matters;
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements hereinafter contained, the parties hereto agree as follows:
<PAGE>
1. Additional Definitions.
----------------------
For purposes of this Agreement, the following definition shall apply:
(a) "Shares" means shares of beneficial interest, without par value, of
any Portfolio, now or hereafter created, of the Fund.
2. Access to Other Products.
------------------------
Scudder Kemper shall permit the Company to participate in any registered
investment company other than the Fund which is intended as the funding vehicle
for insurance products and for which Scudder Kemper or an affiliate of Scudder
Kemper acts as investment adviser, on the same basis as other insurance
companies are permitted to participate in such a registered investment company.
This provision shall not require Scudder Kemper to make available to the Company
shares of any investment company which is organized solely as the funding
vehicle for insurance products offered by a single insurance company or a group
of affiliated insurance companies.
3. Right to Review and Approve Sales Materials.
-------------------------------------------
The Company shall furnish, or shall cause to be furnished, to Scudder
Kemper or its designee, at least twenty days prior to its intended use, each
piece of promotional material in which Scudder Kemper or the Fund is named. No
such material shall be used unless Scudder Kemper or its designee shall have
approved such use in writing, or twenty days shall have elapsed without
approval, rejection or objection since receipt by Scudder Kemper or its designee
of such material.
2
<PAGE>
Scudder Kemper shall furnish, or shall cause to be furnished, to the
Company or its designee, at least twenty days prior to its intended use, each
piece of promotional material in which the Company or its separate account(s) is
named. No such material shall be used unless the Company or its designee shall
have approved such use in writing, or twenty days shall have elapsed without
approval, rejection or objection since receipt by the Company or its designee of
such material.
4. Sales Organization Meetings.
---------------------------
Representatives of Scudder Kemper or its designee shall meet with the sales
organizations of the Company at such reasonable times and places as may be
agreed upon by the Company and Scudder Kemper or its designee for the purpose of
educating sales personnel about the Fund.
5. Duration.
--------
This Agreement shall continue in effect for five (5) years from the date of
its execution, except that the obligation of each party hereto to indemnify the
other party hereto shall continue with respect to all losses, claims, damages,
liabilities or litigation based upon the acquisition of Shares purchased as the
funding vehicle for any variable life insurance policy or variable annuity
contract issued by the Company or any affiliated insurance company.
6. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless Scudder Kemper and
each of its directors and officers and each person, if any, who controls Scudder
Kemper within the meaning of Section 15 of the Securities Act of 1933 (the
"Act") against any and all
3
<PAGE>
losses, claims, damages, liabilities or litigation (including legal and other
expenses) to which Scudder Kemper or such directors, officers or controlling
person may become subject under the Act, under any other statute, at common law
or otherwise, arising out of the acquisition of any Shares by any person which
(i) may be based upon any wrongful act by the Company, any of its employees or
representatives, any affiliate of or any person acting on behalf of the Company
or a principal underwriter of its insurance products, or (ii) may be based upon
any untrue statement or alleged untrue statement of a material fact contained in
a registration statement or prospectus covering Shares or any amendment thereof
or supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading if such a statement or omission was made in reliance upon
information furnished to Scudder Kemper or the Fund by the Company, provided,
however, that in no case (i) is the Company's indemnity in favor of a director
or officer or any other person deemed to protect such director or officer or
other person against any liability to which any such person would otherwise be
subject by reason of willful misfeasance, bad faith, or gross negligence in the
performance of his duties or by reason of his reckless disregard of obligations
and duties under this Agreement or (ii) is the Company to be liable under its
indemnity agreement contained in this Paragraph 6 with respect to any claim made
against Scudder Kemper or any person indemnified unless Scudder Kemper or such
person, as the case may be, shall have notified the Company in writing pursuant
to Paragraph 8 within a reasonable time after the summons or other first legal
process
4
<PAGE>
giving information of the nature of the claims shall have been served upon
Scudder Kemper or upon such person (or after Scudder Kemper or such person shall
have received notice of such service on any designated agent), but failure to
notify the Company of any such claim shall not relieve the Company from any
liability which it has to Scudder Kemper or any person against whom such action
is brought otherwise than on account of the indemnity agreement contained in
this Paragraph 6. The Company shall be entitled to participate, at its own
expense, in the defense, or, if it so elects, to assume the defense of any suit
brought to enforce any such liability, but, if it elects to assume the defense,
such defense shall be conducted by counsel chosen by it and satisfactory to
Scudder Kemper, to its officers and directors, or to any controlling person or
persons, defendant or defendants in the suit. In the event that the Company
elects to assume the defense of any such suit and retain such counsel, Scudder
Kemper, such officers and directors or controlling person or persons, defendant
or defendants in the suit, shall bear the fees and expenses of any additional
counsel retained by them, but, in case the Company does not elect to assume the
defense of any such suit, the Company will reimburse Scudder Kemper, such
officers and directors or controlling person or persons, defendant or defendants
in such suit, for the reasonable fees and expenses of any counsel retained by
them. The Company agrees promptly to notify Scudder Kemper pursuant to Paragraph
8 of the commencement of any litigation or proceedings against it in connection
with the issue and sale of any Shares.
5
<PAGE>
(b) Scudder Kemper agrees to indemnify and hold harmless the Company and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the Act against any and all losses,
claims, damages, liabilities or litigation (including legal and other expenses)
to which the Company or such directors, officers or controlling persons may
become subject under the Act, under any other statute, at common law or
otherwise, arising out of the acquisition of any Shares by any person which (i)
may be based upon any wrongful act by Scudder Kemper, any of its employees or
representatives or a principal underwriter of the Fund, or (ii) may be based
upon any untrue statement or alleged untrue statement of a material fact
contained in a registration statement or prospectus covering Shares or any
amendment thereof or supplement thereto or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading if such statement or omission was made in
reliance upon information furnished to the Company by Scudder Kemper; provided,
however, that in no case (i) is Scudder Kemper's indemnity in favor of a
director or officer or any other person deemed to protect such director or
officer or other person against any liability to which any such person would
otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of his duties or by reason of his reckless
disregard of obligations and duties under this Agreement or (ii) is Scudder
Kemper to be liable under its indemnity agreement contained in this Paragraph 6
with respect to any claims made against the Company or any such director,
officer or controlling person unless it or such director, officer or
6
<PAGE>
controlling person, as the case may be, shall have notified Scudder Kemper in
writing pursuant to Paragraph 8 within a reasonable time after the summons or
other first legal process giving information of the nature of the claim shall
have been served upon it or upon such director, officer or controlling person
(or after the Company or such director, officer or controlling person shall have
received notice of such service on any designated agent), but failure to notify
Scudder Kemper of any claim shall not relieve it from any liability which it may
have to the Company or any person against whom such action is brought otherwise
than on account of its indemnity agreement contained in this Paragraph 6.
Scudder Kemper will be entitled to participate at its own expense in the
defense, or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but if Scudder Kemper elects to assume the defense,
such defense shall be conducted by counsel chosen by it and satisfactory to the
Company, its directors, officers or controlling person or persons, defendant or
defendants, in the suit. In the event Scudder Kemper elects to assume the
defense of any such suit and retain such counsel, the Company, its directors,
officers or controlling person or persons, defendant or defendants in the suit,
shall bear the fees and expenses of any additional counsel retained by them,
but, in case Scudder Kemper does not elect to assume the defense of any such
suit, it will reimburse the Company or such directors, officers or controlling
person or persons, defendant or defendants in the suit, for the reasonable fees
and expenses of any counsel retained by them. Scudder Kemper agrees promptly to
notify the Company pursuant to Paragraph 8 of the commencement of any litigation
or proceedings against it or any
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 21st day of May, 1998.
SEAL SCUDDER KEMPER INVESTMENTS, INC.
By: /s/ Mark S. Casady
--------------------------------
Mark S. Casady
Authorized Officer
SEAL USAA LIFE INSURANCE COMPANY
By: /s/ Edwin L. Rosane
---------------------------------
Name: Edwin L. Rosane
Title: President
12
<PAGE>
EXHIBIT 8(d)(iv)
AMENDED LETTER AGREEMENT
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[LOGO OF USAA LIFE INSURANCE COMPANY APPEARS HERE]
March 16, 1998
BY EXPRESS DELIVERY
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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.
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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.
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Scudder Kemper Investments, Inc.
March 16, 1998
Page 2
PURCHASES AND REDEMPTIONS.
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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.
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Scudder Kemper Investments, Inc.
March 16, 1998
Page 3
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS.
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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.
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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.
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Scudder Kemper Investments, Inc.
March 16, 1998
Page 4
FUND MATERIALS.
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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.
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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.
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(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.
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Scudder Kemper Investments, Inc.
March 16, 1998
Page 5
(b) This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the Commonwealth of Massachusetts.
(c) The name "Scudder Variable Life Investment Fund" is the designation of
the Trustees for the time being under a Declaration of Trust dated March 15,
1985, as amended, and all persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Trustees, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund. No Portfolio
shall be liable for any obligations properly attributable to any other
Portfolio.
_________________________________
Very truly yours,
USAA LIFE INSURANCE COMPANY
By: /s/ EDWIN L. ROSANE
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EDWIN L. ROSANE
President
USAA INVESTMENT
MANAGEMENT COMPANY
By: /s/ JOHN J. DALLAHAN
--------------------
JOHN J. DALLAHAN
Senior Vice President
Investments Services
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Scudder Kemper Investments, Inc.
March 16, 1998
Page 6
We hereby agree to and accept the provisions set out above.
SCUDDER KEMPER INVESTMENTS, INC.
By: /s/ MARK S. CASADY
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SCUDDER INVESTOR SERVICES, INC.
By: /s/ MARK S. CASADY
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SCUDDER VARIABLE LIFE INVESTMENT FUND
By: /s/ WILLIAM M. THOMAS
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<PAGE>
EXHIBIT 8(f)(i)
FUND PARTICIPATION AGREEMENT
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FUND PARTICIPATION AGREEMENT
THIS AGREEMENT ("Agreement") made as of the 30th day of April, 1998, by and
among BT Insurance Funds Trust ("TRUST"), a Massachusetts business trust,
Bankers Trust Company ("ADVISER"), a New York banking corporation, and USAA Life
Insurance Company ("LIFE COMPANY"), a life insurance company organized under the
laws of the State of Texas (collectively, the "Parties").
WHEREAS, TRUST is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940, as amended (the "'40 Act"), as
an open-end diversified management investment company; and
WHEREAS, TRUST is comprised of several series funds (each a "Series"), each
of whose shares are registered under the Securities Act of 1933, as amended ("
`33 Act"); and
WHEREAS, TRUST was organized to act as the funding vehicle for certain
variable life insurance and/or variable annuity contracts ("Variable Contracts")
offered by life insurance companies ("Participating Insurance Companies")
through their separate accounts; and
WHEREAS, TRUST may also offer its shares to certain qualified pension and
retirement plans ("Qualified Plans"); and
WHEREAS, TRUST has received an order from the SEC granting Participating
Insurance Companies and their separate accounts exemptions from the provisions
of Sections 9(a), 13(a), 15(a) and 15(b) of the '40 Act, and Rules 6e-2(b)(15)
and 6e-3(T)(b)(1-5) thereunder, to the extent necessary to permit shares of the
Series of the TRUST to be sold to and held by separate accounts of both
affiliated and unaffiliated Participating Insurance Companies and Qualified
Plans ("Exemptive Order"); and
WHEREAS, LIFE COMPANY has established or will establish one or more
separate accounts listed on Appendix A hereto (collectively, "Separate
Accounts") to offer certain Variable Contracts issued by LIFE COMPANY and funded
by the Separate Accounts listed on Appendix A hereto (collectively, "Contracts")
and is desirous of having the Series listed on Appendix B hereto (each, a
"Portfolio") serve as underlying funding vehicles for the Contracts; and
WHEREAS, ADVISER is a "bank" as defined in the Investment Advisers Act of
1940, as amended (the "Advisers Act") and as such is excluded from the
definition of "Investment Adviser" and is not required to register as an
investment adviser pursuant to the Advisers Act; and
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WHEREAS, ADVISER serves as the TRUST's investment adviser; and
WHEREAS, First Data Distributors, Inc. ("DISTRIBUTOR") serves as the
Trust's principal underwriter of the Trust's shares; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase shares of Portfolios to fund the
Contracts and TRUST is authorized to sell such shares to LIFE COMPANY at such
shares' net asset value;
NOW, THEREFORE, in consideration of their mutual promises, LIFE COMPANY,
TRUST, and ADVISER agree as follows:
Article I. SALE OF TRUST SHARES
--------------------
1.1 TRUST agrees to make available to the Separate Accounts shares of each
Portfolio ("Shares") for purchase and redemption at net asset value, and with no
sales charges, subject to the terms and conditions of this Agreement. The
Parties may agree, from time to time, to amend Appendicies A and/or B hereto
("Appendix A" and "Appendix B," respectively) to reflect additions, deletions,
and other changes to the Separate Accounts, Contracts, and/or Portfolios. Upon
such amendment, references to Separate Account, Contract, Portfolio, Trust or
Shares shall be read consistently with the changes effected by that amendment,
unless otherwise specifically provided.
1.2 TRUST agrees to execute orders to purchase Shares ("Purchase orders")
that correspond to Contract owner transaction requests received by LIFE COMPANY
("requests" or "Contract owner requests") on each Business Day using the net
asset value per Share next computed after the LIFE COMPANY receives the
requests. The Parties agree that, unless otherwise specified in writing by
TRUST, the computation of each Portfolio's net asset value per Share will occur
as of 4:00 p.m. New York time each Business Day. For purposes of this
Agreement, "Business Day" shall mean any day on which the New York Stock
Exchange is open for trading and on which TRUST calculates its net asset value
pursuant to the rules of the SEC.
1.3 TRUST agrees to execute orders to redeem Shares ("Redemption orders")
that correspond to Contract owner requests on each Business Day using the net
asset value per Share next computed after the LIFE COMPANY receives the
requests. Redemption orders that do not relate to requests will be executed
using the net asset value per Share next computed after receipt by TRUST of such
orders.
1.4 TRUST shall furnish, on or before each ex-dividend date, notice to
LIFE COMPANY of any income dividends or capital gain distributions payable on
the Shares of any Portfolio. LIFE COMPANY hereby elects to receive all such
income dividends and capital gain distributions as are payable on a Portfolio's
Shares in additional Shares of the Portfolio. TRUST shall notify LIFE COMPANY or
its designee of the number of Shares so issued as payment of such dividends and
distributions.
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1.5 TRUST shall make the net asset value per Share for the Portfolios
available to LIFE COMPANY on a daily basis as soon as reasonably practicable
after the net asset value per Share is calculated but shall use its best efforts
to make such net asset value available by 6:30 p.m. New York time. If TRUST
provides LIFE COMPANY with materially incorrect Share net asset value
information through no fault of LIFE COMPANY, LIFE COMPANY on behalf of the
Separate Accounts, shall be entitled to an adjustment to the number of Shares
purchased or redeemed to reflect the correct Share net asset value. Any material
error in the calculation of net asset value per Share, dividend or capital gain
information shall be reported promptly by TRUST upon discovery to LIFE COMPANY.
1.6 LIFE COMPANY shall be the designee of TRUST for receipt of Purchase
orders and Redemption orders from the designated Separate Account to purchase or
redeem Shares that correspond to Contract owner transactions. At the end of
each Business Day, LIFE COMPANY shall use the information described in Section
1.5 to calculate Separate Account unit values for that Day. Using these unit
values, LIFE COMPANY shall process each such Business Day's Contract owner
transactions based on requests received by the close of trading on the floor of
the New York Stock Exchange (currently 4:00 P.M. New York time) to determine the
net dollar amount of Shares which shall be purchased or redeemed at that Day's
closing net asset value per Share. LIFE COMPANY shall net all Purchase and
Redemption orders, and shall submit a net order ("Net Order") to TRUST by 9:30
a.m. New York time on the Business Day next following LIFE COMPANY's receipt of
such requests in accordance with the terms of Sections 1.2 and 1.3 hereof;
provided, however, that TRUST shall provide additional time to LIFE COMPANY in
the event that TRUST is unable to meet the 6:30 p.m. time stated in Section 1.5
hereof. Such additional time shall be equal to the additional time that TRUST
takes to make the net asset values available to LIFE COMPANY.
1.7 If LIFE COMPANY's Net Order requests the purchase of TRUST Shares,
LIFE COMPANY shall pay for such purchase by wiring federal funds to TRUST or its
designated custodial account on the day the order is transmitted by LIFE
COMPANY. If LIFE COMPANY's Net Order requests a net redemption resulting in a
payment of redemption proceeds to LIFE COMPANY, TRUST shall wire the redemption
proceeds to LIFE COMPANY by the next Business Day, unless doing so would require
TRUST to dispose of Portfolio securities or otherwise incur additional costs. In
any event, proceeds shall be wired to LIFE COMPANY within the time period
permitted by the '40 Act or the rules, orders or regulations thereunder, and
TRUST shall notify the person designated in writing by LIFE COMPANY as the
recipient for such notice of such delay by 3:00 p.m. New York time on the same
Business Day that LIFE COMPANY transmits the Net Redemption Order to TRUST. If
LIFE COMPANY's Net Order requests the application of redemption proceeds from
the redemption of Shares to the purchase of shares of another fund advised by
ADVISER, TRUST shall so apply such proceeds on the same Business Day that LIFE
COMPANY transmits such order to TRUST.
1.8 TRUST agrees that all Shares of the Portfolios will be sold only to
Participating Insurance Companies which have agreed to participate in TRUST to
fund their separate accounts and/or to Qualified Plans, all in accordance with
the requirements of Section 817(h)(4) of the Internal Revenue Code of 1986, as
amended ("Code") and Treasury Regulation 1.817-5. Shares of the TRUST's Series
will not be sold directly to the general public.
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1.9 TRUST may refuse to sell Shares of any Portfolio to any person, or
suspend or terminate the offering of the Shares of or liquidate any Portfolio of
TRUST if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board of Trustees of the TRUST
(the "Board"), acting in good faith and in light of its duties under federal and
any applicable state laws, deemed necessary, desirable or appropriate and in the
best interests of the Shareholders of such Portfolios.
1.10 Issuance and transfer of Shares will be by book entry only. Stock
certificates will not be issued to LIFE COMPANY or the Separate Accounts. The
TRUST will record, or cause to be recorded, Shares ordered from any Portfolio in
appropriate book entry titles for the Separate Accounts.
Article II. REPRESENTATIONS AND WARRANTIES
------------------------------
2.1 LIFE COMPANY represents and warrants that it is an insurance company
duly organized and in good standing under the laws of Texas and that it has
legally and validly established each Separate Account as a segregated asset
account under such laws, and that USAA Investment Management Company, the
principal underwriter for the Contracts, is registered as a broker-dealer under
the Securities Exchange Act of 1934.
2.2 LIFE COMPANY represents and warrants that it has registered or, prior
to any issuance or sale of the Contracts, will register each Separate Account as
a unit investment trust ("UIT") in accordance with the provisions of the '40 Act
to the extent required thereby, and cause each Separate Account to remain so
registered to serve as a segregated asset account for the Contracts, unless an
exemption from registration is available.
2.3 LIFE COMPANY represents and warrants that units of interest issued in
connection with the Contracts have been or will be registered under the '33 Act
unless an exemption from registration is available prior to any issuance or sale
of the Contracts, and that the Contracts will be issued and sold in compliance
in all material respects with all applicable federal and state laws and further
that the sale of the Contracts shall comply in all material respects with
applicable state insurance law suitability requirements.
2.4 Subject to TRUST's compliance with the duties and obligations set out
in Sections 2.6 and 2.7 hereof, LIFE COMPANY represents and warrants that the
Contracts have been or will be at the time of issuance treated as life
insurance, endowment or annuity contracts under applicable provisions of the
Code, that it will maintain such treatment and that it will notify TRUST
immediately upon having a reasonable basis for believing that the Contracts have
ceased to be so treated or that they might not be so treated in the future.
2.5 TRUST and ADVISER represent and warrant that the Shares offered and
sold pursuant to this Agreement will be registered under the '33 Act and sold in
accordance with all applicable federal laws, and TRUST shall be registered under
the '40 Act prior to and at the time of any issuance or sale of such Shares.
TRUST, subject to Section 1.9 above, shall amend its registration statements
under the '33 Act and the '40 Act from time to time as required in order to
4
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effect the continuous offering of its Shares. TRUST shall register and qualify
its Shares for sale in accordance with the laws of the various states only if
and to the extent deemed advisable by TRUST.
2.6 TRUST and ADVISER represent and warrant that each Portfolio has
complied and will comply with the requirements set forth in Section 817(h) of
the Code, and the rules and regulations thereunder, including without limitation
Treasury Regulation 1.817-5, and will notify LIFE COMPANY immediately upon
having a reasonable basis for believing any Portfolio has ceased to comply and
will immediately take all reasonable steps to adequately diversify the Portfolio
to achieve compliance.
2.7 TRUST and ADVISER represent and warrant that each Portfolio invested
in by the Separate Account will be treated as a "regulated investment company"
under Subchapter M of the Code, and will notify LIFE COMPANY immediately upon
having a reasonable basis for believing it has ceased to so qualify or might not
so qualify in the future.
2.8 ADVISER represents and warrants that it shall perform its obligations
hereunder in compliance in all material respects with any applicable state and
federal laws.
Article III. PROSPECTUS AND OTHER TRUST DOCUMENTS
------------------------------------
3.1 TRUST shall prepare and be responsible for filing with the SEC and any
state regulators requiring such filing all Shareholder reports, notices, proxy
materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of TRUST.
TRUST shall bear the costs of registration and qualification of shares of the
Portfolios, preparation and filing of the documents listed in this Section 3.1
and all taxes and filing fees to which an issuer is subject on the issuance and
transfer of its shares.
3.2 TRUST or its designee shall provide LIFE COMPANY, free of charge, with
as many copies of the current prospectus (or prospectuses), including
supplements, statements of additional information, annual and semi-annual
reports and proxy materials for the Shares of the Portfolios as LIFE COMPANY
may reasonably request for distribution to existing Contract owners whose
Contracts are funded by Shares. TRUST or its designee shall provide LIFE
COMPANY, at LIFE COMPANY's expense, with as many copies of the current
prospectus (or prospectuses) for the Shares ("TRUST prospectus") as LIFE COMPANY
may reasonably request for distribution to prospective purchasers of Contracts.
If requested by LIFE COMPANY, TRUST or its designee shall provide the Trust
prospectus (including a "camera ready" copy of the current prospectus (or
prospectuses) as set in type or, at the request of LIFE COMPANY, as a diskette
in the form sent to the financial printer) and other assistance as is reasonably
necessary in order for the Parties once a year (or more frequently if the Trust
prospectus is supplemented or amended) to have the prospectus for the Contracts
("Contract prospectus") and the Trust prospectus printed together in one
document. The expenses of such printing will be apportioned between LIFE COMPANY
and TRUST in proportion to the number of pages of the Contract and TRUST
prospectuses, taking account of other relevant factors affecting the expense of
printing, such as covers, columns, graphs and charts; TRUST shall bear the cost
of printing the TRUST prospectus portion of such document for distribution only
to
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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 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
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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, but is not limited to, an
obligation by the LIFE COMPANY to inform the Board whenever it has
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<PAGE>
determined to disregard Contract owners' voting instructions. These
responsibilities of LIFE COMPANY will be carried out with a view only to the
interests of the Contract owners.
5.4 If a majority of the Board, or majority of its disinterested Trustees,
determines that a material irreconcilable conflict exists affecting LIFE
COMPANY, LIFE COMPANY, at its expense and to the extent reasonably practicable
(as determined by a majority of the Board's disinterested Trustees), will take
any steps necessary to remedy or eliminate the material irreconcilable conflict,
including; (a) withdrawing the assets allocable to some or all of the Separate
Accounts from TRUST or any Portfolio thereof and reinvesting those assets in a
different investment medium, which may include another portfolio of TRUST ; (b)
submitting the question as to whether such segregation should be implemented to
a vote of all affected Contract owners and as appropriate, segregating the
assets of any appropriate group of Contract owners that votes in favor of such
segregation, or offering to the affected Contract owners the option of making
such a change; and (c) establishing a new registered management investment
company (or series thereof) or managed separate account. If a material
irreconcilable conflict arises because of LIFE COMPANY's decision to disregard
Contract owner voting instructions, and that decision represents a minority
position or would preclude a majority vote, LIFE COMPANY may be required, at the
election of TRUST, to withdraw a Separate Account's investment in TRUST, and no
charge or penalty will be imposed as a result of such withdrawal. The
responsibility to take such remedial action shall be carried out with a view
only to the interests of the Contract owners.
For the purposes of this Section 5.4, a majority of the disinterested
Trustees shall determine whether or not any proposed action adequately remedies
any material irreconcilable conflict, but in no event will TRUST or ADVISER (or
any other investment adviser of TRUST) be required to establish a new funding
medium for any Contract. Further, LIFE COMPANY shall not be required by this
Section 5.4 to establish a new funding medium for any Contracts if an offer to
do so has been declined by a vote of a majority of Contract owners materially
and adversely affected by the material irreconcilable conflict.
5.5 The Board's determination of the existence of an irreconcilable
material conflict and its implications shall be made known promptly and in
writing to LIFE COMPANY.
5.6 No less than annually, LIFE COMPANY shall submit to the Board such
reports, materials or data as the Board may reasonably request so that the Board
may fully carry out its obligations. Such reports, materials, and data shall be
submitted more frequently if deemed appropriate by the Board.
Article VI. VOTING
------
6.1 LIFE COMPANY will provide pass-through voting privileges to all
Contract owners so long as the SEC continues to interpret the '40 Act as
requiring pass-through voting privileges for Contract owners. Accordingly, LIFE
COMPANY, where applicable, will vote Shares of any Portfolio held in its
Separate Account(s) in a manner consistent with voting instructions timely
received from its Contract owners. LIFE COMPANY will be responsible for assuring
that each of its registered Separate Account(s) that owns any Shares calculates
voting
8
<PAGE>
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
9
<PAGE>
(b) arise out of or result from (i) statements or representations (other
than statements or representations contained in any registration
statement, prospectus or sales literature for the TRUST, or any
Portfolio not supplied by LIFE COMPANY, or persons under its control)
or (ii) willful misfeasance, bad faith, negligence, or reckless
disregard of obligations or duties of LIFE COMPANY or persons under
its control, with respect to the sale or distribution of the Contracts
or Shares; or (c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in any registration statement,
prospectus, or sales literature for the TRUST, or any Portfolio, or
any amendment or supplement to any of the foregoing, or the omission
or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with information
furnished in writing to TRUST by or on behalf of LIFE COMPANY for use
in such materials; or
(c) arise as a result of any failure by LIFE COMPANY to provide
substantially the services and furnish the materials under the terms
of this Agreement; or
(d) arise out of or result from any material breach of any representation
and/or warranty made by LIFE COMPANY in this Agreement or arise out of
or result from any other material breach of this Agreement by LIFE
COMPANY.
7.2 LIFE COMPANY shall not be liable under Section 7.1 hereof with respect
to any losses, claims, damages, liabilities or litigation incurred or assessed
against an Indemnified Party to the extent that such losses, claims, damages,
liabilities or litigation are attributable to such Indemnified Party's willful
misfeasance, bad faith, negligence in the performance of such Indemnified
Party's duties or by reason of such Indemnified Party's reckless disregard of
obligations or duties under this Agreement or breach of this Agreement.
7.3 LIFE COMPANY shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified LIFE COMPANY in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify LIFE COMPANY of any
such claim shall not relieve LIFE COMPANY from any liability which it may have
to the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, LIFE COMPANY shall be entitled to participate at
its own expense in the defense of such action. LIFE COMPANY also shall be
entitled to assume the defense thereof, with counsel satisfactory to the
Indemnified Party named in the action. After notice from LIFE COMPANY to such
Indemnified Party of LIFE COMPANY's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and LIFE COMPANY will not be liable to such Indemnified Party
under this Agreement for any legal or other expenses subsequently
10
<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
11
<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:
12
<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
13
<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.
14
<PAGE>
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.
15
<PAGE>
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.
16
<PAGE>
BT INSURANCE FUNDS TRUST
By:/s/ Elizabeth Russell
----------------------
Name: Elizabeth Russell
Title: Secretary
BANKERS TRUST COMPANY
By:/s/ Irene S. Greenburg
-----------------------
Name: Irene S. Greenburg
Title: Vice President
USAA LIFE INSURANCE COMPANY
By:/s/ Kenneth A. McClure
-----------------------
Name: KENNETH A. MCCLURE
Title: Senior Vice President
Life, Health & Marketing
17
<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
18
<PAGE>
Appendix B
This Appendix is an integral part of the Agreement to which it is
attached. Except as otherwise noted, defined terms used herein shall have the
same meaning as given them in the Agreement.
1. Equity 500 Index Fund
2. Small Cap Index Fund
3. EAFE(R) Equity Index Fund
19
<PAGE>
EXHIBIT 8(f)(ii)
EXPENSE ALLOCATION AGREEMENT
<PAGE>
Bankers Trust Company
130 Liberty Street, New York, New York 10006
Vinay Mendiratta
Vice President
Global Investment Management
Tel: 212-250-2884
Fax: 212-775-2189
April 30, 1998
Mr. Dwain Akins, Esq.
Assistant Vice President and
Assistant Secretary
Life & Health Insurance Counsel
USAA Life Insurance Company
General Counsel - C3 West
9800 Fredricksburg Road, C-3-W
San Antonio, TX 78288
Dear Dwain:
USAA Life Insurance Company ("Life Company") will invest in one or more series
funds (each a "Portfolio") of the BT Insurance Funds Trust ("Trust"), which will
serve as an underlying funding vehicle for certain variable annuity contracts
and variable life insurance policies (collectively, the "Contracts") issued by
Life Company, pursuant to a Fund Participation Agreement by and among the Life
Company, Trust and Bankers Trust Company, dated April 30, 1998. Bankers Trust
Company ("Bankers Trust") serves as the investment adviser to the Trust and in
such capacity provides investment advisory and administrative services to the
Trust and its Portfolios.
Life Company hereby agrees to provide the services enumerated herein on a
sub-administration basis to owners of Contracts ("Contract Owners") who are
beneficial owners of shares of each Portfolio. Such services shall consist of
the following:
1. Providing necessary personnel and facilities to establish and maintain
Contract Owner accounts and records.
2. Recording debits and credits to the accounts of Contract Owners.
3. Paying the proceeds of redemptions to Contract Owners either by check or
by wire.
4. Furnishing Fund prospectuses, statements of additional information,
proxy materials, annual and semi-annual reports to shareholders and
other communications from the Fund to Contract Owners, as provided in
Article 3.2 of the Participation Agreement.
<PAGE>
5. Performing such shareholder servicing as may be required, which shall
include but not be limited to, responding to questions regarding account
balances and other account inquiries.
6. Federal and state income tax withholding and reporting.
7. Providing such other assistance and services as may reasonably be
requested by the Fund.
In recognition of Life Company providing such services and the
administrative cost savings to the Portfolios and the Trust, the Bankers Trust
will pay Life Company the fees set forth in Exhibit A hereto ("Fees").
In the event that the investment advisory and/or administration fees paid
by the Portfolio to Bankers Trust are reduced by the Board of Trustees of the
Trust pursuant to an amendment of the applicable agreement, or, in the good
faith opinion of the Trust, based upon an opinion of counsel reasonably
acceptable to Life Company, such payments are, will or may be deemed to be in
contravention or violation of any law, rule, regulation, court decision or
order, or out-of-court settlement of actual or threatened litigation or
enforcement position of any regulatory body having jurisdiction over the Trust
(taken together, "Change in Law"), the Fees shall be adjusted accordingly to
conform to such Change in Law on terms and conditions deemed fair and equitable
by Bankers Trust, and acceptable to Life Company. No Fee adjustment of any
type, for any reason, shall take effect until agreed upon, in writing, by both
Bankers Trust and Life Company.
Bankers Trust shall give Life Company written notice 30 days prior to
seeking approval by the Board of Trustees of the Trust of (a) any increase in
the fees to be paid to Bankers Trust or (b) any reduction or elimination of
Bankers Trust's voluntary fee waiver as reflected in Exhibit B hereto.
Either party may terminate this Agreement, without penalty, on 60 days'
written notice to the other party; except that the Fees set forth in Exhibit A
shall continue as long as the assets underlying the Contracts issued by Life
Company are allocated to the Trust. Unless so terminated, this Agreement shall
continue in effect for so long as Bankers Trust, or its successor(s) in
interest, continues to perform in an advisory capacity for the Trust and for so
long as any Contract values or any monies attributable to Life Company are in
the Trust.
Each party hereto shall indemnify and hold harmless ("Indemnifying Party")
the other party and each of its officers, directors, trustees, employees, and
agents (and former officers, directors, trustees, employees, and agents) and
each person, if any, who controls such other party within the meaning of Section
15 of the Securities Act of 1933 (individually and collectively, "Indemnified
Party") from and against any and all losses, claims, damages, liabilities,
costs, and expenses (including reasonable attorneys' fees) ("Losses") arising
out of (i) any violation by the Indemnifying Party of any law, rule, regulation,
court order or enforcement position of any regulatory body having jurisdiction
over either party, (ii) the Indemnifying Party's performance of or failure to
perform its obligations under, or in connection with this Agreement, except that
2
<PAGE>
an Indemnifying Party shall have no liability to the extent such Losses result
from the willful misfeasance, bad faith, negligence, reckless disregard of
obligations or duties under this Agreement, or breach of this Agreement by an
Indemnified Party. In no event shall any party be liable for any special,
consequential, or incidental damages. The indemnification under this Agreement
is in addition to (and not duplicative of), and not in lieu of; any
indemnification provided under any Fund Participation Agreement entered into
between the parties.
If you are in agreement with the foregoing, please sign a copy and return
it to the undersigned.
Accepted and Agreed:
Bankers Trust Company USAA Life Insurance Company
By:/s/ Irene S. Greenberg By: /s/ Kenneth A. McClure
----------------------- ----------------------
IRENE S. GREENBURG KENNETH A. MCCLURE
Vice President Senior Vice President
Life, Health & Marketing
Date: May 1, 1998 Date: April 30, 1998
------------------- -----------------------
3
<PAGE>
Exhibit A
BT Insurance Funds Trust
Fees
- ----
For each following Portfolio, Bankers Trust agrees to pay Life Company a
quarterly amount that is equal on an annual basis to the specified
percentage of the average combined daily net assets of all of the shares of
the Portfolio held in the Life Company's segregated asset accounts pursuant
to the applicable Participation Agreement:
Portfolio Fees for Administrative Services
Equity 500 Index Fund
---------------------
all assets .13%
Small Cap Index Fund
--------------------
on first $200 million .15%
on the balance .20%
EAFE Equity Index Fund
----------------------
on first $200 million .15%
on the balance .20%
4
<PAGE>
Exhibit B
BT Insurance Funds Trust
Advisory and Other Fees; Bankers Trust's Voluntary Fee Waiver
The annual fees and waivers below are expressed as a percentage of the
average daily net assets of the applicable Portfolio.
Portfolio
Equity 500 Index Fund
- -------------------------
Advisory .20
Admin & Service .13
Other .21
Waiver/Reimb (.24)
----
Expense Ratio .30
Small Cap Index Fund
- -------------------------
Advisory .35
Admin & Service .13
Other .25
Waiver/Reimb (.28)
----
Expense Ratio .45
EAFE Equity Index Fund
- -------------------------
Advisory .45
Admin & Service .13
Other .27
Waiver/Reimb (.20)
----
Expense Ratio .65
5
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EXHIBIT 10
CONSENT OF KPMG LLP
[TO BE FILED BY AMENDMENT]
<PAGE>
EXHIBIT 17
PERSONS CONTROLLED BY
OR UNDER COMMON CONTROL WITH
THE REGISTRANT
<PAGE>
PERSONS CONTROLLED BY
OR UNDER COMMON CONTROL WITH
THE REGISTRANT
Below is a list of all persons directly or indirectly controlled by or under
common control with the Registrant and (i) the state of organization, (ii) the
basis of control, and (iii) the principal business for each entity (information
on each subsidiary is indented following information on the controlling owner):
1. UNITED SERVICES AUTOMOBILE ASSOCIATION ("USAA")
Texas reciprocal interinsurance exchange.
Organized to provide personal-line property and casualty insurance policies
to its members.
A. USAA CORPORATE ATTORNEY IN FACT, INC.
Delaware non-insurance corporation, wholly owned by USAA.
Organized to be the corporate attorney in fact of Reciprocal Exchange,
acquired by USAA on December 31, 1997.
B. GARRISON PROPERTY & CASUALTY ASSOCIATION
(Formerly Reciprocal Exchange)
Texas Reciprocal Interinsurance Exchange.
Organized to provide insurance coverage (personal-line property and
casualty policies) for persons not eligible for current USAA property
and casualty coverage.
2. USAA LIFE INSURANCE COMPANY
Texas corporation, wholly owned by USAA.
Organized to provide a complete line of life insurance services and products
to the general public.
3. USAA LIFE GENERAL AGENCY, INC.
Colorado corporation, wholly owned by USAA Life Insurance Company.
Organized to provide a complete line of life and health insurance products
to the general public on a brokerage basis.
4. USAA LIFE INSURANCE COMPANY OF NEW YORK
New York corporation, wholly owned by USAA Life Insurance Company
Organized to provide life insurance and annuity products to residents of New
York.
5. USAA GENERAL INDEMNITY COMPANY
Texas corporation, wholly owned by USAA.
Organized to provide (i) federal flood insurance to USAA members and former
dependents and (ii) automobile insurance to USAA members residing in
California.
6. USAA CASUALTY INSURANCE COMPANY
Florida corporation, wholly owned by USAA.
Organized to provide personal-line property and casualty insurance policies
to (i) non-dependent children of USAA members or (ii) residual market
policyholders under Automobile Insurance Plans of the various states. Also
provides automobile insurance for assigned risks, senior Foreign Officers of
the United States government and others.
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7. USAA COUNTY MUTUAL INSURANCE COMPANY
County Mutual Insurance Company (Texas) wholly-owned by USAA.
Organized to provide auto insurance to USAA Group eligible drivers who
reside in Texas.
8. USAA GENERAL AGENCY, INC.
Texas corporation, wholly owned by USAA.
Organized to act as a managing general insurance agency for property and
casualty insurance products offered by non-USAA companies. The services of
this company are available to the general public.
9. USAA PROPERTY & CASUALTY INSURANCE AGENCY, INC.
Texas corporation, wholly owned by USAA General Agency, Inc.
Organized to provide certain property and casualty personal-line coverages
not offered directly by USAA to USAA members, their dependents, and former
dependents.
10. USAA INSURANCE AGENCY, INC.
California corporation, wholly owned by USAA General Agency, Inc.
Organized to provide insurance coverage to USAA members and associate
members for selected coverages not offered by USAA.
11. USAA INSURANCE AGENCY, INC.
Alabama corporation, wholly owned by USAA General Agency, Inc.
Organized to provide insurance coverage to USAA members and associate
members for selected coverages not offered by USAA.
12. USAA INSURANCE AGENCY, INC.
Florida corporation, wholly owned by USAA General Agency, Inc.
Organized to provide insurance coverage to USAA members and associate
members for selected coverages not offered by USAA.
13. USAA INSURANCE AGENCY, INC.
Massachusetts corporation, wholly owned by USAA General Agency, Inc.
Organized to provide insurance coverage to USAA members and associate
members for selected coverages not offered by USAA.
14. USAA INSURANCE AGENCY, INC.
New Mexico corporation, wholly owned by USAA General Agency, Inc.
Organized to provide insurance coverage to USAA members and associate
members for selected coverages not offered by USAA.
15. USAA LIMITED
United Kingdom corporation, wholly owned by USAA.
Organized to provide USAA members who live in the United Kingdom with
automobile liability and property damage insurance which meets the
requirements of the British Road Traffic Act.
16. USAA FUNDING COMPANY
Delaware corporation, wholly owned by USAA.
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Organized to facilitate the acquisition of preferred stock issued by USAA
insurance companies.
17. USAA PROPERTY HOLDINGS, INC.
Delaware corporation, wholly owned by USAA.
Organized to invest in certain real estate limited partnerships, the asset
of which are comprised of housing units which qualify for significant
federal tax credits.
18. CAPITAL MANAGEMENT COMPANY
Delaware corporation, wholly-owned indirect subsidiary of USAA.
Organized to serve as a unitary savings and loan holding company of USAA
Federal Savings Bank.
19. USAA INFORMATION TECHNOLOGY COMPANY
Delaware corporation, wholly owned by USAA.
Organized to act as the corporate general partner in the administration and
management of the business operations of Information Technology, L.P.
20. USAA INFORMATION TECHNOLOGY, L.P.
Delaware limited partnership, wholly owned by USAA. USAA owns 99% as a
Limited Partner with the remaining 1% owned by USAA Information Technology,
L.P., as General Partner.
Organized to engage in the provision of information technology and related
services primarily to USAA and its subsidiary and affiliates.
21. USAA CAPITAL CORPORATION
Unitary Diversified Savings & Loan Company organized as a Delaware
corporation, wholly owned by USAA.
Organized to act as a holding company for all USAA non-insurance companies
(except USAA Funding Company and USAA Property Holdings, Inc., noted above)
and as a general purpose financing company for USAA, its subsidiaries and
affiliates.
22. USAA FINANCIAL SERVICES CORPORATION
Utah corporation, wholly owned by USAA Capital Corporation.
Organized as a Utah Industrial Loan Company.
23. HTO, INC.
Delaware corporation, wholly owned by USAA Capital Corporation.
Organized to own certain real property and mineral assets in the La Cantera
Development and other legally permissible corporate activities.
24. INSTITUTIONAL REALTY INVESTORS, INC.
Delaware corporation, wholly owned by USAA Capital Corporation.
Organized to acquire a geographically diverse portfolio consisting primarily
of industrial properties located in major metropolitan markets in the United
States. The corporation will offer shares of the common stock in the company
primarily to tax-qualified "employee pension benefit plans" covered by Title
I of ERISA.
25. USAA CAPITAL DEVELOPMENT, INC.
Delaware corporation, wholly owned by USAA Capital Corporation.
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Organized to engage in real estate investment, management and other legally
permissible corporate activities.
26. HAUSMAN ROAD WATER SUPPLY COMPANY
Texas non-profit corporation, wholly owned by USAA Capital Corporation.
Organized to operate a surface water project.
27. USAA FINANCIAL PLANNING NETWORK, INC.
Delaware corporation, wholly owned by USAA Capital Corporation.
Organized to provide financial planning services to the general public.
28. USAA INVESTMENT CORPORATION
Delaware corporation, wholly owned by USAA Capital Corporation.
Organized to serve as a holding company for USAA Investment Management
Company and USAA Transfer Agency Company.
29. USAA INVESTMENT MANAGEMENT COMPANY
(Formerly USAA Fund Management Company)
Delaware corporation, wholly owned by USAA Investment Corporation.
Organized to serve as the financial manager and investment advisor of the
certain mutual funds and as the exclusive underwriter and distributor of
their shares. It carries out the investment policies of the mutual funds,
manages their portfolios, markets their shares and provides certain
administrative services. This company also provides investment management
and advisory services for the benefit of USAA and its affiliated companies.
This company serves as broker-dealer for investment instruments (common
stock, preferred stock and corporate bonds) of publicly traded corporations
offered on major stock exchanges and offers discount brokerage services.
30. USAA TRANSFER AGENCY COMPANY
d/b/a USAA SHAREHOLDER ACCOUNT SERVICES
Delaware corporation, wholly owned by USAA Investment Corporation.
Organized to engage in the business of facilitating the prompt and accurate
clearance and settlement of securities transactions, to safeguard funds and
securities in its custody or control or for which it is responsible in
compliance with the provisions of the Securities and Exchange Act of 1934,
Section 17A.
31. USAA TRACO Service GmbH
German corporation, 80% owned by USAA Investment Management Company, and 20%
owned by USAA Transfer Agency Company.
No current corporate operations.
32. USAA ALLIANCE SERVICES COMPANY
(Formerly USAA Buying Services, Inc.)
Delaware corporation, wholly owned by USAA Capital Corporation.
Organized to engage in the business of wholesale and retail sales of goods
and to provide consumer-oriented and travel agency services to customers,
subscribers and the general public.
33. USAA MERCHANDISE SERVICES COMPANY
(Formerly USAA Alliance Services, Inc.)
Delaware corporation, wholly owned by the USAA Alliance Services Company
Organized to act as a corporate General Partner of USAA Alliance Services
L.P.
4
<PAGE>
34. USAA ALLIANCE SERVICES L.P.
(Formerly USAA Buying Services, L.P.)
Delaware limited partnership. USAA Merchandise Services Company owns a l%
interest as General Partner with the remaining 99% owned by USAA as Limited
Partner.
Organized to provide travel and discount buying services to its subscribers.
35. USAA FEDERAL SAVINGS BANK
Federally chartered savings association, wholly owned by USAA Capital
Corporation.
Organized to offer personal banking services to the general public.
36. USAA RELOCATION SERVICES, INC.
Texas corporation, wholly owned by USAA Federal Savings Bank.
Organized to provide nationwide counseling services for customers
contemplating moving and the sale or purchase of a home.
37. USAA SAVINGS BANK
(Formerly USAA Credit Card Bank)
Nevada Chartered Thrift Company, wholly owned by USAA Federal Savings Bank
Organized to engage in credit card operations and acceptance of deposit
accounts exceeding $100,000.
38. USAA FINANCIAL ADMINISTRATION COMPANY
Delaware corporation, USAA Federal Savings Bank owns 100% of the Class A
Common (voting) Stock and USAA owns 100% of the Class B (nonvoting) Stock.
Organized to act as General Partner of USAA Financial Partners Limited, L.P.
39. CAPITAL FINANCIAL RESOURCES COMPANY
Delaware corporation, USAA Federal Savings Bank owns 100% of the Class A
Common (voting) Stock and USAA owns 100% of the Class B Common (nonvoting)
Stock.
Organized to act as Limited Partner of USAA Financial Partners Limited, L.P.
40. USAA FINANCIAL PARTNERS LIMITED, L.P.
Delaware limited partnership. USAA Financial Administration Company owns 1%
of the partnership as General Partner and Capital Financial Resources
Company owns 99% as Limited Partner.
Organized to enable USAA Federal Savings Bank to continue to maintain low
cost funding sources, diversify its funding sources, manage interest rate
risk and more efficiently manage tax and other liabilities associated with
its credit card business.
41. LA CANTERA DEVELOPMENT COMPANY
Texas corporation, wholly owned by USAA Capital Corporation.
Organized to develop and sell land in northwest San Antonio, Texas.
42. LA CANTERA GROUP, LTD.
Texas limited partnership. La Cantera Development Company owns a 51%
interest as General Partner with the remaining 49% owned by Fiesta Texas
Showpark, Inc. as Limited Partner.
Organized to acquire, own, hold, develop, rezone, manage, operate, lease,
finance, mortgage, sell and otherwise deal with certain real property
located in San Antonio, Bexar County, Texas.
5
<PAGE>
43. FIESTA TEXAS THEMEPARK, LTD.
Texas limited partnership. La Cantera Group, Ltd. owns an 85.89% interest as
General Partner with the remaining 14. 11% owned by Fiesta Texas Showpark,
Inc.
Organized to acquire, own, hold, develop, rezone, manage, operate, lease,
finance, mortgage, sell and otherwise deal with a parcel of real property
located in San Antonio, Bexar County, Texas, and to operate the theme park
constructed on said parcel of property.
44. FIESTA TEXAS SHOWPARK, INC.
Delaware corporation, wholly owned by USAA Capital Corporation.
Organized for the purpose of acquiring, developing, owning, managing, and/or
disposing of real estate.
45. LA CANTERA HOSPITALITY, INC.
Delaware corporation, wholly owned by USAA Capital Corporation.
Organized to develop and own a hotel, resort, and golf course.
46. LA CANTERA RESORT, LTD.
Texas limited partnership. La Cantera Hospitality, Inc. owns 93% as a
Limited Partner with a non-affiliated entity owning the remaining 7% as
General Partner.
Organized to acquire, develop, own and operate a resort property located in
Bexar County, Texas.
47. LCWW PARTNERS JOINT VENTURE
Texas joint venture. La Cantera Resort, Ltd. owns 76.67% as a General
Partner with the remaining portion owned by a non-affiliated entity as
General Partner, both entities having an equal vote in the management of the
venture.
Organized to acquire, develop, own and operate a resort property in Bexar
County, Texas.
48. LA CANTERA COMMUNITY ORGANIZATION, INC.
Texas non-profit corporation, wholly owned by USAA Capital Corporation.
Organized to maintain the common areas of the La Cantera property on behalf
of the property owners and to provide a facility for assessments of the
different property owners.
49. USAA REAL ESTATE COMPANY
Delaware corporation, wholly owned by USAA Capital Corporation.
Organized to engage in the acquisition, development, ownership, and sale of
real estate and other types of property and securities by purchase, lease or
otherwise. Currently makes a wide variety of real estate and financial
services available to its affiliates, subsidiaries, and the general public.
50. USAA REAL ESTATE DEVELOPMENT COMPANY
Delaware corporation, wholly owned by USAA Real Estate Company.
Organized to engage in the development of various real estate projects
including but not limited to, the Retirement Community Project.
51. USAA REAL ESTATE MANAGMENT COMPANY
Delaware corporation, wholly owned by USAA Real Estate Company.
Organized to provide management services for properties owned by USAA Real
Estate Development Company.
6
<PAGE>
52. QUORUM REAL ESTATE SERVICE CORPORATION
d/b/a USAA REALTY COMPANY
Delaware corporation, wholly owned by USAA Real Estate Management Company.
Organized to manage USAA-owned real estate in Florida and the Southeast.
53. USAA PROPERTIES FUND, INC.
Delaware corporation, wholly owned by USAA Real Estate Company.
Organized to serve as General Partner of various real estate limited
partnerships involving USAA.
54. USAA PROPERTIES II, INC.
Delaware corporation, wholly owned by USAA Real Estate Company.
Organized to serve as General Partner of various real estate limited
partnerships involving USAA.
55. USAA PROPERTIES III, INC.
Texas corporation, wholly owned by USAA Real Estate Company.
Organized to serve as General Partner of various real estate limited
partnerships involving USAA.
56. USAA PROPERTIES IV, INC.
Texas corporation, wholly owned by USAA Real Estate Company.
Organized to serve as General Partner of various real estate limited
partnerships involving USAA.
57. USAA INVESTORS I, INC.
Texas corporation, wholly owned by USAA Real Estate Company.
Organized to serve as General Partner of various real estate limited
partnerships involving USAA.
58. USAA INVESTORS II, INC.
Texas corporation, wholly owned by USAA Real Estate Company.
Organized to serve as General Partner of various real estate limited
partnerships involving USAA.
59. LA PAZ, INC.
Texas corporation, wholly owned by USAA Real Estate Company.
Organized for the purpose of owning and managing an office building complex.
60. USAA HEALTH SERVICES, INC.
Delaware corporation, wholly owned by USAA Real Estate Company.
Organized to operate and manage the Park Lane West Health Center located in
San Antonio, Texas.
61. USAA REAL ESTATE EQUITIES, INC.
Delaware corporation. USAA Real Estate Company owns a 57.4% interest with
the remaining 42.6% held by numerous non-affiliated shareholders..
Organized as a real estate investment trust.
62. USAA EQUITY ADVISORS, INC.
Delaware corporation, wholly owned by USAA Real Estate Company.
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Organized to provide advisory services to USAA Real Estate Equities, Inc.
63. ALHAMBRA GABLES ONE, INC.
Delaware corporation, wholly owned by USAA Real Estate Company.
Organized to acquire certain property in Florida.
64. L.A. WILSHIRE ONE, INC.
Delaware corporation, wholly owned by USAA Real Estate Company.
Organized to acquire certain property in California.
65. USAA REAL ESTATE MID-WEST, INC.
Delaware corporation, wholly owned by USAA Real Estate Company.
Organized to acquire, develop, own, manage, and dispose of real estate.
66. LAS COLINAS MANAGEMENT COMPANY
Delaware corporation, wholly owned by USAA Real Estate Company.
Organized to acquire, develop, manage, and operate real estate.
67. USAA INCOME PROPERTIES LIMITED PARTNERSHIP
Delaware limited partnership. USAA Properties Fund, Inc. is the General
Partner.
Organized to invest in, acquire, conduct, develop, improve, hold, maintain,
manage, operate, lease, sell, dispose of certain properties and otherwise
deal with real estate, real estate improvements or interests in real estate
and real estate improvements, and to engage in any and all activities
related or incidental thereto.
68. USAA INCOME PROPERTIES III LIMITED PARTNERSHIP
Delaware limited partnership.
This partnership merged with American Industrial properties REIT effective
December 31, 1997.
69. USAA INCOME PROPERTIES IV LIMITED PARTNERSHIP
Texas limited partnership.
This partnership merged with American Industrial properties REIT effective
December 31, 1997.
70. USAA REAL ESTATE INCOME INVESTMENTS I LIMITED PARTNERSHIP
California limited partnership.
This partnership merged with American Industrial properties REIT effective
December 31, 1997.
71. USAA REAL ESTATE INCOME INVESTMENTS II LIMITED PARTNERSHIP
Texas limited partnership.
This partnership merged with American Industrial properties REIT effective
December 31, 1997.
72. USAA STRATUM EXECUTIVE CENTER Joint Venture
Texas joint venture. USAA Real Estate Company owns a 70% interest with the
remaining 30% owned by USAA Real Estate Development Company.
Organized to develop land situated in Travis County, Texas.
73. USGC JOINT VENTURE
Connecticut joint venture. USAA Real Estate Company owns a 70% interest.
Organized to acquire, own, finance, lease, operate and otherwise deal with
Windsor IX (a certain parcel of real estate) and to acquire, own, finance,
lease, operate and otherwise deal with Windsor X (a certain parcel
8
<PAGE>
of real estate) following the contribution of the Owners' equity interests
in Windsor X to the Joint Venture.
74. USAA REAL ESTATE LIMITED PARTNERSHIP
Texas limited partnership, wholly owned by USAA Real Estate Company.
Organized to (i) acquire, own, hold, develop, rezone, manage, operate,
lease, finance, mortgage, sell and otherwise deal with certain real estate
property; (ii) sell all or any portion of certain real estate property to
buyers, including Affiliates or any Partner; and (iii) conduct such other
activities as may be necessary, advisable, convenient or appropriate to
promote or conduct the business of the Partnership.
75. USAA CHELMSFORD ASSOCIATES
Texas joint venture. American Industrial Properties REIT owns a 55.84%
interest with the remaining 44.l6% owned by USAA Real Estate Company.
Organized to invest in, acquire, construct, develop, improve, maintain, and
operate the property and in connection with or incidental to the
accomplishment of said purpose to enter into any kind of activity and to
perform and carry out contracts.
76. COMBINED CAPITAL RESOURCES J.V.
Texas joint venture. USAA Real Estate Equities, Inc. owns 100% of the Joint
Venture.
Organized to acquire, develop, improve, maintain, operate, lease, loan money
and otherwise deal with certain property.
77. COLUMBUS CENTER ASSOCIATES, LTD.
(Formerly BPG/STRADLER ASSOCIATES, LTD.) Florida limited partnership.
Alhambra Gables One, Inc., a wholly owned subsidiary of USAA Real Estate
Company, is the General Partner.
Organized to invest in, hold, own, operate, maintain, improve, develop,
sell, exchange, lease, and otherwise use certain property or direct or
indirect interests therein, for profit and as an investment.
78. 5055 WILSHIRE LIMITED PARTNERSHIP
Texas limited partnership. The Partnership consists of the following
ownership percentages: USAA Real Estate Company 94%, USAA Properties II,
Inc. 1.6%, and the remaining 4% owned by L.A. Wilshire One, Inc.,
subsidiaries of USAA Real Estate Company.
Organized to develop, construct, own, hold, manage, operate, rent, maintain
and repair and otherwise deal with the improvements and project land and
own, hold, manage and operate, protect, preserve and enhance the value of
additional land.
79. WEST CHICAGO INDUSTRIAL, LTD.
Texas limited partnership. La Paz, Inc., owns a 99% interest with the
remaining l% owned by USAA Real Estate Midwest, Inc.
Organized to acquire, own, hold, develop, rezone, manage, operate, lease,
finance, mortgage, sell and otherwise deal with a certain parcel of real
property located in Chicago, Du Page County, Illinois.
80. CORAL GABLES ASSOCIATES
Florida partnership, Columbus Center Associates, Ltd. (Managing Partner)
owns 50% with the remaining 50% owned by International Business Machines
Corporation.
Organized to acquire, own, hold, develop, rezone, manage, operate, lease,
finance, mortgage, sell and otherwise deal with that certain parcel of real
property located in Coral Cables, Dade County, Florida.
9
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81. LAS COLINAS - USAA LIMITED PARTNERSHIP
Texas limited partnership. Las Colinas Management Company is the General
Partner and owns a 9% interest. USAA owns a 91% interest.
Organized to manage a resort complex and to develop a large tract of land
and the surrounding area in Irving, Texas.
82. USAA LIFE INVESTMENT TRUST (REGISTRANT)
Mutual fund underlying Separate Account of USAA Life funding variable
annuity insurance product, and organized as a Delaware business trust.
USAA Life Insurance Company, either directly or through the Separate Account
of USAA Life Insurance Company, currently owns a majority of certain series
of shares issued by the Registrant.
The Registrant's audited financial statements are incorporated by reference
into Part B of the Registrant's Form N-1A Registration Statement
("Registration Statement").
No financial statements of any other company listed above are filed with the
Registrant's Statement, as they are not required to be so filed.
83. SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY
Investment account organized under the laws of the State of Texas.
USAA Life Insurance Company is the depositor.
84. LIFE INSURANCE SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY
Investment account organized under the laws of the State of Texas.
USAA Life Insurance Company is the depositor.
10
