<PAGE>
Registration Nos.: 33-82268 and
811-8670
As filed with the Securities and Exchange Commission
on April 27, 2000.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 7 X
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 8 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
CYNTHIA A. TOLES, ESQ.
DWAIN A. AKINS, ESQ.
Life & Health Insurance Counsel
USAA Life Insurance Company
9800 Fredericksburg Road, C-3-W
San Antonio, Texas 78288
(Name and Address of Agents for Service)
Copies to:
GARY O. COHEN, ESQ.
Freedman, Levy, Kroll & Simonds
1050 Connecticut Avenue, N.W.
Washington, D.C. 20036
Exhibit Index on Page ___
Page 1 to ___
<PAGE>
Approximate Date of Proposed Public Offering: Continuous.
It is proposed that this filing will become effective (check the appropriate
box):
[_] Immediately upon filing pursuant to paragraph (b) of Rule 485
[X] On May 1, 2000 pursuant to paragraph (b) of Rule 485
[_] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[_] On (date) pursuant to paragraph (a)(1) of Rule 485
If appropriate, check the following:
[_] This post-effective amendment designates a new effective date for
previously filed post-effective amendment.
Title of Securities Being Registered: Units of Interest in Separate Account of
USAA Life Insurance Company under Flexible Premium Deferred Combination Fixed
and Variable Annuity Contract.
<PAGE>
P r o s p e c t u s
[LOGO OF USAA]
USAA LIFE INSURANCE COMPANY
VARIABLE ANNUITY
MAY 1, 2000
<PAGE>
USAA Life Insurance Company
Variable Annuity
<TABLE>
<CAPTION>
Table of Contents
Section
- -------
<S> <C>
A. Flexible Premium Deferred Combination
Fixed and Variable Annuity Contract Prospectus ....................... 3A-38A
B. USAA Life Investment Trust Prospectus.................................
C. Scudder Variable Life Investment Fund Prospectus
(Capital Growth Portfolio)............................................
D. Alger American Fund Prospectus
(Alger American Growth Portfolio).....................................
E. Deutsche Asset Management VIT Funds* Prospectuses.....................
(Deutsche VIT Equity 500 Index Fund)..................................
(Deutsche VIT Small Cap Index Fund)...................................
(Deutsche VIT EAFE(R) Equity Index Fund)..............................
</TABLE>
*Formerly known as BT Insurance Funds Trust.
1
<PAGE>
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2
<PAGE>
VARIABLE ANNUITY
Prospectus
May 1, 2000
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
Deutsche Asset Management VIT Funds*
-----------------------------------
Deutsche VIT Equity 500 Index Fund
Deutsche VIT Small Cap Index Fund
Deutsche VIT EAFE(R) Equity Index Fund
*Formerly known as BT Insurance Funds Trust.
USAA Life ("We") have filed a Statement of Additional Information, dated May 1,
2000, with the Securities and Exchange Commission ("SEC"). It contains more
information about the Contract and is incorporated herein by reference, which
means it is legally part of this Prospectus. Its table of contents appears on
page 38A. 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 USAA Federal Savings
Bank, are not insured by the Federal Deposit Insurance
Corporation ("FDIC") or any other government agency, are subject
IMPORTANT to investment risks, and may lose value.
NOTICES
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>
<CAPTION>
- -----------------
TABLE OF CONTENTS
- -----------------
<S> <C> <C>
Index of Important Terms....................................... 5A
The Contract at a Glance....................................... 6A
How the Contract Works......................................... 8A
Expenses....................................................... 9A
Contract Features Investment Choices............................................. 11A
Special Services............................................... 13A
Automatic Payment Plan ..................................... 14A
Dollar Cost Averaging Program............................... 14A
Systematic Withdrawal Program............................... 14A
Your Contract Value............................................ 14A
Annuity Benefits............................................... 15A
Death Benefits................................................. 18A
How Do I...
... Contact USAA Life......................................... 19A
... Buy a Contract............................................ 19A
... Invest More Money......................................... 19A
... Access My Money........................................... 19A
Transactions ... Change My Investment Choices.............................. 20A
... Change My Premium Allocations............................. 20A
... Change My Annuity Date.................................... 20A
... Change My Annuitant....................................... 21A
... Change My Beneficiary..................................... 21A
... Transfer or Assign Ownership.............................. 21A
... Place a Telephone Request................................. 21A
... Cancel My Contract during the Free Look................... 21A
... Keep Track of My Investments.............................. 22A
... Start Receiving Annuity Payments.......................... 22A
... Report a Death............................................ 23A
Processing Dates............................................... 23A
Postponement of Payments....................................... 24A
More Information About...
...USAA Life................................................... 25A
...The Separate Account........................................ 25A
Other Information ...The Funds................................................... 25A
...The Contract................................................ 26A
...Charges and Deductions...................................... 27A
Tax Information................................................ 30A
Financial Information.......................................... 33A
Performance Information........................................ 35A
Contents of Statement of Additional Information................ 38A
</TABLE>
CONTRACT FEATURES 4A
<PAGE>
- ------------------------
INDEX OF IMPORTANT TERMS
- ------------------------
<TABLE>
<CAPTION>
Term Page
- ---- ----
<S> <C>
Accumulation Unit ......................................................... 15A
Annuitant ................................................................. 9A
Annuity Date .............................................................. 8A
Annuity Unit .............................................................. 16A
Beneficiary ............................................................... 9A
Contract .................................................................. 3A
Contract Year.............................................................. 14A
Distribution Option........................................................ 15A
Effective Date............................................................. 8A
Fixed Annuity Payments .................................................... 16A
Fixed Fund Account ........................................................ 13A
Fixed Fund Account Value .................................................. 14A
Free Look ................................................................. 6A
Fund ...................................................................... 3A
General Account ........................................................... 13A
Nonqualified Plan ......................................................... 8A
Proof of Death ............................................................ 23A
Qualified Plan ............................................................ 8A
Variable Annuity Payments ................................................. 16A
Variable Fund Account ..................................................... 12A
Variable Fund Account Value................................................ 15A
</TABLE>
5A CONTRACT FEATURES
<PAGE>
- ------------------------
THE CONTRACT AT A GLANCE
- ------------------------
The following is a snapshot of the Contract. Please read the remainder of this
Prospectus for more information.
- --------------------------------------------------------------------------------
Flexible You can purchase a Contract with as little as $1,000. You
Payments 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 $1,000. In summary:
Minimum initial payment: $1,000
Minimum subsequent payment: $ 100
Minimum account size: $1,000
Lower minimums apply to United Services Automobile
Association ("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"). Your initial premium payment allocated to any of
the Variable Fund Accounts is invested in the USAA Life
Money Market Variable Fund Account during the Free Look
Period plus 5 calendar days. (See "Processing Dates- Special
Processing" in this Prospectus.)
- --------------------------------------------------------------------------------
Expenses You will bear the following expenses:
. 0.75% total separate account annual fees (as a
percentage of average 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 The Contract offers 13 investment choices including:
Choices
. 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, please refer to
"Performance Information" or call us for more current
information.
- --------------------------------------------------------------------------------
CONTRACT FEATURES 6A
<PAGE>
- --------------------------------------------------------------------------------
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:
. the value of your Contract ("Contract Value") on
the date we receive proof of death, or
. 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. (See
"How Do I Change My Investment Choices?")
- --------------------------------------------------------------------------------
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. (See "How Do I
Access My Money?")
- --------------------------------------------------------------------------------
7A CONTRACT FEATURES
<PAGE>
- ----------------------
HOW THE CONTRACT WORKS
- ----------------------
The Contract basically works in two ways.
1st, 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.
2nd, 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 under "Annuity
Benefits - Distribution Options." 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 4 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 individual retirement annuity ("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.
Effective Accumulation
Date Phase Annuity Date Distribution Phase
You save for retirement ?
You buy You start You can Or you can receive
a Contract receiving receive annuity payments
annuity annuity for as long as
payments or payments you live
receive a lump for a set
sum payment period
CONTRACT FEATURES 8A
<PAGE>
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 About - 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.
- ---------
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
"More Information About - Charges and Deductions." For more information about
Fund expenses, see the prospectuses for the Funds.
Transaction Expenses
- --------------------
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
Annual Contract Fee
- -------------------
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%
=====
9A CONTRACT FEATURES
<PAGE>
Annual Expenses of the Funds (as a percentage of average net assets)(4)
- ----------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Other Expenses
After Total Fund
Management Expense Annual
Name of Variable Fund Account Fees Reimbursement/(5)/ Expenses/(5)/
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
USAA Life Money Market .20% .15% .35%
- ---------------------------------------------------------------------------------------------
USAA Life Income .20 .15 .35
- ---------------------------------------------------------------------------------------------
USAA Life Growth and Income .20 .15 .35
- ---------------------------------------------------------------------------------------------
USAA Life World Growth .20 .45 .65
- ---------------------------------------------------------------------------------------------
USAA Life Diversified Assets .20 .15 .35
- ---------------------------------------------------------------------------------------------
USAA Life Aggressive Growth .50 .20 .70
- ---------------------------------------------------------------------------------------------
USAA Life International .65 .45 1.10
- ---------------------------------------------------------------------------------------------
Scudder VLIF Capital Growth Portfolio .46 .03 .49
- ---------------------------------------------------------------------------------------------
Alger American Growth Portfolio .75 .04 .79
- ---------------------------------------------------------------------------------------------
Deutsche VIT Equity 500 Index(6) .20 .10 .30
- ---------------------------------------------------------------------------------------------
Deutsche VIT Small Cap Index(6) .35 .10 .45
- ---------------------------------------------------------------------------------------------
Deutsche VIT EAFE(R)Equity Index(6) .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. (See "Fixed Fund Account Withdrawal
Charge.")
(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 Fund's most recently
completed fiscal year. These expenses are reflected in the daily price of
each Fund's shares.
(5) USAA Life has agreed to reimburse 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 reimburse
these expenses, the total Fund annual expenses of the USAA Life Money
Market, Income, Growth and Income, World Growth, Diversified Assets,
Aggressive Growth, and International Funds for the 1999 fiscal year would
have been: .56%, .68%, .37%, .75%, .50%, .94% and 1.29%, respectively.
Bankers Trust has agreed to reimburse the Deutsche VIT Equity 500 Index
Fund, Deutsche VIT Small Cap Index Fund, and Deutsche VIT EAFE(R) Equity
Index Fund to the extent their total operating expenses exceed 0.30%,
0.45%, and 0.65%, of the average daily net assets of each Fund,
respectively. Bankers Trust may stop reimbursing these Funds at any time.
Without this reimbursement arrangement, the expenses for the 1999 fiscal
year for the Deutsche VIT Equity 500 Index Fund, Deutsche VIT Small Cap
Index Fund, and Deutsche VIT EAFE(R) Equity Index Fund would have been
.43%, 1.18% and 1.15% respectively.
(6) Formerly known as BT Equity 500 Index Fund, BT Small Cap Index Fund, and BT
EAFE(R)Equity Index Fund.
CONTRACT FEATURES 10A
<PAGE>
Example:
The example below shows how much you would pay in expenses for each $1,000 of
premium payment for each period shown if you assume:
. a $1,000 investment in a Variable Fund Account,
. a 5% annual return is earned,
. you surrendered your Contract or chose to receive annuity payments at
the end of each time period,
. a $46,850 average Contract account size to express the $30 Contract
Maintenance Charge as a percentage, and
. Fund expenses, after any expense reimbursement.
Please remember that you are looking at an example. Your actual expenses may be
lower or greater than those shown. Please note there are no fees for withdrawals
from a Variable Fund Account.
- ----------------------------------------------------------------------------
Name of Variable Fund Account 1 yr. 3 yrs. 5 yrs. 10 yrs.
- ----------------------------------------------------------------------------
USAA Life Money Market $12 $38 $66 $150
- ----------------------------------------------------------------------------
USAA Life Income 12 38 66 150
- ----------------------------------------------------------------------------
USAA Life Growth and Income 12 38 66 150
- ----------------------------------------------------------------------------
USAA Life World Growth 15 47 83 189
- ----------------------------------------------------------------------------
USAA Life Diversified Assets 12 38 66 150
- ----------------------------------------------------------------------------
USAA Life Aggressive Growth 16 49 86 195
- ----------------------------------------------------------------------------
USAA Life International 20 62 108 247
- ----------------------------------------------------------------------------
Scudder VLIF Capital Growth Portfolio 13 42 74 168
- ----------------------------------------------------------------------------
Alger American Growth Portfolio 16 52 91 207
- ----------------------------------------------------------------------------
Deutsche VIT Equity 500 Index* 11 36 63 144
- ----------------------------------------------------------------------------
Deutsche VIT Small Cap Index* 13 41 72 163
- ----------------------------------------------------------------------------
Deutsche VIT EAFE(R)Equity Index* 15 47 83 189
- ---------------------------------------------------------------------------
* Formerly known as BT Equity 500 Index Fund, BT Small Cap Index Fund, and BT
EAFE(R) Equity Index Fund.
Accumulation Unit Data
- ----------------------
The accumulation unit data for the Variable Fund Accounts appear under the
heading "Financial Information" in this Prospectus.
- ------------------
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%. Your total allocation of premium payment must equal 100%. During the
Distribution Phase, you may base your annuity payments on any 4 Variable Fund
Accounts and our Fixed Fund Account.
11A CONTRACT FEATURES
<PAGE>
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 FUND ADVISER
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
USAA Life Highest level of current income consistent
Money Market with preservation of capital and maintenance
of liquidity
- -----------------------------------------------------------------------------
USAA Life Maximum current income without undue risk to
Income principal
- -----------------------------------------------------------------------------
USAA Life Capital growth and current income USAA IMCO
Growth and Income 9800 Fredericksburg Road
- ----------------------------------------------------------------------------- San Antonio, Texas 78288
USAA Life Long-term capital appreciation
World Growth
- -----------------------------------------------------------------------------
USAA Life Long-term capital growth, consistent with preservation
Diversified Assets of capital and balanced by current income
- -----------------------------------------------------------------------------
USAA Life Appreciation of capital
Aggressive Growth
- -----------------------------------------------------------------------------
USAA Life Capital appreciation with current income as a
International secondary objective
- ----------------------------------------------------------------------------------------------------------------------------------
Scudder VLIF Maximize long-term capital growth Scudder
Capital Growth Two International Place Boston,
Portfolio Massachusetts 02110
Class A Shares
- ----------------------------------------------------------------------------------------------------------------------------------
Alger American Long-term capital appreciation Alger Management
Growth Portfolio 1 World Trade Center, Ste 9333
New York, New York 10048
- ----------------------------------------------------------------------------------------------------------------------------------
Deutsche VIT To match, as closely as possible, before the
Equity 500 Index* deduction of expenses, the performance of the
Standard & Poor's 500 Composite Stock Price
Index (the "S&P 500 Index"), which emphasizes Bankers Trust
stocks of large U.S. companies 130 Liberty Street
New York, New York 10006
- -----------------------------------------------------------------------------
Deutsche VIT Small To match, as closely as possible, before the
Cap Index* deduction of expenses, the performance of the
Russell 2000 Small Stock Index (the "Russell
2000 Index"), which emphasizes stocks of small
U.S. companies
- -----------------------------------------------------------------------------
Deutsche VIT To match, as closely as possible, before the
EAFE(R) Equity deduction of expenses, the performance of the
Index* Morgan Stanley Capital International ("MSCI")
EAFE(R)Index ("EAFE(R) Index")
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Formerly known as BT Equity 500 Index Fund, BT Small Cap Index Fund, and BT
EAFE(R) Equity Index Fund.
CONTRACT FEATURES 12A
<PAGE>
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.
Fixed Fund Account
- ------------------
The Fixed Fund Account is not available to residents of Maryland, Massachusetts,
Pennsylvania, Oregon, or Washington. 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.")
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 us at
800-531-4265 or write to us at the 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.
13A CONTRACT FEATURES
<PAGE>
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 USAA Life 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.
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 6 transfers per
Contract Year. A "Contract Year" is the 12-month period following the Effective
Date and each 12-month period thereafter.
Currently, there is no charge for this program. We reserve the right to suspend,
terminate or modify the offering of the program.
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;
. plus accumulated interest;
CONTRACT FEATURES 14A
<PAGE>
. plus any amounts transferred from the Variable Fund Accounts to the
Fixed Fund Account;
. less the Fixed Fund Account portion of any Contract Maintenance Charges;
. less any withdrawals or transfers of value; and
. less any applicable premium tax.
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.
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:
. calculate the change in market value from the previous day for the
underlying Fund.
. subtract insurance charges such as mortality and expense risk charge and
administrative charge.
. 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 2 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 your Contract Value in 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 95/th/ birthday. The Annuity Date must also be at least 6
months after the Effective Date of your Contract, 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.
15A CONTRACT FEATURES
<PAGE>
Types of Annuity Payments
- -------------------------
You may choose:
. fixed annuity payments,
. variable annuity payments,
. a combination of fixed and variable annuity payments, or
. systematic withdrawals.
"Fixed annuity payments" are monthly payments of fixed amount that we guarantee
for the dollar amount and 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 select. We do not guarantee the amount of
variable annuity payments.
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 your choice of a Distribution
Option.
If you choose a fixed annuity payment, the type of Distribution Option you
choose will determine the amount of each fixed annuity payment. Your Contract
contains tables showing examples of the monthly annuity payment that you would
receive for each $1,000 of Contract Value you apply to each of the Distribution
Options.
If you choose a variable annuity payment, we will calculate your first annuity
payment using the amount of Contract Value you decide to apply and the
Distribution Option table of the option you choose. We will use a unit of
measure called an "Annuity Unit" to determine your subsequent payments. The
amount of each subsequent variable annuity payment will equal the product
of:
. the number of Annuity Units credited to you multiplied by
. the value of each Annuity Unit ("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 selected. 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
first payment. The number of Annuity Units for each Variable Fund Account will
remain constant thereafter. Your subsequent variable annuity payments will vary
as the Annuity Unit Value for each Variable Fund Account changes from month to
month.
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:
. the performance of the corresponding Funds (including any dividends or
capital gains distributions);
. any charges or credits for any income or other taxes relating to the
Variable Fund Account operation;
. Separate Account charges; and
. 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.
CONTRACT FEATURES 16A
<PAGE>
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, you may not change your
Distribution Option. However, if you are receiving variable annuity payments
under a Distribution Option that is not based on the life of the Annuitant, you
may receive a lump sum payment equal to the present value of any future variable
annuity payments remaining under that Distribution Option. The lump sum payment
will be determined by discounting the value of future payments at a rate of 3%.
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 out of
the Fixed Fund Account and/or Variable Fund Accounts. A Fixed Fund Account
withdrawal charge may apply under Option 6.
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.
- --------------------------------------------------------------------------------
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 Annuity payments for a certain period of time
a Certain Period Guaranteed even if the Annuitant dies before that period
of time has expired.
- --------------------------------------------------------------------------------
Option 3
Joint and Survivor Life Annuity payments for as long as the Annuitant
Income 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.
- -------------------------------------------------------------------------------
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,
semiannual, or annual payments made over the
life expectancy of the Annuitant or a shorter
period of time. (See "Special Services -
Systematic Withdrawal Program.")
- -------------------------------------------------------------------------------
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.
17A CONTRACT FEATURES
<PAGE>
- --------------
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:
. the Contract Value on the date we receive proof of death; or
. 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:
. 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 5 years after your death.
. 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:
. assume ownership as the Annuitant and defer distribution until the
Annuity Date, or
. 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.
. 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 5 years after your death.
. 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 5 years after
your death.
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:
. continue to receive the same payments as the Annuitant; or
. if permitted under the Distribution Option, receive higher payments, but
over a shorter period of time, than the Annuitant was receiving; or
. if permitted under the Distribution Option, take full distribution of
the remaining value at the Annuitant's death.
CONTRACT FEATURES 18A
<PAGE>
- ------------
HOW DO I...?
- ------------
...Contact USAA Life
-----------------
You may contact USAA Life by calling us at 1-800-531-2923 for sales or
1-800-531-4265 for service or by writing to us at 9800 Fredericksburg Road, San
Antonio, Texas 78288.
...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 shown above. 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 2 days after we receive it. If your application is not
complete, or is incorrectly completed, we will ask you to complete it within 5
days after we receive it. If we do not receive a correctly completed application
within this 5-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 2
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:
-----------------------------------------------------------------
Minimum Minimum
Type of Plan Initial Premium Subsequent Premium
-----------------------------------------------------------------
Nonqualified Annuity $1,000* $100*
-----------------------------------------------------------------
IRA and SEP-IRA $100 $50*
-----------------------------------------------------------------
SARSEP-IRA $25 $25
-----------------------------------------------------------------
TSA or ORP $50 $50
-----------------------------------------------------------------
* Employees of any of the USAA Group of Companies who purchase the Contract may
make an initial premium payment of $500 for Nonqualified Annuities, and
minimum subsequent premium payments by payroll deduction in an amount not
less than $25 for Nonqualified Annuities, 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
shown above. We will allocate them among the various Fixed and Variable Fund
Accounts in the same way as the initial premium payment until you change your
premium allocation. 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 1-800-531-4265 or send us a written
request. Unless you are withdrawing all of your Contract Value, you must specify
the Fixed and/or Variable Fund Accounts that
19A TRANSACTIONS
<PAGE>
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 amount
you withdraw from the Fixed Fund Account. (See "Charges and Deductions - Fixed
Fund Account Withdrawal Charge.") 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.") The following
restrictions apply during the Accumulation Phase:
1. You may make 6 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 4 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 us at 1-800-531-4265 or by sending us a written request. 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 us a written request at least 30 days
before the Annuity Date.
TRANSACTIONS 20A
<PAGE>
- ------------
HOW DO I...?
- ------------
...Change My Annuitant
You may change your Annuitant by sending us a written request. We must receive
your request at least 15 days before the Annuity Date. The change will take
effect as of the business day we receive your request.
...Change My Beneficiary
---------------------
During the Annuitant's life, you may change your Beneficiary by sending a
written request to us. 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. 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:
. name,
. USAA number or Contract number, and
. 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 during the Free Look
---------------------------------------
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.
21A TRANSACTIONS
<PAGE>
- ------------
HOW DO I...?
- ------------
...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, periodic reports for the Separate Account, and any other
information that the law requires us to send to you.
You now have access to information about your Contract 24-hours a day, 7 days a
week through USAA's Touchline(R).
Touchline(R) provides a fast, convenient way to find out:
. your total Contract Value,
. a listing of Variable Fund Accounts and current Accumulation Unit
Values, and
. your last payment and/or withdrawal.
You may access Touchline(R) by using your touch-tone phone and dialing
1-800-531-5433. You will need your USAA number or Social Security number and
your USAA PIN (the unique personal identification number you use for all USAA
Touchline(R) services and usaa.com or the last 4 digits of your Social Security
number).
...Start Receiving Annuity Payments
--------------------------------
To receive annuity payments, you must notify us in writing at least 30 days
before the Annuity Date of:
. 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 10th 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.
TRANSACTIONS 22A
<PAGE>
- ------------
HOW DO I...?
- ------------
...Report a Death
--------------
To report a death, you (or someone else) must notify us in writing. 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.
- ----------------
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:
. any day when the Funds do not compute the value of their shares; or
. 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.
23A TRANSACTIONS
<PAGE>
Special Processing
- ------------------
Initial Premium Payments
. If your initial premium payment accompanies a completed application, we
will credit your payment within 2 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 2 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
Variable Fund Account on the Effective Date. Your premium will remain in
the USAA Life Money Market Variable Fund Account for the Free Look
Period plus 5 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.
- ------------------------
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 6
months from the business day we receive your written or telephone request.
TRANSACTIONS 24A
<PAGE>
- --------------------------
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 of the United States (except New York) and the District of Columbia. On a
consolidated basis prepared in accordance with Generally Accepted Accounting
Principles ("GAAP"), we had total assets of $8,609,414,000 on December 31, 1999.
We are a wholly owned subsidiary of USAA, a diversified financial services
organization. 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:
. 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. These assets are the shares in the
underlying Funds. 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
---------
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 Contract, 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
Any dividends or capital gain distributions paid on a Fund's shares are
automatically reinvested 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 USAA
Life Money Market Fund, but also increase the number of outstanding shares of
the Fund. This means the overall value of the Fund remains unchanged for any
dividends or distributions. Your value in the corresponding Variable Fund
Account also does not change as a result of any dividends or distributions.
25A OTHER INFORMATION
<PAGE>
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, based
on SEC rules or other authority, that we may vote such shares in our own
discretion. None of the Funds holds 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:
. waive a provision of the Contract, or
. 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.
OTHER INFORMATION 26A
<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:
. 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
. 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.
27A OTHER INFORMATION
<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. 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.
OTHER INFORMATION 28A
<PAGE>
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
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 Charge
----------------------------------------------------------------
less than 1 7%
----------------------------------------------------------------
1 6%
----------------------------------------------------------------
2 5%
----------------------------------------------------------------
3 4%
----------------------------------------------------------------
4 3%
----------------------------------------------------------------
5 2%
----------------------------------------------------------------
6 1%
----------------------------------------------------------------
7 or more 0%
----------------------------------------------------------------
The Fixed Fund Account Withdrawal Charge does not apply to the Variable Fund
Accounts.
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 7 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 7 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.
29A OTHER INFORMATION
<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 full withdrawal, discussed immediately above.
OTHER INFORMATION 30A
<PAGE>
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.
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).
. 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
contract 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.
31A OTHER INFORMATION
<PAGE>
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 Contract 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.
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).
. the Texas Optional Retirement Program ("ORP").
. State and Local Government and Tax-Exempt Organization Deferred
Compensation Plans ("457 Plans"). Under 457 Plans, employees may defer
a portion of their compensation without paying taxes until
distributed. Distributions are restricted until: (1) age 70 1/2, (2)
termination of employment, or (3) an unforeseen emergency. The
deferred compensation and related earnings are the property of the
employer, subject only to the claims of the employer's general
creditors (including the employees) until distributed.
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.
OTHER INFORMATION 32A
<PAGE>
- ---------------------
FINANCIAL INFORMATION
- ---------------------
The financial statements for the Separate Account appear in its Annual Report.
USAA Life's 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 1-800-531-2923. 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 tables 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>
- --------------------------------------------------------------------------------------------------------------------------------
USAA Life USAA Life USAA Life USAA Life USAA Life
Fund Account Money USAA Life Growth World Diversified Aggressive USAA Life
Name Market Income And Income Growth Assets Growth International
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1999
- --------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit $1.227534 $13.262741 $23.296591 $23.209674 $19.192009 $26.991318 $13.269162
Value
- --------------------------------------------------------------------------------------------------------------------------------
Number of Accum. 25,382 1,208 3,598 1,003 2,072 789 168
Units (000)
- --------------------------------------------------------------------------------------------------------------------------------
December 31, 1998
- --------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit $1.178565 $14.089499 $20.468785 $17.860722 $17.974654 $13.993064 $10.417977
Value
- --------------------------------------------------------------------------------------------------------------------------------
Number of Accum. 18,760 1,280 3,697 1,066 1,841 317 153
Units (000)
- --------------------------------------------------------------------------------------------------------------------------------
December 31, 1997
- --------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit $1.127755 $13.002940 $19.287258 $16.144375 $16.518656 $11.735078 $10.113861
Value
- --------------------------------------------------------------------------------------------------------------------------------
Number of Accum. 13,416 545 3,242 1,168 1,401 197 153
Units (000)
- --------------------------------------------------------------------------------------------------------------------------------
December 31, 1996
- --------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit $1.082816 $11.785992 $15.432048 $14.314911 $13.844197 - -
Value
- --------------------------------------------------------------------------------------------------------------------------------
Number of Accum. 10,383 430 1,515 692 696 - -
Units (000)
- --------------------------------------------------------------------------------------------------------------------------------
December 31, 1995
- --------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit $1.040729 $11.848795 $12.579981 $11.947438 $12.243941 - -
Value
- --------------------------------------------------------------------------------------------------------------------------------
Number of Accum. 5,478 89 205 161 86 - -
Units (000)
- --------------------------------------------------------------------------------------------------------------------------------
Starting Date*
- --------------------------------------------------------------------------------------------------------------------------------
Accumulation Unit
Value $ 1.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
- --------------------------------------------------------------------------------------------------------------------------------
</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 Deutsche VIT Equity 500 Index Fund, the
Deutsche VIT Small Cap Index Fund, and the Deutsche VIT EAFE(R) Equity Index
Fund, was February 6, 1995. The starting date for the USAA Life Aggressive
Growth Fund and USAA Life International Fund was May 1, 1997. The starting
date for the Deutsche VIT Equity 500 Index, Deutsche VIT Small Cap Index and
the Deutsche VIT EAFE(R) Equity Index Fund Accounts was May 1, 1998.
33A OTHER INFORMATION
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Scudder VLIF Alger American Deutsche VIT Deutsche VIT Deutsche VIT
Fund Account Capital Growth Growth Equity 500 Small Cap EAFE(R)Equity
Name Portfolio Portfolio Index** Index** Index**
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1999
- ----------------------------------------------------------------------------------------------------------------------
Accumulation Unit $32.816021 $35.583778 $13.147788 $10.526480 $13.154856
Value
- ----------------------------------------------------------------------------------------------------------------------
Number of Accum. 1,837 2,885 2,317 441 106
Units (000)
- ----------------------------------------------------------------------------------------------------------------------
December 31, 1998
- ----------------------------------------------------------------------------------------------------------------------
Accumulation Unit $24.448446 $26.806157 $11.003536 $8.825971 $10.386978
Value
- ----------------------------------------------------------------------------------------------------------------------
Number of Accum. 1,543 2,053 1,136 257 55
Units (000)
- ----------------------------------------------------------------------------------------------------------------------
December 31, 1997
- ----------------------------------------------------------------------------------------------------------------------
Accumulation Unit $19.989715 $18.239579 - - -
Value
- ----------------------------------------------------------------------------------------------------------------------
Number of Accum. 1,125 1,722 - - -
Units (000)
- ----------------------------------------------------------------------------------------------------------------------
December 31, 1996
- ----------------------------------------------------------------------------------------------------------------------
Accumulation Unit $14.894774 $14.672583 - - -
Value
- ----------------------------------------------------------------------------------------------------------------------
Number of Accum. 689 1,639 - - -
Units (000)
- ----------------------------------------------------------------------------------------------------------------------
December 31, 1995
- ----------------------------------------------------------------------------------------------------------------------
Accumulation Unit $12.543192 $13.095503 - - -
Value
- ----------------------------------------------------------------------------------------------------------------------
Number of Accum. 93 630 - - -
Units (000)
- ----------------------------------------------------------------------------------------------------------------------
Starting Date*
- ----------------------------------------------------------------------------------------------------------------------
Accumulation Unit $ 10.00 $ 10.00 $ 10.00 $ 10.00 $ 10.00
Value
- ----------------------------------------------------------------------------------------------------------------------
</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 Deutsche VIT Equity 500 Index Fund, the
Deutsche VIT Small Cap Index Fund, and the Deutsche VIT EAFE(R) Equity Index
Fund, was February 6, 1995. The starting date for the USAA Life Aggressive
Growth Fund and USAA Life International Fund was May 1, 1997. The starting
date for the Deutsche VIT Equity 500 Index, Deutsche VIT Small Cap Index and
the Deutsche VIT EAFE(R) Equity Index Fund Accounts was May 1, 1998.
** Formerly known as BT Equity 500 Index Fund, BT Small Cap Index Fund, and BT
EAFE(R) Equity Index Fund.
OTHER INFORMATION 34A
<PAGE>
- -----------------------
PERFORMANCE INFORMATION
- -----------------------
Yield and Total Return
- ----------------------
We may advertise the yields and total returns of the 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 USAA Life Money Market Variable Fund Account, which
is calculated similarly but, when annualized, the income earned by an investment
in the USAA Life 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
- -----------------------
We may compare a Variable Fund Account's performance to that of other variable
annuity separate accounts or investment products, as well as to generally
accepted indices or analyses, such as those provided by research firms and
rating services. In addition, we may use performance ratings that may be
reported periodically in financial publications, such as Money Magazine, Forbes,
Business Week, Fortune, Financial Planning, and The Wall Street Journal.
Performance information for any Variable Fund Account reflects the performance
of a hypothetical Contract and are not illustrative of how actual investment
performance would affect the benefits under your Contract. Therefore, you should
not consider such performance information to be an estimate or guarantee of
future performance. For more information, see the Statement of Additional
Information.
35A OTHER INFORMATION
<PAGE>
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.
<TABLE>
<CAPTION>
Table I Average Annual Total Return (through December 31, 1999)
- -------
- ---------------------------------------------------------------------------------------------------------------
Year Ended
Name of Variable Fund Account Since Inception* December 31, 1999*
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
USAA Life Money Market 4.18% 4.01%
- ---------------------------------------------------------------------------------------------------------------
USAA Life Income 5.84 -5.99
- ---------------------------------------------------------------------------------------------------------------
USAA Life Growth and Income 18.76 13.73
- ---------------------------------------------------------------------------------------------------------------
USAA Life World Growth 18.66 29.84
- ---------------------------------------------------------------------------------------------------------------
USAA Life Diversified Assets 14.14 6.67
- ---------------------------------------------------------------------------------------------------------------
USAA Life Aggressive Growth 44.94 92.59
- ---------------------------------------------------------------------------------------------------------------
USAA Life International 11.07 27.07
- ---------------------------------------------------------------------------------------------------------------
Scudder VLIF Capital Growth Portfolio 27.35 34.14
- ---------------------------------------------------------------------------------------------------------------
Alger American Growth Portfolio 29.47 32.67
- ---------------------------------------------------------------------------------------------------------------
Deutsche VIT Equity 500 Index** 17.70 19.32
- ---------------------------------------------------------------------------------------------------------------
Deutsche VIT Small Cap Index** 3.01 19.06
- ---------------------------------------------------------------------------------------------------------------
Deutsche VIT EAFE(R)Equity Index** 17.73 26.46
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TABLE II Cumulative Total Return (through December 31, 1999)
--------
- ---------------------------------------------------------------------------------------------------------------
Year Ended
Name of Variable Fund Account Since Inception* December 31, 1999*
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
USAA Life Money Market 22.23% 4.01%
- ---------------------------------------------------------------------------------------------------------------
USAA Life Income 32.12 -5.99
- ---------------------------------------------------------------------------------------------------------------
USAA Life Growth and Income 132.33 13.73
- ---------------------------------------------------------------------------------------------------------------
USAA Life World Growth 131.41 29.84
- ---------------------------------------------------------------------------------------------------------------
USAA Life Diversified Assets 91.32 6.67
- ---------------------------------------------------------------------------------------------------------------
USAA Life Aggressive Growth 169.50 92.59
- ---------------------------------------------------------------------------------------------------------------
USAA Life International 32.38 27.07
- ---------------------------------------------------------------------------------------------------------------
Scudder VLIF Capital Growth Portfolio 227.34 34.14
- ---------------------------------------------------------------------------------------------------------------
Alger American Growth Portfolio 254.95 32.67
- ---------------------------------------------------------------------------------------------------------------
Deutsche VIT Equity 500 Index** 31.30 19.32
- ---------------------------------------------------------------------------------------------------------------
Deutsche VIT Small Cap Index** 5.08 19.06
- ---------------------------------------------------------------------------------------------------------------
Deutsche VIT EAFE(R)Equity Index** 31.36 26.46
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* Each of the Variable Fund Accounts shown above (with the exception of the
USAA Life Aggressive Growth Fund, the USAA Life International Fund and the
Deutsche VIT Funds) started operations on February 6, 1995. The USAA Life
Aggressive Growth Fund and USAA Life International Fund started operations
on May 1, 1997. The Deutsche VIT Funds managed by Bankers Trust started
operations on May 1, 1998.
** Formerly known as BT Equity 500 Index Fund, BT Small Cap Index Fund, and BT
EAFE(R) Equity Index Fund.
OTHER INFORMATION 36A
<PAGE>
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. 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.
TAX-DEFERRED GROWTH CHART
<TABLE>
<CAPTION>
10 Years 20 Years 30 Years
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$70,816 $69,024 $86,556 $167,307 $171,309 $250,795 $395,277 $451,442 $727,751
</TABLE>
This hypothetical illustration assumes a 12% rate of return for both the
variable annuity and taxable investment but should not be considered in
indication of USAA Life product performance nor a guarantee of future results.
Variable annuity calculations include the deduction of USAA Life's insurance
contract charges which include: 0.75% of the average net assets of each variable
fund account for the mortality and expense risk charge and administrative
expense charge, and $30 annual maintenance charge. An additional 10% federal
penalty tax may apply to withdrawals made before the age of 59 1/2. Monies not
previously taxed are taxed as income when withdrawn. The variable annuity
lump-sum withdrawal reflects the amount remaining after payment of income taxes.
Tax rates are based on a married couple filing jointly. The lump-sum withdrawal
at 10 years reflects taxation at a rate of 31%, 20 years at 36% and 30 years at
39.6%. An annuity is designed to provide a series of income payouts. A lump-sum
withdrawal is the least tax-efficient payout method and is not recommended.
The taxable investment calculation assumes investors exchange 50% of their
holdings annually. The distribution of annual gains on the taxable investment
are assumed to be 51% dividend income and short-term gains, 21% long-term gains
and 28% unrealized gains. These assumptions are based on the average
distribution of capital gains for no-load balanced funds as outlined in a 1999
PricewaterhouseCoopers study. Dividend income and short-term capital gains are
taxed at a 31% rate and long-term capital gains, withdrawals and exchanges are
taxed at a 20% rate.
37A OTHER INFORMATION
<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 Variable 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
OTHER INFORMATION 38A
<PAGE>
This page left blank intentionally.
<PAGE>
================================================================================
USAA LIFE INSURANCE COMPANY
================================================================================
To discuss your investment strategy,
the Variable Annuity's features or performance,
call an Account Representative toll free
Monday - Friday 7:15 am. to 8:00 p.m.
1-800-531-2923
(282-3460 in San Antonio)
-----------------------------------
If you wish to discuss your particular contract,
transfer money from one fund account to another or select a payout option
call a Service Representative toll free,
Monday - Friday 8 am. to 5 p.m.
1-800-531-4265
(456-9061 in San Antonio)
-----------------------------------
www.usaa.com
================================================================================
[LOGO OF USAA]
We know what it means to serve.(SM)
------------------------------
INSURANCE . BANKING . INVESTMENTS . MEMBER SERVICES
<PAGE>
[LOGO OF USAA]
STATEMENT OF ADDITIONAL INFORMATION
VARIABLE ANNUITY
FLEXIBLE PREMIUM DEFERRED COMBINATION
FIXED AND VARIABLE ANNUITY CONTRACT
MAY 1, 2000
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, 2000 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
<TABLE>
<CAPTION>
Page
<S> <C>
GENERAL INFORMATION......................................................................................... 2
DISTRIBUTOR................................................................................................. 2
SAFEKEEPING OF THE ASSETS OF THE SEPARATE ACCOUNT........................................................... 2
REGULATION AND RESERVES..................................................................................... 2
SERVICES.................................................................................................... 3
TAX SHELTERED ANNUITY LOANS................................................................................. 3
INDEPENDENT AUDITORS........................................................................................ 4
LEGAL MATTERS............................................................................................... 4
CALCULATION OF ACCUMULATION UNIT VALUES..................................................................... 4
CALCULATION OF PERFORMANCE INFORMATION...................................................................... 5
USAA Life Money Market Variable Fund Account........................................................ 5
Other Variable Fund Accounts........................................................................ 5
ANNUITY PAYMENTS............................................................................................ 8
Gender of Annuitant.................................................................................. 8
Misstatement of Age or Sex and Other Errors.......................................................... 8
Annuity Unit Value................................................................................... 8
FINANCIAL STATEMENTS........................................................................................ 10
</TABLE>
<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 all states of the United States (except New York) and the
District of Columbia. 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 is a member of 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.
2
<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 5 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 schedule may
have adverse tax consequences possibly subjecting you to tax on the defaulted
payment or possibly the
3
<PAGE>
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 of USAA Life
Insurance Company and its subsidiaries as of December 31, 1999 and 1998 and for
each of the years in the three-year period ended December 31, 1999 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 Dwain A. Akins,
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 USAA Life Money Market Variable 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:
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;
4
<PAGE>
(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 $46,850 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 VARIABLE FUND ACCOUNT
- --------------------------------------------
YIELD and EFFECTIVE YIELD quotations for the USAA Life Money Market
Variable Fund Account are computed in accordance with standard methods
prescribed by the SEC. Under these methods, the USAA Life Money Market Variable
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
Variable Fund Account for a specified 7-day period. Yield is determined by
dividing the net change in the Accumulation Unit Value during the 7-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 Variable 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 7-day period ended December 31, 1999, the current yield of the USAA
Life Money Market Variable Fund Account was 4.98%.
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
5
<PAGE>
the USAA Life Money Market Variable Fund Account, will be accompanied by
information on that Variable Fund Account's standardized average annual total
return for the most recent 1, 5, and 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, 1999 were
as follows:
6
<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 4.18% 4.01% 22.23% 4.01%
USAA Life Income 5.84% -5.99% 32.12% -5.99%
USAA Life Growth and Income 18.76% 13.73% 132.33% 13.73%
USAA Life World Growth 18.66% 29.84% 131.41% 29.84%
USAA Life Diversified Assets 14.14% 6.67% 91.32% 6.67%
USAA Life Aggressive Growth 44.94% 92.59% 169.50% 92.59%
USAA Life International 11.07% 27.07% 32.38% 27.07%
Scudder VLIF Capital Growth Portfolio 27.35% 34.14% 227.34% 34.14%
Alger American Growth Portfolio 29.47% 32.67% 254.95% 32.67%
Deutsche VIT Equity 500 Index Fund** 17.70% 19.32% 31.30% 19.32%
Deutsche VIT Small Cap Index Fund** 3.01% 19.06% 5.08% 19.06%
Deutsche VIT EAFE(R)Equity Index Fund** 17.73% 26.46% 31.36% 26.46%
</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
Deutsche VIT Equity 500 Index Fund, the Deutsche VIT Small Cap Index Fund and
the Deutsche VIT EAFE(R) Equity Index Fund) commenced operations on February 6,
1995. The USAA Life Aggressive Growth Fund and USAA Life International Fund
commenced operation on May 1, 1997. The Deutsche VIT Funds commenced operation
on May 1, 1998.
** Formerly known as BT Equity 500 Index Fund, BT Small Cap Index Fund, and BT
EAFE(R)Equity Index Fund.
The three year average annual total return* and cumulative total return*
for certain Variable Fund Accounts for the period ended December 31, 1999 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 4.15% 12.99%
USAA Life Income 3.91% 12.20%
USAA Life Growth and Income 14.64% 50.67%
USAA Life World Growth 17.39% 61.78%
USAA Life Diversified Assets 11.42% 38.31%
USAA Life Aggressive Growth N/A N/A
USAA Life International N/A N/A
Scudder VLIF Capital Growth Portfolio 30.05% 119.93%
Alger American Growth Portfolio 34.27% 142.09%
Deutsche VIT Equity 500 Index Fund** N/A N/A
Deutsche VIT Small Cap Index Fund** N/A N/A
Deutsche VIT 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.
** Formerly known as BT Equity 500 Index Fund, BT Small Cap Index Fund, and BT
EAFE(R)Equity Index Fund.
7
<PAGE>
30-DAY YIELD. Each Variable Fund Account, other than the USAA Life Money
Market Variable 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 semiannual
reinvestment of income:
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 where such differences are not permitted. We may also make
available Contracts with no such differences in connection with certain
employer-sponsored benefit plans. Employers should be aware that under most such
plans, Contracts that make distinctions based on gender are prohibited by
law.
MISSTATEMENT OF AGE OR SEX AND OTHER ERRORS
- -------------------------------------------
If the age or sex of an Annuitant has been misstated to us, any amount
payable will be that which the premium payments paid would have purchased at the
correct age and sex. If we made any overpayments because of incorrect
information about age or sex, or any error or miscalculation, we will deduct the
overpayment from the next payment or payments due. We will add any underpayments
to the next payment. The amount of any adjustment will be credited or charged
with interest at the effective annual rate of 3% per year.
ANNUITY UNIT VALUE
- ------------------
Annuity Unit Value is calculated at the same time that Accumulation Unit
Value is calculated and is based on the same values for shares of the Funds. The
following illustrations show, by use of hypothetical examples, the methods of
determining the Annuity Unit Value and the amount of Variable Annuity Payments.
Illustration of Calculation of Annuity Unit Value
- -------------------------------------------------
Annuity at age 65: Life with 120 payments certain:
<TABLE>
<S> <C>
1. Annuity Unit Value, beginning of period....................................................... $ .980000
2. Assume Net Investment Factor for period equal to.............................................. 1.001046
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
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>
Illustration of Annuity Payments
Annuity at age 65: Life with 120 payments certain:
<TABLE>
<S> <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
10/th/ 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 10th day
before the first month payment)............................................................... $ .980000
7. Number of Annuity Units (5) / (6)............................................................. 100.653
8. Assume Annuity Unit Value for second month equal to........................................... $ .997000
9. Second monthly annuity payment (7) x (8)...................................................... $ 100.35
10. Assume annuity unit value for third month equal to............................................ $ .953000
11. Third monthly annuity payment (7) x (10)...................................................... $ 95.92
</TABLE>
9
<PAGE>
FINANCIAL STATEMENTS
The consolidated financial statements of the Company as of December 31,
1999 and 1998, and for each of the years in the three-year period ended December
31, 1999, and the accompanying Independent Auditors' Report are set out below.
The consolidated 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 Independent Auditors' Report are
incorporated into this Statement by reference to the Separate Account's Annual
Report, dated December 31, 1999, which accompanies this Statement.
10
<PAGE>
Independent Auditors' Report
The Board of Directors
USAA LIFE INSURANCE COMPANY:
We have audited the accompanying consolidated balance sheets of USAA LIFE
INSURANCE COMPANY and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, comprehensive income, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of USAA LIFE INSURANCE
COMPANY and subsidiaries as of December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1999 in conformity with generally accepted accounting
principles.
San Antonio, Texas /s/ KPMG LLP
March 17, 2000 -----------------------
KPMG LLP
11
<PAGE>
USAA LIFE INSURANCE COMPANY
Consolidated Balance Sheets
December 31, 1999 and 1998
(Dollars in Thousands, Except Share Data)
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Assets
- ------
Investments:
Debt securities, at amortized cost $ 664,481 884,926
Debt securities, at fair value 5,422,850 5,455,606
Equity securities, at fair value 203,784 251,815
Mortgage loans 3,792 3,903
Policy loans 133,900 131,520
--------------- -------------
Total investments 6,428,807 6,727,770
Cash and cash equivalents 55,924 62,203
Premium balances receivable 2,860 2,969
Accounts receivable - affiliates 77 664
Furniture and equipment 4,847 3,955
Collateral for securities loaned at fair value 805,226 737,202
Accrued investment income 96,430 82,042
Deferred policy acquisition costs 267,114 226,986
Deferred tax 108,214 53,745
Reinsurance recoverable 405,936 308,262
Other assets 13,415 12,281
Separate account assets 420,564 282,489
--------------- -------------
Total assets $ 8,609,414 8,500,568
=============== =============
Liabilities
- -----------
Insurance reserves $ 1,080,473 1,168,284
Funds on deposit 5,577,428 5,498,136
Accounts payable and accrued expenses 63,920 64,940
Accounts payable - affiliates 14,226 10,593
Payable upon return of securities loaned 805,226 737,202
Other liabilities 47,546 48,872
Separate account liabilities 420,564 282,489
--------------- -------------
Total liabilities 8,009,383 7,810,516
--------------- -------------
Stockholders' Equity
- --------------------
Preferred capital stock, $100 par value; 1,200,000 shares
authorized; 600,000 shares issued and outstanding 60,000 60,000
Common capital stock, $100 par value; 30,000 shares
authorized; 25,000 shares issued and outstanding 2,500 2,500
Additional paid-in capital 51,408 51,408
Accumulated other comprehensive income (77,137) 18,315
Retained earnings 563,260 557,829
--------------- -------------
Total stockholders' equity 600,031 690,052
--------------- -------------
Total liabilities and stockholders' equity $ 8,609,414 8,500,568
=============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
USAA LIFE INSURANCE COMPANY
Consolidated Statements of Income
Years ended December 31, 1999, 1998, and 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues
- --------
Premiums $ 398,792 364,012 355,825
Investment income, net 484,375 476,131 452,104
Fees, sales, and loan income 14,303 10,946 9,403
Net realized investment gains 413 23,172 43,524
Other revenues 13,125 18,524 17,438
------------- ------------ ------------
Total revenues 911,008 892,785 878,294
------------- ------------ ------------
Benefits and expenses
- ---------------------
Losses, benefits, and settlement expenses 560,060 553,400 542,880
Deferred policy acquisition costs 17,463 13,170 11,898
Dividends to policyholders 54,981 59,704 53,082
Other operating expenses 139,269 117,017 103,477
------------- ------------ ------------
Total benefits and expenses 771,773 743,291 711,337
------------- ------------ ------------
Income before income taxes 139,235 149,494 166,957
------------- ------------ ------------
Federal income tax expense (benefit):
Current 52,623 71,293 57,799
Deferred (6,812) (18,930) (1,674)
------------- ------------ -----------
Total Federal income tax expense 45,811 52,363 56,125
------------- ------------ ------------
Net income $ 93,424 97,131 110,832
============= ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
USAA LIFE INSURANCE COMPANY
Consolidated Statements of Comprehensive Income
Years Ended December 31, 1999, 1998, and 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net Income $ 93,424 97,131 110,832
------------ ------------ -----------
Other comprehensive income (loss), net of income taxes
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during year (47,170) 50,222 37,714
Reclassification adjustment for realized gains
included in net income (48,282) (65,517) (26,611)
------------ ------------ -----------
Other comprehensive income (loss), net of
income taxes (95,452) (15,295) 11,103
------------ ------------ -----------
Total comprehensive income $ (2,028) 81,836 121,935
============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
USAA LIFE INSURANCE COMPANY
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1999, 1998, and 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Capital
- -------
Preferred capital stock $ 60,000 60,000 60,000
Common capital stock 2,500 2,500 2,500
Additional paid-in capital 51,408 51,408 51,408
----------- -------- --------
End of year 113,908 113,908 113,908
----------- -------- --------
Accumulated other comprehensive income
- --------------------------------------
Beginning of year 18,315 33,610 22,507
Unrealized gains (losses) on securities during year, net of
income taxes and reclassification adjustments (95,452) (15,295) 11,103
----------- -------- --------
End of year (77,137) 18,315 33,610
----------- -------- --------
Retained earnings
- -----------------
Beginning of year 557,829 597,355 534,269
Net income 93,424 97,131 110,832
Dividends to stockholders (87,993) (136,657) (47,746)
----------- -------- --------
End of year 563,260 557,829 597,355
----------- -------- --------
Total stockholders' equity $ 600,031 690,052 744,873
=========== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
USAA LIFE INSURANCE COMPANY
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998, and 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 93,424 97,131 110,832
Adjustments to reconcile net income to net
cash provided by operating activities:
Net realized investment gains (413) (23,172) (43,524)
Non-cash investment income (5,147) (6,414) (13,148)
(Increase) in deferred policy acquisition costs (24,885) (21,068) (19,938)
Depreciation and amortization (9,536) (6,418) (7,951)
Deferred income tax benefit (6,812) (18,930) (1,974)
(Increase) decrease in premium balances receivable 109 (70) (1,244)
(Increase) decrease in accounts receivable-affiliate 587 (614) (30)
(Increase) in accrued investment income (14,388) (3,113) (7,292)
(Increase) in reinsurance recoverable and
other assets (98,808) (81,425) (205,123)
Increase in insurance reserves 108,702 87,507 110,356
Increase (decrease) in accounts payable and
accrued expense (1,020) (22,375) 53,022
Increase (decrease) in accounts payable-affiliates 3,633 1,479 (1,370)
Increase (decrease) in other liabilities (1,326) (6,227) 432
Other 2,400 (2,763) (3,640)
----------- ---------- ----------
Net cash provided by operating activities 46,520 (6,472) (30,592)
----------- ---------- ----------
Cash flows from investing activities:
Proceeds from sales and maturities of
available-for-sale securities 1,227,752 582,584 370,972
Proceeds from maturities of held-to-maturity securities 218,585 170,271 117,667
Proceeds from principal collections on investments 319,027 494,809 271,471
Other investments sold 688 3,186 948
Securities purchased - available-for-sale (1,789,489) (1,331,934) (1,181,564)
Other investments purchased (2,636) (72) (165)
----------- ---------- ----------
Net cash used in investing activities (26,073) (81,156) (420,671)
----------- ---------- ----------
Cash flows from financing activities:
Deposits and interest credited to funds on deposit 636,998 670,377 926,272
Withdrawals from funds on deposit (575,731) (457,459) (419,611)
Dividends to stockholders (87,993) (102,729) (25,200)
----------- ---------- ----------
Net cash provided by (used in) financing activities (26,726) 110,189 481,461
----------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents (6,279) 22,561 30,198
Cash and cash equivalents at beginning of year 62,203 39,642 9,444
----------- ---------- ----------
Cash and cash equivalents at end of year $ 55,924 62,203 39,642
=========== ========== ==========
</TABLE>
Significant Non-Cash Financing Activities:
The Company declared and paid a dividend to stockholders by transferring equity
securities with a fair value, cost, and recognized gain of $33,928, $21,951, and
$11,977, respectively, for 1998 and $22,546, $11,560, and $10,986, respectively,
for 1997.
See accompanying notes to consolidated financial statements.
5
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
December 31, 1999 and 1998
(Dollars in Thousands)
(1) Summary of significant accounting policies
------------------------------------------
(a) Organization
------------
USAA LIFE INSURANCE COMPANY (the Company) is a wholly-owned
subsidiary of UNITED SERVICES AUTOMOBILE ASSOCIATION (USAA). The
Company markets individual life insurance policies, annuity
contracts, and individual and group accident and health policies
primarily to individuals eligible for membership in USAA. The
Company is licensed to do business in all states including the
District of Columbia but excluding New York. The Company has a
subsidiary company (USAA Life Insurance Company of New York)
licensed to sell life and annuity contracts in that state. The
Company's other subsidiary business (USAA Life General Agency)
offers additional products of other insurance companies requested
by USAA membership, which are not sold by the Company. The
consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
(b) Accounting standards adopted
----------------------------
The Company adopted Statement of Financial Accounting Standard
(SFAS) No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities", on January
1, 1997. SFAS No. 125 established criteria for determining
whether transfers of financial assets are sales or secured
borrowings. The adoption of this statement resulted in the
recording of an asset and corresponding liability representing
the collateral received in connection with the Company's
securities lending program. The collateral held is recorded in
"Collateral for securities loaned at fair value" with the off
setting liability being reflected in "Payable upon return of
securities loaned." This accounting treatment has no effect on
the Company's net earnings or stockholders' equity.
The Company adopted SFAS No. 130, "Reporting Comprehensive
Income" on January 1, 1998. This statement establishes standards
for reporting and presentation of comprehensive income and its
components in a full set of financial statements. Comprehensive
income consists of net income and net unrealized gains (losses)
on securities and is presented in the consolidated statements of
comprehensive income. SFAS No. 130 requires only additional
disclosures in the consolidated financial statements; it does not
affect the Company's financial position, results of operations,
or liquidity.
The Company adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" on January 1, 1998. This
statement provides standards for reporting information about
operating segments in financial statements using the "management
approach."
The Company adopted the provisions of the AICPA Statement of
Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" on January 1,
1998. This SOP requires that certain costs of computer software
developed or obtained for internal use be capitalized and
amortized over the estimated useful life of the software.
Adoption of this SOP did not have a material impact on the
Company's financial position, results of operations, or
liquidity.
6 (Continued)
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
The Company adopted the provisions of SOP 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments" on
January 1, 1999. This SOP requires insurance companies to accrue a
liability for future guaranteed assessments for insolvent insurers at
the time insolvency is known versus assessment. The adoption of this
SOP did not have an impact on the Company's financial position,
results of operations, or liquidity as the Company's accounting
policies in place incorporated the requirement of this SOP.
(c) Investments
-----------
Debt securities, including bonds, mortgage-backed securities, and
redeemable preferred stocks, have been classified as either held-to-
maturity or available-for-sale. Debt securities classified as held-to-
maturity are carried at amortized cost. Securities classified as
available-for-sale are carried at fair value with unrealized gains or
losses (net of related deferred income taxes, deferred policy
acquisition costs, and future policyholder benefits) reflected in
stockholders' equity.
Bonds, at amortized cost of approximately $170,693, and $289,788 were
on deposit with various state governmental agencies at December 31,
1999, and 1998, respectively. When the New York subsidiary was formed
in 1997, the Company withdrew its license in the State of New York. To
be in compliance with the New York Regulation 109, the 1999 and 1998
deposits include $167,357 and $286,825, respectively, held for the
security of the New York policyholders.
Mortgage-backed securities held at December 31, 1999 and 1998
represent participating interests in pools of long term first mortgage
loans originated and serviced by the issuers of the securities. Market
interest rate fluctuations can affect the prepayment speed of
principal and the yield on the securities.
All equity securities, which include common and non-redeemable
preferred stocks, have been classified as available-for-sale. Equity
securities are carried at fair value with unrealized gains or losses
(net of related deferred income taxes, deferred policy acquisition
costs, and insurance reserves) reflected in stockholders' equity.
Real estate mortgages and policy loans are carried at their unpaid
principal balances with interest rates ranging from 4.8% to 10% at
December 31, 1999.
Short-term securities are carried at amortized cost.
Interest is not accrued on debt securities or mortgage loans for which
principal or interest payments are determined to be uncollectible.
Realized gains and losses are included in net income based upon
specific identification of the investment sold. When impairment of the
value of an investment is considered to be other than temporary, a
provision for the writedown to estimated net realizable value is
recorded. Net realized capital gains of $33,813, $56,720, and $0 for
1999, 1998, and 1997, respectively, allocable to future policyholder
dividends and interest, were deducted from net realized capital gains
and an offsetting amount was reflected in policyholder reserves.
7 (Continued)
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
(d) Cash and cash equivalents
-------------------------
For purposes of the consolidated statement of cash flows, all highly
liquid marketable securities that have a maturity at purchase of three
months or less and money market mutual funds are considered to be cash
equivalents. At December 31, 1999 and 1998, cash and cash equivalents
include $217 and $760, respectively, of separate account purchases
awaiting reinvestment. These funds are restricted from the Company's
use.
(e) Federal income taxes
--------------------
The Company and its subsidiaries are included in the consolidated
Federal income tax return filed by USAA. Taxes are allocated to the
separate companies of USAA based on a tax allocation agreement,
whereby companies receive a current benefit to the extent their losses
are utilized by the consolidated group. Separate company current taxes
are the higher of taxes computed at a 35% rate on regular taxable
income or taxes computed at a 20% rate on alternative minimum taxable
income, adjusted for any consolidated benefits allocated to the
companies based on the use of separate company losses within the
group.
Deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates
applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and
liabilities. The effect on deferred income taxes of a change in tax
rates is recognized in income in the period that includes the
enactment date.
(f) Fair value of financial instruments
-----------------------------------
The fair value estimates of the Company's financial instruments were
made at a point in time, based on relevant market information and
information about the related financial instrument. These estimates do
not reflect any premium or discount that could result from offering
for sale at one time the Company's entire holding of a particular
financial instrument. In addition, the tax ramifications related to
the effect of fair market value estimates have not been considered in
the estimates.
(g) Use of estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(h) Deferred policy acquisition costs
---------------------------------
Policy acquisition costs, consisting primarily of certain underwriting
and selling expenses, are deferred and amortized. Traditional
individual life and health acquisition costs are amortized in
proportion to anticipated premium income after allowing for lapses and
terminations. The period for amortization is 20 years, but not to
exceed the life of the policy. Acquisition costs for universal life
and annuities are amortized in relation to the present value of
estimated gross profits from surrender charges and investment,
mortality and expense margins. The period for amortization for
universal life is 20 years. The period for amortization for annuities
is either 20 or 30 years.
Deferred policy acquisition costs are reviewed to determine that the
unamortized portion does not exceed expected future income or gross
profits.
8 (Continued)
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
(i) Insurance reserves
------------------
Included in insurance reserves are traditional life and health
products and payout annuities with life contingencies. Traditional
life and individual health reserves are computed using a net level
premium method and are based on assumed or guaranteed investment
yields and assumed rates of mortality, morbidity, withdrawals,
expenses and anticipated future policyholder dividends. These
assumptions vary by such characteristics as plan, year of issue,
policy duration, date of receipt of funds, and may include provisions
for adverse deviation.
(j) Funds on deposit
----------------
Funds on deposit are liabilities for universal life, payout annuities
without life contingencies, and deferred annuities. These liabilities
are determined following the "retrospective deposit" method and
consist principally of policy account balances before applicable
surrender charges.
(k) Insurance revenues and expenses
-------------------------------
Premiums on traditional life insurance products are recognized as
revenues as they become due. Benefits and expenses are matched with
premiums in arriving at profits by providing for policy benefits over
the lives of the policies and by amortizing acquisition costs. For
universal life and investment annuity contracts, revenues consist of
investment earnings and policy charges for the cost of insurance,
policy administration, and surrender charges assessed during the
period. Expenses for these policies include interest credited to
policy account balances, benefit claims incurred in excess of policy
account balances, and administrative expenses. The related deferred
policy acquisition costs are amortized in relation to the present
value of expected gross profits from surrender charges, investment,
mortality, and expense margins.
(l) Participating business
----------------------
Certain life insurance policies contain dividend payment provisions,
which enable the policyholder to participate in the earnings of the
life insurance operations. The participating insurance in force
accounted for 6% of the total life insurance in force at December 31,
1999, and 7% of life insurance in force at December 31, 1998.
Participating policies accounted for 17% of the premium income in 1999
and 16% of the premium income in 1998. The provision for
policyholders' dividends is based on benefit reserves and a future
dividend liability based on the current dividend scales.
The Company guarantees to pay dividends in aggregate, on all policies
issued after December 31, 1983, in the total amount of $18,037 in
2000.
Income attributable to participating policies in excess of
policyholder dividends is restricted by several states for
participating policyholders of those states, otherwise income in
excess of policyholder dividends is accounted for as belonging to the
stockholders.
(m) Reclassifications
-----------------
Certain reclassifications of prior period amounts have been made to
conform with the current year's presentation.
9 (Continued)
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
(2) Basis of accounting
The Company prepares separate statutory financial statements in accordance
with accounting practices prescribed or permitted by the insurance
departments of the states of Texas and New York. Prescribed statutory
accounting practices include a variety of publications of the National
Association of Insurance Commissioners (NAIC) as well as state laws,
regulations, and general administrative rules. Permitted statutory
accounting practices encompass all accounting practices not so prescribed.
The NAIC has adopted codification for standard accounting practices, which
will be implemented in 2001. Most states have adopted or are in the process
of evaluating codification.
These consolidated financial statements have been prepared on the basis of
GAAP, which differs from the basis of accounting followed in reporting to
insurance regulatory authorities. Reconciliations of statutory net income
and capital and surplus, as determined using statutory accounting
principles, to the amounts included in the accompanying consolidated
financial statements are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory net income $ 83,918 97,323 97,588
(Gain) loss on sale of investments (29,089) (50,372) 980
Deferred policy acquisition costs 25,115 21,104 19,938
Tax adjustment 13,981 17,862 7,253
Participating policyholder earnings (loss) (696) 778 3,294
Insurance reserves and other 195 10,436 (18,221)
---------- -------- --------
GAAP net income $ 93,424 97,131 110,832
========== ======== ========
Statutory capital and surplus $ 500,514 488,224 540,053
Increases (decreases):
Deferred policy acquisition costs 267,114 226,986 207,090
Federal income taxes 108,214 53,745 22,230
Asset valuation reserve 76,969 78,940 99,651
Participating policyholder liability (3,985) (2,914) (4,143)
Policyholder reserve and funds (97,434) (65,710) (8,819)
Deferred and uncollected premiums (89,335) (86,809) (82,649)
Investment unrealized gain (loss) adjustments:
Investment valuation difference (193,266) 185,432 150,686
Policyholder accounts and other assets 22,659 (189,847) (175,607)
Other adjustments 8,581 2,005 (3,619)
---------- -------- --------
GAAP capital and surplus $ 600,031 690,052 744,873
========== ======== ========
</TABLE>
(Continued)
10
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
(3) Investments
-----------
The amortized cost, estimated fair values, and carrying values of
investments in debt and equity securities as of December 31, 1999 were as
follows:
<TABLE>
<CAPTION>
Held-to-Maturity
--------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair Carrying
cost gains losses value value
----------- ------------ ------------ ------------- -----------
Debt securities
---------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies $ 10,605 668 (3) 11,270 10,605
Obligations of states and political
subdivisions 3,465 114 - 3,579 3,465
Debt securities issued by foreign
governments and corporations 41,874 - (872) 41,002 41,874
Mortgage-backed securities 378,727 2,676 (8,395) 373,008 378,727
Corporate securities 229,810 1,983 (3,972) 227,821 229,810
---------- ----- ------ ------- -------
Total debt securities $ 664,481 5,441 (13,242) 656,680 664,481
========== ===== ======= ======= =======
Available-for-Sale
--------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized Unrealized fair Carrying
cost gains Losses value value
----------- ------------ ------------ ------------- -----------
Debt securities
---------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies $ 22,000 480 (416) 22,064 22,064
Obligations of states and political 42,420 80 (960) 41,540 41,540
subdivisions
Debt securities issued by foreign
governments and corporations 482,144 1,333 (21,096) 462,381 462,381
Mortgage-backed securities 649,959 8,754 (19,513) 639,200 639,200
Corporate securities 4,415,987 6,293 (164,615) 4,257,665 4,257,665
---------- ------ -------- --------- ---------
Total debt securities $5,612,510 16,940 (206,600) 5,422,850 5,422,850
========== ====== ======== ========= =========
Equity securities
-----------------
Common stock $ 114,024 41,750 - 155,774 155,774
Nonredeemable preferred stock 50,936 1,100 (4,026) 48,010 48,010
---------- ------ ------ ------- -------
Total equity securities $ 164,960 42,850 (4,026) 203,784 203,784
========== ====== ====== ======= =======
</TABLE>
(Continued)
11
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
The amortized cost, estimated fair values, and carrying values of
investments in debt and equity securities as of December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
Held-to-Maturity
---------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized Unrealized fair Carrying
Cost gains Losses value value
----------- ------------ ------------ ------------- -----------
Debt securities
---------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies $ 11,040 1,933 - 12,973 11,040
Obligations of states and political
subdivisions 4,175 151 - 4,326 4,175
Debt securities issued by foreign
governments and corporations 41,858 650 - 42,508 41,858
Mortgage-backed securities 536,040 16,969 (130) 552,879 536,040
Corporate securities 291,813 14,865 306,678 291,813
--------- ------- ------- -------- --------
-
Total debt securities $ 884,926 34,568 (130) 919,364 884,926
========= ======= ======= ======== ========
<CAPTION>
Available-for-Sale
---------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair Carrying
Cost gains losses value value
----------- ------------ ------------ ------------- -----------
Debt securities
---------------
<S> <C> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies $ 287,283 4,795 - 292,078 292,078
Obligations of states and political
subdivisions 57,874 2,039 - 59,913 59,913
Debt securities issued by foreign
governments and corporations 388,524 14,039 (1,630) 400,933 400,933
Mortgage-backed securities 1,012,224 45,178 (491) 1,056,911 1,056,911
Corporate securities 3,527,910 128,938 (11,077) 3,645,771 3,645,771
---------- -------- ------- ---------- ----------
Total debt securities $5,273,815 194,989 (13,198) 5,455,606 5,455,606
========== ======== ======= ========== ==========
Equity securities
-----------------
Common stock $ 158,498 34,174 - 192,672 192,672
Nonredeemable preferred stock 55,500 3,744 (101) 59,143 59,143
---------- -------- -------- ---------- ----------
Total equity securities $ 213,998 37,918 (101) 251,815 251,815
========== ======== ======== ========== ==========
</TABLE>
(Continued)
12
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
The amortized cost and estimated fair values of debt securities classified
as held-to-maturity and available-for-sale at December 31, 1999, by
contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to prepay
obligations.
Held-to-Maturity
-----------------------
Estimated
Amortized fair
cost value
----------- -----------
Due in one year or less $ 59,845 59,935
Due after one year through five years 155,725 153,787
Due after five years through ten years 40,209 39,283
Due after ten years 29,975 30,667
---------- ----------
285,754 283,672
Mortgage-backed securities 378,727 373,008
---------- ----------
$ 664,481 656,680
========== ==========
Available-for-Sale
----------------------
Estimated
Amortized fair
cost value
----------- ----------
Due in one year or less $ 75,983 75,912
Due after one year through five years 2,058,784 2,023,713
Due after five years through ten years 2,147,300 2,046,913
Due after ten years 680,484 637,112
---------- ----------
4,962,551 4,783,650
Mortgage-backed securities 649,959 639,200
---------- ----------
$5,612,510 5,422,850
========== ==========
Proceeds from sales of available-for-sale debt securities during 1999,
1998, and 1997 were $1,065,071, $160,883, and $219,148, respectively. Gross
gains and losses of $12,010 and $4,911, respectively, for 1999, $5,148 and
$664, respectively, for 1998, and $528 and $2,891, respectively, for 1997,
were realized on those sales.
Proceeds from sales of equity securities during 1999, 1998, and 1997 were
$96,857, $238,737, and $98,703, respectively. Gross gains and losses of
$25,494 and $34, respectively, for 1999, $60,522 and $2,130, respectively,
for 1998, and $28,521 and $22, respectively, for 1997, were realized on
those sales.
Gross investment income during 1999, 1998, and 1997 was $489,709, $480,350,
and $456,322, respectively, and consists primarily of interest income on
fixed maturity securities. Investment expenses were $5,334, $4,219, and
$4,218 for 1999, 1998, and 1997, respectively.
(Continued)
13
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
The Company engages in securities lending whereby certain securities from
its portfolio are loaned to other institutions for short periods of time.
Initial collateral, primarily cash, is required at a rate of 102% of the
market value of a loaned security. The collateral is deposited by the
borrower with a lending agent, and retained and invested by the lending
agent according to the Company's guidelines to generate additional income.
The market value of the loaned securities is monitored on a daily basis
with additional collateral obtained or refunded as the market value of the
loaned securities fluctuates.
At December 31, 1999 and 1998, net unrealized gains (losses) of $(22,659)
and $189,847 were allocated to insurance reserves for participating life
insurance policies and interest sensitive contracts. In addition, net
unrealized gains (losses) of $(8,378) and $6,865 were allocated against
deferred policy acquisition costs in 1999 and 1998, respectively.
(4) Federal income taxes
--------------------
The expected statutory Federal income tax amounts for the years ended
December 31, 1999, 1998, and 1997 differ from the effective tax amounts as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income before income taxes $ 139,235 149,494 166,957
========= ======= =======
Federal income tax expense at 35% statutory rate 48,732 52,323 58,435
Increase (decrease) in tax resulting from:
Dividends received deduction (391) (499) (604)
Tax credits (791) 32 (548)
Other, net (1,739) 507 (1,158)
--------- ------- -------
Federal income tax expense $ 45,811 52,363 56,125
========= ======= =======
</TABLE>
Deferred income tax benefit for the years ended December 31, 1999, 1998,
and 1997 was primarily attributable to differences between the valuation of
assets and insurance liabilities for financial reporting and tax purposes.
14 (Continued)
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31 are presented below:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Deferred tax assets:
Insurance reserves $101,457 88,118
Accounts payable and accrued expenses 2,114 1,667
Policyholder dividends 6,793 7,544
Other, net 2,626 6,741
-------- --------
Total gross deferred tax assets 112,990 104,070
-------- --------
Deferred tax liabilities:
Investments 5,239 5,532
Depreciable assets 992 266
Deferred policy acquisition costs 40,045 36,478
Other, net 430 2,708
-------- --------
Total gross deferred tax liabilities 46,706 44,984
-------- --------
Deferred tax liability (asset) on net unrealized gains on
investments 41,930 (5,341)
-------- --------
Net deferred tax asset $108,214 3,745
======== ========
</TABLE>
Management believes that the realization of the deferred tax asset is more
likely than not based on the expectation that such benefits will be utilized in
the future consolidated tax returns of the USAA group.
At December 31, 1999, and 1998, other assets included Federal income tax
receivable of $4,532 and $2,382, respectively.
Aggregate cash payments to USAA for income taxes were $51,993, $66,643, and
$62,345 for USAA Life Insurance Company and $2,780, $(1,250), and $163 for its
subsidiaries during the years ended December 31, 1999, 1998, and 1997,
respectively.
15 (Continued)
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
Detailed tax amounts for items of comprehensive income are as follows:
<TABLE>
<CAPTION>
Before- Tax
tax (expense) Net-of-Tax
amount or benefit amount
---------- ---------- ----------
<S> <C> <C> <C>
For the year ending December 31, 1997
Unrealized gains on securities:
Unrealized holding gains arising during year $ 58,022 (20,308) 37,714
Less: reclassification adjustment for gains realized in income (40,940) 14,329 (26,611)
---------- ---------- ----------
Net unrealized gains from securities 17,082 (5,979) 11,103
---------- ---------- ----------
Other comprehensive income 17,082 (5,979) 11,103
========== ========== ==========
For the year ending December 31, 1998
Unrealized gains on securities:
Unrealized holding gains arising during year $ 77,265 (27,043) 50,222
Less: reclassification adjustment for gains realized in income (100,796) 35,279 (65,517)
---------- ---------- ----------
Net unrealized gains from securities (23,531) 8,236 (15,295)
---------- ---------- ----------
Other comprehensive income (23,531) 8,236 (15,295)
========== ========== ==========
For the year ending December 31, 1999
Unrealized gains on securities:
Unrealized holding gains arising during year $ (72,569) 25,399 (47,170)
Less: reclassification adjustment for gains realized in income (74,280) 25,998 (48,282)
---------- ---------- ----------
Net unrealized gains from securities (146,849) 51,397 (95,452)
---------- ---------- ----------
Other comprehensive income (146,849) 51,397 (95,452)
========== ========== ==========
</TABLE>
16 (Continued)
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
(5) Fair value of financial instruments
-----------------------------------
The following tables present the carrying amounts and estimated fair values
of the Company's financial instruments at December 31. SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments", defines the fair
value of a financial instrument as the amount at which the instrument could
be exchanged in a current transaction between willing parties.
<TABLE>
<CAPTION>
1999 1998
------------------------ -------------------------
Carrying Fair Carrying Fair
amount value amount value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 55,924 55,924 62,203 62,203
Debt securities 6,087,331 6,079,530 6,340,532 6,374,970
Equity securities 203,784 203,784 251,815 251,815
Mortgage loans 3,792 3,522 3,903 4,707
Policy loans 133,900 133,900 131,520 131,520
Premium balances receivable 2,860 2,860 2,969 2,969
Accrued investment income 96,430 96,430 82,042 82,042
Separate account 420,564 420,564 282,489 282,489
Financial liabilities:
Deferred annuities and annuities without life contingencies 3,691,016 3,691,016 3,773,742 3,773,742
Policyholder dividend accumulations 31,670 31,670 30,016 30,016
Policy dividends declared but unpaid 34,050 34,050 35,965 35,965
Accounts payable and accrued expenses 63,920 63,920 64,940 64,940
Separate account 420,564 420,564 282,489 282,489
</TABLE>
All carrying amounts are included in the balance sheet under the indicated
captions, except for deferred annuities and annuities without life
contingencies, and policyholder dividend accumulations, both of which are
included in funds on deposit, and policy dividends declared but unpaid
which are included in other liabilities.
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and cash equivalents: Cash and cash equivalents approximate fair value
because of the short maturity.
Debt and equity securities: Fair market values for bonds and stocks are
determined using quoted market prices from Merrill Lynch Pricing Services,
Bloomberg Services or individual brokers.
Mortgage loans: The fair value of mortgage loans are estimated by
discounting the future cash flows using interest rates currently being
offered for mortgage loans with similar characteristics and maturities.
Policy loans: In the Company's opinion, the book value of the policy loans
approximates their fair value. Policy loans are shown on the financial
statements at face value, and carry interest rates ranging from 4.8% to
7.4% in advance.
17 (Continued)
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
Premiums receivable: The recorded amount for premiums receivable
approximates fair value because only a slight percentage of total policies
issued by the Company lapse.
Accrued investment income: The accrued amount of investment income
approximates its fair value because of the quality of the Company's
investment portfolio combined with the short-term nature of the collection
period.
Deferred annuities and annuities without life contingencies: The fair value
of the deferred annuities is equal to the current accumulated value without
anticipation of any applicable surrender charges, which approximates the
carrying value. The fair value of annuities without life contingencies is
estimated as the commuted value of the annuity.
Policyholder dividend accumulations: The fair value of policyholder
dividend accumulations is estimated using the book value less a percentage
of accrued interest anticipated to be forfeited as a result of policy
cancellations. Estimated annual interest to be forfeited is not
significant.
Policy dividends declared but unpaid: The carrying value of policy
dividends declared but unpaid approximates the fair value because the
carrying value reflects anticipated forfeitures as a result of policy
cancellations. Estimated annual interest to be forfeited is not
significant.
Accounts payable and accrued expenses: The fair value of accounts payable
and accrued expenses approximates its carrying value because of the
short-term nature of the obligations.
Separate account assets and liabilities: The separate account assets
reflect the net asset value of the underlying mutual funds, therefore,
carrying value is considered fair value. The separate account liabilities
are reflected at the underlying balances due to the contract holders,
without consideration for applicable surrender charges, if any.
(6) Borrowings
----------
The Company has no borrowing activity outside of the agreements described
in Note 7 "Transactions with affiliates."
(7) Transactions with affiliates
----------------------------
Certain services have been contracted from USAA and its affiliates, such as
rental of office space, utilities, mail processing, data processing,
printing, and employee benefits. The Company allocates these and other
expenses to affiliates for administrative services performed by the
Company. The contracted services and allocations are based upon various
formulas or agreements with the net amounts included in expenses. The
aggregate amount of such contracted services was $174,925, $127,604, and
$73,136 for 1999, 1998, and 1997, respectively. The aggregate amount of the
Company's allocations to affiliates was $10,469, $6,553, and $4,376 for
1999, 1998, and 1997, respectively.
The Company has an agreement with USAA Investment Management Company
regarding the reimbursement of costs for investment services provided. The
aggregate amount of the USAA Investment Management Company contracted
services was $4,895, $3,600, and $3,039 for 1999, 1998 and 1997,
respectively.
(Continued)
18
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
The Company also received premium and annuity considerations from USAA of
$4,945, $4,319, and $4,201 in 1999, 1998, and 1997, respectively,
representing amounts received for structured settlements issued to
claimants of USAA and for group insurance on USAA employees.
The Company has intercompany funding agreements with USAA Capital
Corporation (CAPCO) and USAA Funding Company (FUNDCO) for unsecured
borrowings up to $150,000 in the aggregate, at an interest rate based upon
CAPCO's or FUNDCO's cost of funding. As of December 31, 1999, 1998, and
1997, the Company had no liability for borrowed money. The Company borrowed
$274,619 during 1999, $271,553 during 1998, and $3,598,125 during 1997,
through the use of these funding agreements. The interest associated with
these intercompany-funding agreements was $50, $76, and $855 in 1999, 1998,
and 1997, respectively.
(8) Reinsurance
-----------
The Company is party to several reinsurance agreements. The Company's
general policy is to reinsure that portion of any risk in excess of $600
with a $100 corridor on the life of any one individual. However, in 1997
the Company entered into certain reinsurance treaties which are based on a
first dollar quota share pool. The Company retains 10% of the risk on each
life up to the normal $600 retention and the remaining 90% goes to a
coinsurance pool which is placed with a number of reinsurers on a quota
share basis.
The Company cedes Bank Owned Life Insurance (BOLI) business through two
reinsurance treaties, one Yearly Renewable Term (YRT) and one Coinsurance
treaty, both of which are with one reinsurer on a first dollar basis, with
the Company retaining 50% of the business under the coinsurance
arrangement. During 1999, the Company and the reinsurer created a trust to
contain the reinsurer's assets which back this product line. This trust
arrangement should reduce the credit risk associated with the high reserve
liability held by the reinsurer for the Company.
Although the ceding of reinsurance does not discharge the Company from its
primary legal liability to a policyholder, the reinsuring company assumes
the related liability.
Life insurance in force in the amounts of $4,444,079, $4,500,994, and
$4,087,549 is ceded on a yearly renewable term basis; $23,535,919,
$10,982,455, and $4,687,456 is ceded on a coinsurance basis; and
$1,003,076, $1,562,383, and $957,925 is ceded in accordance with a stop
loss agreement at December 31, 1999, 1998, and 1997, respectively.
Reinsurance amounts related to insurance reserves, funds on deposit, and
paid losses totaled $405,936 and $308,262 at December 31, 1999 and 1998,
respectively. Premium revenues and interest credited to policyholders were
reduced by $102,521, $104,262, and $204,123 for reinsurance premiums ceded
during the years ended December 31, 1999, 1998, and 1997, respectively.
Benefits were reduced by $93,742, $114,351, and $196,080 for reinsurance
recoverables during the years ended December 31, 1999, 1998, and 1997,
respectively.
In accordance with accident and health reinsurance contracts, aggregate
reserves for policies and contracts and policy and contract claims are
reduced by $24,398 and $23,868 at December 31, 1999 and 1998, respectively.
Premium revenues were reduced by $3,802, $3,266, and $3,297 for reinsurance
premiums ceded during the years ended December 31, 1999, 1998, and 1997,
respectively. Benefits were reduced by $2,385, $6,082, and $3,268 for
reinsurance recoverables during the years ended December 31, 1999, 1998,
and 1997, respectively.
(Continued)
19
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
(9) Deferred policy acquisition costs and future policy benefits
------------------------------------------------------------
Deferred policy acquisitions costs and premiums are summarized below:
<TABLE>
<CAPTION>
Accident
Life Annuity and health Total
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Balance at
December 31, 1996 $ 144,959 30,874 13,465 189,298
--------- --------- ---------- ---------
Additions 24,674 3,942 3,073 31,689
Amortization (7,764) (2,373) (1,761) (11,898)
Fair value adjustment 1,201 (3,200) - (1,999)
--------- --------- ---------- ---------
Net change 18,111 (1,631) 1,312 17,792
--------- --------- ---------- ---------
Balance at
December 31, 1997 $ 163,070 29,243 14,777 207,090
--------- --------- ---------- ---------
Additions 20,220 8,486 5,532 34,238
Amortization (9,809) (1,608) (1,753) (13,170)
Fair value adjustment (256) (916) - (1,172)
--------- --------- ---------- ---------
Net change 10,155 5,962 3,779 19,896
--------- --------- ---------- ---------
Balance at
December 31, 1998 $ 173,225 35,205 18,556 226,986
--------- --------- ---------- ---------
Additions 24,444 12,167 5,737 42,348
Amortization (13,721) (2,149) (1,593) (17,463)
Fair value adjustment 5,091 10,152 - 15,243
--------- --------- ---------- ---------
Net change 15,814 20,170 4,144 40,128
--------- --------- ---------- ---------
Balance at
December 31, 1999 $ 189,039 55,375 22,700 267,114
========= ========= ========== =========
1997 Premiums $ 277,631 8,143 70,051 355,825
========= ========= ========== =========
1998 Premiums $ 281,655 6,755 75,602 364,012
========= ========= ========== =========
1999 Premiums $ 297,445 11,499 89,848 398,792
========= ========= ========== =========
</TABLE>
(Continued)
20
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
The liabilities for future policy benefits and related insurance in force
at December 31, 1999 and 1998 are summarized below:
<TABLE>
<CAPTION>
Future policy
benefits
-------------------------
1999 1998
---- ----
<S> <C> <C>
Life and annuity:
Individual $ 1,019,237 1,115,627
Group 3,842 2,881
------------ ----------
Total life and annuity 1,023,079 1,118,508
============ ==========
Accident and health $ 57,394 49,776
============ ==========
</TABLE>
<TABLE>
<CAPTION>
Insurance in force
-------------------------
1999 1998
---- ----
<S> <C> <C>
Life and annuity:
Individual $ 67,714,390 69,858,089
Credit life 535,991 450,086
Group 2,534,051 2,215,752
------------ ----------
Total life and annuity $ 70,784,432 72,523,927
============ ==========
</TABLE>
Life Insurance and Annuities:
Interest assumptions used in the calculation of future policy benefits for
Traditional Life policies are as follows:
Participating term 9.28%
Participating permanent 8.68% to 9.28%
Non - Participating term 6.00% to 8.91%
Future policy benefits for Payout Annuities use the original pricing
interest rates.
Mortality and withdrawal assumptions are based on the Company's experience.
Health Insurance:
Interest assumptions used for future policy benefits on health policies are
calculated using a level interest rate of 6%.
Morbidity for Income Replacement policies for active lives is based on a
modified 85 CIDA and for disabled lives is based on the 85 CIDA. Morbidity
for In Hospital Cash policies are based on 1966-67 Intercompany Experience
table.
Termination assumptions are based on the Company and industry
experience.
(Continued)
21
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
(10) Capital stock
-------------
The Company has outstanding 600,000 shares of Annually Adjustable
Cumulative Perpetual Preferred Stock; 100,000 shares each of Series A,
Series B, Series C, Series D, Series E, and Series F. All preferred stock
is owned by FUNDCO. No other stock ranks Senior to the Series A-F preferred
stock. The dividend rate will be 65% of the cost of the funds for CAPCO on
Commercial paper having a 180-day maturity on the first business day of
each dividend period. The preferred stock has a liquidation value of $100
(not in thousands) per share. The preferred stock shares are redeemable at
the option of the Company for cash, in whole or in part, on the 15th day of
each December for Series A and Series B and on the 15th day of each June
for Series C, Series D, Series E, and Series F at par value plus accrued
and unpaid dividends. Preferred stock dividends of $1,993, $2,229, and
$2,200 were paid in 1999, 1998, and 1997, respectively, and $98, $81, and
$94 were accrued for each year after the last payments on December 15,
1999, 1998, and 1997, respectively.
The Company has authorized 30,000 shares of common capital stock, $100 (not
in thousands) par value, of which 25,000 shares were issued and outstanding
at December 31, 1999, 1998, and 1997. Dividends of $86,000, $134,428, and
$45,546 were paid in cash and equity securities on the common stock during
1999, 1998, and 1997, respectively. The equity securities transferred had
an original cost of $21,951 and $11,560, a fair value of $33,928 and
$22,546, and a realized gain of $11,977 and $10,986, in 1998 and 1997,
respectively. The 1999 dividends were paid in cash.
(11) Unassigned surplus and dividend restrictions
--------------------------------------------
Texas law limits the payment of dividends to shareholders. The maximum
dividend that may be paid without prior approval of the Insurance
Commissioner is limited to the greater of net gain from operations of the
preceding calendar year or 10% of capital and surplus as of the prior
December 31. As a result, dividend payments to shareholders were limited to
approximately $56,811 in 1999 and are limited to $69,627 in 2000. Dividends
are paid as determined by the Board of Directors and at its discretion.
Extraordinary dividends approved by the Texas Department of Insurance,
totaling $31,182, $69,785, and $0 were paid in 1999, 1998, and 1997,
respectively.
The Texas Department of Insurance imposes minimum risk-based capital
requirements on insurance companies that were developed by the NAIC. The
formulas for determining the amount of risk-based capital (RBC) specify
various weighting factors that are applied to statutory financial balances
or various levels of activity based on the perceived degree of risk.
Regulatory compliance is determined by a ratio of the Company's regulatory
total adjusted capital to its authorized control level RBC, as defined by
the NAIC. Companies below specific trigger points or ratios are classified
within certain levels, each of which requires specified corrective action.
The Company's current statutory capital and surplus is significantly in
excess of the threshold RBC requirements.
(12) Business segments
-----------------
The significant business segments of the Company are life insurance,
annuity products, and health insurance which are marketed primarily to
individuals eligible for membership in USAA. The life insurance segment
offers universal life, whole life, term, and other individual coverages.
The annuity segment offers both fixed and variable annuity products. The
health segment offers individual and group accident and health
policies.
(Continued)
22
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
The following table shows total revenues, income before income taxes, and total
assets for these segments as of and for the years ended December 31, 1999, 1998,
and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues:
- --------
Premiums:
Life $ 297,445 281,655 277,631
Annuity 11,499 6,755 8,143
Health 89,848 75,602 70,051
----------- --------- ---------
398,792 364,012 355,825
Investment income, net:
Life $ 191,850 168,938 138,001
Annuity 288,574 303,796 310,069
Health 3,951 3,397 4,034
----------- --------- ---------
484,375 476,131 452,104
Realized capital gains, net:
Life $ (668) (489) 35,148
Annuity 1,081 23,661 8,376
Health - - -
----------- --------- ---------
413 23,172 43,524
Other revenues:
Life $ (1,092) 3,448 3,121
Annuity 14,600 15,076 14,316
Health 13,920 10,946 9,404
----------- --------- ---------
27,428 29,470 26,841
Total revenues: $ 911,008 892,785 878,294
=========== ========= =========
Income before income taxes:
- --------------------------
Life $ 100,787 80,766 110,476
Annuity 49,844 72,449 55,053
Health (11,396) (3,721) 1,428
----------- --------- ---------
$ 139,235 149,494 166,957
=========== ========= =========
Income tax (expense) or benefit:
- -------------------------------
Life $ (33,265) (28,290) (37,138)
Annuity (16,338) (25,376) (18,507)
Health 3,792 1,303 (480)
----------- --------- ---------
$ (45,811) (52,363) (56,125)
=========== ========= =========
Total assets:
- ------------
Life $ 3,572,155 3,143,667 2,462,903
Annuity 4,980,063 5,251,162 4,823,421
Health 57,196 105,739 92,574
----------- --------- ---------
$ 8,609,414 8,500,568 7,378,898
=========== ========= =========
</TABLE>
(Continued)
23
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
(13) Employee benefit plans
----------------------
(a) Pension plan
------------
Substantially all employees are covered under a pension plan
administered by USAA which is accounted for on a group basis. The
benefits are determined based on years of service and the employee's
salary at date of retirement. The total net pension cost allocated to
the Company on the basis of salary expense was $3,877, $4,422, and
$3,746 in 1999, 1998 and 1997, respectively. At December 31, 1999 and
1998, a liability of $12 and $0, respectively, has been recorded which
represents the excess of net periodic pension cost allocated to the
Company over its allocated funding requirements.
(b) Postretirement benefit plan
---------------------------
Substantially all employees of the Company may become eligible for
certain medical and life insurance benefits provided for retired
employees under a plan administered by USAA if they meet minimum age
and service requirements and retire while working for USAA. The
postretirement benefit cost allocated to the Company based on the
number of employees was $1,052, $1,084, and $737 in 1999, 1998, and
1997, respectively. At December 31, 1999 and 1998, a liability of
$3,342 and $2,097, respectively, has been recorded which represents
the under-funding of the Company's allocated funding requirements
under the net periodic postretirement benefit cost allocated to the
Company.
(c) Contributory retirement plan
----------------------------
Substantially all employees of the Company and its subsidiaries are
eligible to participate in USAA's contributory retirement plan. The
Company matches participant contributions dollar for dollar to a
maximum of 6% of a participant's compensation. The Company's
contributions vest on a graduated basis up to 100% after five years of
credited service. In 1999, 1998, and 1997, the Company's contributions
to the plan totaled $2,577, $2,415, and $2,122, respectively.
(14) Separate accounts
-----------------
The Separate Account and the Life Insurance Separate Account (Separate
Accounts) are segregated asset accounts established under Texas law
through which USAA Life Insurance Company invests the premium payments
received from Contract Owners and Policy Owners, respectively. The
assets of the Separate Accounts are the property of the Company.
However, only the assets of the Separate Accounts in excess of the
reserves, and other Contract liabilities with respect to the Separate
Accounts, are chargeable with liabilities arising out of any other
business the Company may conduct. Income, gains and losses, whether or
not realized, are, in accordance with the Contracts and Policies,
credited to, or charged against the Separate Accounts without regard
to other income, gains or losses of the Company. The Company's
obligations arising under the Contracts and Policies are general
corporate obligations.
(Continued)
24
<PAGE>
USAA LIFE INSURANCE COMPANY
Notes to Consolidated Financial Statements
(Dollars in Thousands)
Each Separate Account currently is divided into twelve Variable Fund
Accounts, each of which invests in a corresponding Fund. The Funds that are
available under this Contract or Policy include seven funds of the USAA
Life Investment Trust, the Capital Growth Portfolio of the Scudder Variable
Life Investment Fund, the Growth Portfolio of The Alger American Fund, and
three funds of Bankers Trust Insurance Funds Trust series. The Accumulated
Unit Value of the Contract or Policy in a Variable Fund Account will vary,
primarily based on the investment experience of the Fund in whose shares
the Variable Fund Account invests. The value of the Funds' securities are
carried at market value, or, in the case of the USAA Life Money Market
Fund, at amortized cost, which approximates market value.
The Company incurs mortality expenses on behalf of the Separate Accounts'
contract holders and policy owners. The Company also incurs administrative
expenses on behalf of Contract and Policy owners. The Company collects fees
for these expenses from contract holders and policy owners, respectively,
at set amounts. In addition, the Company incurs various expenses related to
conducting the business or operations of the USAA Life Investment Trust
(Trust) as outlined by an underwriting and administrative services
agreement. The Company, out of its general account, has agreed to pay
directly or reimburse the Trust for Trust expenses exceeding established
limits. Such reimbursements were not significant in 1999, 1998, and 1997.
(15) Commitments and contingencies
-----------------------------
The Company is required by law to participate in the guaranty associations
of the various states in which it does business. The state guaranty
associations ensure payment of guaranteed benefits, with certain
restrictions to policyholders of impaired or insolvent insurance companies,
by assessing all other companies involved in similar lines of business.
There are currently several insurance companies which had substantial
amounts of annuity business, in the process of liquidation or
rehabilitation. The Company paid $323, $1,898 and $1,953 to various state
guaranty associations during the years ended December 31, 1999, 1998, and
1997, respectively. The Company accrues its best estimate for known
insolvencies. At December 31, 1999 and 1998 accounts payable and accrued
expenses include $6,037 and $6,052, respectively, related to estimated
assessments.
The Company is party to various lawsuits and claims generally incidental to
its business. The ultimate disposition of these matters is not expected to
have a significant adverse effect on the Company's financial position or
results of operations.
25
<PAGE>
PART C - OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) List of Financial Statements
1. Part A. Condensed financial information reflecting the values and
number of units outstanding for each class of accumulation units of the
Separate Account for its fiscal years ended December 31, 1999, December
31, 1998, December 31, 1997, and December 31, 1996, respectively, and
for its first fiscal period of operations (commencing February 6, 1995
and ended December 31, 1995) is included in Part A of this Registration
Statement.
2. Part B. The most recent audited Financial Statements of the Separate
Account are incorporated into Part B of this Registration Statement by
reference to the Separate Account's Annual Report, dated December 31,
1999.
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, 1999 and 1998, and
each of the years in the three-year period ended December 31,
1999:
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(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. (Filed herewith.)
(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,
amended and restated, November 18, 1998, and amended and restated,
December 31, 1999. (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.
/4/
(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. /4/
(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. /4/
(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. /4/
(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. /4/
(ii) Expense Allocation Agreement by and between Bankers Trust
Company and USAA Life Insurance Company, dated April 30,
1998. /4/
9. Opinion and Consent of Counsel concerning the legality of the
securities being registered. (Filed herewith.)
10. Consent of KPMG LLP, Independent Auditors. (Filed herewith.)
11. Not Applicable.
12. (a) Subscription Agreement by and between USAA Life Insurance Company
and USAA Life Investment Trust, dated December 16, 1994. /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,
2
<PAGE>
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 the USAA Life
Money Market Variable 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) Power of Attorney for Robert G. Davis./2/
(b) Powers of Attorney for James M. Middleton, Bradford W. Rich, Josue
Robles, Jr., Michael J.C. Roth and Larkin W. Fields. (Filed herewith.)
17. Persons Controlled By or Under Common Control with Registrant. (Filed
herewith.)
27. Financial Data Schedule. (Inapplicable, because, not withstanding Item
24(b)(14) 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.
/4/ Previously filed on February 26, 1999 in Post-Effective Amendment No. 5 to
this Registration Statement.
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
Set forth below are the Directors and officers of USAA Life, the depositor
of the Separate Account, who are engaged directly or indirectly in activities
relating to the Registrant or the variable annuity contracts offered by the
Registrant, including each senior executive officer of USAA Life. 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 & Offices on the Board:
---------- ---------------------------------
Robert G. Davis Director and Chairman
James M. Middleton Director and Vice Chairman
Bradford W. Rich Director
Josue Robles, Jr. Director
Michael J.C. Roth Director
Officers: Positions & Offices with USAA Life:
--------- -----------------------------------
James M. Middleton President and Chief Executive Officer
Edward R. Dinstel Senior Vice President
John W. Douglas Senior Vice President
Larkin W. Fields Senior Vice President and Treasurer
Kenneth A. McClure Senior Vice President
Ronald W. Holtkamp Vice President and Assistant Treasurer
King Mawhinney Vice President
Pattie S. McWilliams Vice President
Bradford W. Rich Vice President, General Counsel and
Secretary
Cynthia A. Toles Vice President and Assistant Secretary
Dwain A. Akins Assistant Vice President and Assistant
Secretary
Bobby L. Casey Assistant Vice President
Ted E. Johnson Assistant Vice President
Diana L. Scheel Assistant Vice President
3
<PAGE>
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 list that is filed as Exhibit 17 hereto and
incorporated by reference in response to this item.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 31, 2000, there were 8,591 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(b) to this
Registration Statement; to Section 13 of the Amended and Restated Distribution
and Administration Agreement, filed as Exhibit 3 to this Registration Statement;
to paragraph 8 of the Participating Contract and Policy Agreement, as amended,
filed as Exhibit 8(c)(ii) to this Registration Statement; and to Section 12 of
the Transfer Agent Agreement, as amended, filed as Exhibit 8(a) of Post-
Effective Amendment No. 6 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) Set forth below are the Directors and officers of USAA IMCO who are engaged
directly or indirectly in activities relating to the Registrant or the
variable annuity contracts offered by the Registrant, including each senior
executive officer of USAA IMCO. The principal business address for all of
the following Directors and officers of USAA IMCO is 9800 Fredericksburg
Road, San Antonio, Texas 78288.
Directors: Positions & Offices with USAA IMCO:
---------- -----------------------------------
Robert G. Davis Director and Chairman
Michael J.C. Roth Director and Vice Chairman
David G. Peebles Director
Kenneth E. Willmann Director
4
<PAGE>
Officers: Positions with USAA IMCO:
--------- -------------------------
Michael J.C. Roth CEO and President
Sherron A. Kirk Senior Vice President and Senior
Financial Officer
David G. Peebles Senior Vice President
Kenneth E. Willmann Senior Vice President
Michael D. Wagner Vice President, Secretary and Counsel
Mark S. Howard Assistant Vice President and Assistant
Secretary
(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 9800 Fredericksburg Road, 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 of Additional
Information and any financial statements required to be made available
under this Form promptly upon written or oral request; and
(d) USAA Life Insurance Company represents that the fees and charges
deducted under the Contracts described in this Registration Statement,
in the aggregate, are reasonable in relation to the services rendered,
the expenses expected to be incurred, and the risks assumed by USAA
Life under the Contracts. USAA Life bases its representation on its
assessment of all of the facts and circumstances, including such
relevant factors as: the nature and extent of such services, expenses
and risks; the need for USAA Life to earn a profit; the degree to which
the Contracts include innovative features; and the regulatory standards
for exemptive relief under the Investment Company Act of 1940 used
prior to October 1996, including the range of industry practice. This
representation applies to all Contracts sold pursuant to this
Registration Statement, including those sold on the terms specifically
described in the prospectus contained herein, or any variations
therein, based on supplements, endorsements, or riders to any Contracts
or prospectus, or otherwise.
Registrant hereby represents that it is relying upon the letter, dated
November 28, 1988, from the Commission staff to the American Council of Life
Insurance, regarding Sections 22(e), 27(c)(1) and 27(d) of the Investment
Company Act of 1940 and the redeemability of variable annuity contracts offered
as funding vehicles for retirement plans meeting the requirements of Section
403(b) of the Internal Revenue Code. Registrant further represents that it
intends to comply with the provisions of paragraphs (1)-(4) of that letter.
5
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, as amended, Registrant certifies that it meets the requirements of
Securities Act Rule 485(b) for effectiveness of this amended Registration
Statement and has duly caused this amended Registration Statement to be signed
on its behalf by the undersigned thereunto duly authorized, in the City of San
Antonio and State of Texas on this 26th day of April, 2000.
The Separate Account
of USAA Life Insurance Company
(Registrant)
By: USAA Life Insurance Company
(On behalf of Registrant and itself)
By: /s/JAMES M. MIDDLETON
----------------------------------------
James M. Middleton
President and Chief Executive Officer
Attest: /s/DWAIN A. AKINS
-------------------------
Dwain A. Akins
Assistant Secretary
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) (TITLE) (DATE)
<S> <C> <C>
*Robert G. Davis Chairman April 26, 2000
James M. Middleton Vice Chairman, President and April 11, 2000
Chief Executive Officer
Bradford W. Rich Director April 11, 2000
*Josue Robles, Jr. Director April 26, 2000
Michael J.C. Roth Director April 13, 2000
Larkin W. Fields Senior Vice President and Treasurer April 11, 2000
(Principal Financial and Accounting
Officer)
</TABLE>
*Signed by Dwain A. Akins, Attorney-in-fact.
6
<PAGE>
EXHIBIT INDEX
EXHIBIT Page No.
- --------------------------------------------------------------------------------
6(a) Amended Articles of Incorporation of USAA Life Insurance Company.
8(b) Amended and Restated Underwriting and Administrative Services Agreement.
9 Opinion and Consent of Counsel.
10 Consent of KPMG LLP, Independent Auditors.
16(b) Powers of Attorney for James M. Middleton, Bradford W. Rich, Josue
Robles, Jr., Michael J.C. Roth and Larkin W. Fields.
17 Persons Controlled By or Under Common Control with Registrant.
7
<PAGE>
EXHIBIT 6(a)
Amended Articles of Incorporation
of USAA Life Insurance Company
<PAGE>
EXHIBIT 6(a)
No. 98-0706
-------
OFFICIAL ORDER
of the
COMMISSIONER OF INSURANCE
of the
STATE OF TEXAS
AUSTIN, TEXAS
Date: JUN 17, 1998
Subject Considered:
USAA LIFE INSURANCE COMPANY
San Antonio, Texas
TDI No. 01-87930
APPLICATION FOR AMENDED CERTIFICATE OF AUTHORITY
DOCKET NO. R-98-0534
General remarks and official action taken:
On this day came on for consideration by the Commissioner of Insurance, pursuant
to the provisions of TEX. INS. CODE ANN. art. 3.75 and 28 TEX. ADMIN. CODE
(S)3.703 through (S)3.706, the application of USAA LIFE INSURANCE COMPANY, San
Antonio, Texas, for an amended Certificate of Authority to issue, deliver or use
variable life insurance contracts in the State of Texas.
The Commissioner of Insurance has jurisdiction over the application pursuant to
TEX. INS. CODE ANN. art. 3.75 (S)3 and 28 TEX. ADMIN. CODE (S)3.703. USAA LIFE
INSURANCE COMPANY, San Antonio, Texas, is a life insurance company admitted to
do Life, Accident, Health and Variable Annuity business in this State. USAA LIFE
INSURANCE COMPANY, San Antonio, Texas, has applied to waive a public hearing,
pursuant to TEX. INS. CODE ANN. art. 3.75 (S)3(e).
Documentation submitted pursuant to TEX. INS. CODE ANN. art. 3.75 (S)3 and 28
TEX. ADMIN. CODE (S)3.703 has been evidenced to the Commissioner of Insurance
and the application is properly supported by the required documents.
IT IS THEREFORE THE ORDER of the Commissioner of Insurance that the application
of USAA LIFE INSURANCE COMPANY, San Antonio, Texas to waive the public hearing
specified in TEX. INS. CODE ANN. art. 3.75 (S)3(e), be, and the same is hereby
granted.
<PAGE>
98-0706
Commissioner's Order
USAA LIFE INSURANCE COMPANY
PAGE 2 OF 2
IT IS THE FURTHER ORDER of the Commissioner of Insurance that the application of
USAA LIFE INSURANCE COMPANY, San Antonio, Texas, for authority to issue, deliver
or use variable life insurance contracts in the State of Texas, be, and the same
is hereby, approved, and that an, amended Certificate of Authority be issued to
such company evidencing the authority herein granted. IT IS FURTHER ORDERED that
Certificate of Authority No. 10379, dated April 14, 1994, is hereby canceled, as
of the effective date of this Order.
ELTON BOMER
COMMISSIONER OF INSURANCE
BY: /s/ Kathy A. Wilcox
-------------------
Kathy A. Wilcox, Director
Insurer Services Order
Order 94-0580
Recommended by:
/s/ Lori Cottingham
- -------------------
Lori Cottingham, Insurance Specialist
Insurer Services
<PAGE>
No. 98-0212
-------
OFFICIAL ORDER
of the
COMMISSIONER OF INSURANCE
of the
STATE OF TEXAS
AUSTIN, TEXAS
Date: FEB 23, 1998
Subject Considered:
USAA LIFE INSURANCE COMPANY
San Antonio, Texas
TDI No. 01-87930
AMENDMENT TO THE ARTICLES OF INCORPORATION
CONSENT ORDER
DOCKET NO. R-98-0118
General remarks and official action taken:
On this day came on for consideration by the Commissioner of Insurance, pursuant
to TEX. INS. CODE ANN. art. 3.05 and TEX. BUS. CORP. ACT art. 4.02 and art.
4.04, the application of USAA LIFE INSURANCE COMPANY, San Antonio, Texas,
hereinafter referred to as "APPLICANT", for approval of an amendment to its
Articles of Incorporation increasing the authorized preferred stock.
Staff for the Texas Department of Insurance and the duly authorized
representative of APPLICANT, have consented to the entry of this order as
evidenced by their signatures hereto and request the Commissioner of Insurance
informally dispose of this matter pursuant to the provisions of TEX. INS. CODE
ANN. art. 1.33(e), TEX. GOV'T CODE ANN. (S)2001.056, and 28 TEX. ADMIN. CODE
(S)1.47.
WAIVER
------
APPLICANT acknowledges the existence of its right to the issuance and service of
notice of hearing, a public hearing, a proposal for decision, rehearing by the
Commissioner of Insurance, and judicial review of this administrative action, as
provided for in TEX. INS. CODE ANN. art. 1.04 and TEX. GOV'T CODE ANN.
(S)(S)2001.051, 2001.052, 2001.145 and 2001.146, and by the signature of its
duly authorize representative on this order, has expressly waived each and every
such right and acknowledges the jurisdiction of the Commissioner of Insurance.
<PAGE>
98-0212
COMMISSIONER'S ORDER
USAA LIFE INSURANCE COMPANY
PAGE 2 of 4
FINDINGS OF FACT
----------------
Based upon the express consent of APPLICANT and the recommendation of the Texas
Department of Insurance staff, the Commissioner of Insurance makes the following
findings of fact:
1. APPLICANT is a domestic stock life insurance company.
2. Action by the Board of Directors and Sole Shareholder of APPLICANT
authorizing the proposed charter amendment as required and permitted by
TEX. INS. CODE ANN. art. 3.05 and TEX. BUS. CORP. ACT art. 4.02 and art.
4.04 has been evidenced to the Commissioner of Insurance
3. As a result of the amendment to the Articles of Incorporation, the
APPLICANT will increase the authorized shares of preferred stock from six
hundred thousand (600,000) shares of preferred stock with a par value of
one hundred dollars ($100.00) per share to one million two hundred thousand
(1,200,000) shares of preferred stock with a par value of one hundred
dollars ($100.00) per share. The common stock will remain at twenty five
thousand (25,000) shares issued and outstanding.
4. The stated capital will remain at sixty two million five hundred thousand
dollars ($62,500,000).
5. Upon approval of the charter amendment, six hundred twenty five thousand
(625,000) shares of the capital stock representing at least fifty percent
(50%) of the authorized capital stock will be issued and outstanding.
6. The proposed capital and surplus of APPLICANT is equal to or exceeds the
minimum requirements of capital and surplus required by the Texas Insurance
Code for a domestic stock life insurance company, and is the bona fide,
unconditional, and unencumbered property of the company.
7. APPLICANT represents to the Commissioner of Insurance that its officers,
directors and managing executives possess sufficient insurance experience,
ability, and standing to render the continued success of the company
probable.
8. APPLICANT is acting in good faith.
<PAGE>
98-0212
COMMISSIONER'S ORDER
USAA LIFE INSURANCE COMPANY
PAGE 3 of 4
CONCLUSIONS OF LAW
------------------
Based upon the foregoing findings of fact, the Commissioner of Insurance makes
the following conclusions of law:
1. The Commissioner of Insurance has authority and jurisdiction over this
application under TEX. INS. CODE ANN. art. 3.05.
2. The Commissioner of Insurance has authority to dispose of this matter under
TEX. GOV'T CODE ANN. (S)2001.056, TEX. INS. CODE ANN. art. 1.33(e), and 28
TEX. ADMIN. CODE (S)1.47.
3. APPLICANT and staff have knowingly and voluntarily waived all procedural
requirements for the entry of this order, including, but not limited to,
notice of hearing, a public hearing, a proposal for decision, rehearing by
the Commissioner of Insurance, and judicial review of the order as provided
for in TEX. GOV'T CODE ANN. (S)(S)2001.05l, 2001.052, 2001.145 and
2001.146, and TEX. INS. CODE ANN. art. 1.04.
4. Action by the Board of Directors and the Sole Shareholder of APPLICANT
authorizing the proposed amendment as required and permitted by TEX. INS.
CODE ANN. art. 3.05 and TEX. BUS. CORP. ACT art. 4.02 and art. 4.04 has
been evidenced to the Commissioner of Insurance.
5. The proposed amendment to the Articles of Incorporation of APPLICANT is
properly supported by the required documents.
IT IS, THEREFORE, THE ORDER of the Commissioner of Insurance that the charter
amendment of USAA LIFE INSURANCE COMPANY, San Antonio, Texas, increasing the
authorized preferred stock from six hundred thousand (600,000) shares of
preferred stock with a par value of one hundred dollars ($100.00) per share to
one million two hundred thousand (1,200,000) shares of preferred stock with a
par value of one hundred dollars ($100.00) per share, be, and the same is
hereby, approved.
ELTON BOMER
COMMISSIONER OF INSURANCE
BY: /s/ Kathy A. Wilcox
-------------------
KATHY A. Wilcox
Director
Insurer Services
Order 94-0580
<PAGE>
98-0212
COMMISSIONER'S ORDER
USAA LIFE INSURANCE COMPANY
PAGE 4 of 4
Recommended by:
/s/ Lori Cottingham
- -------------------
Lori Cottingham
Insurance Specialist
Insurer Services
Agreed to by:
USAA LIFE INSURANCE COMPANY
/s/ Edwin L. Rosane
- -------------------
(printed name) EDWIN L. ROSANE
---------------
Title: President & CEO
---------------
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF USAA LIFE INSURANCE COMPANY ("USAA LIFE")
Pursuant to the provisions of Article 3.05 of the Texas Insurance Code and
Article 4.04 of the Texas Business Corporation Act, the undersigned corporation
adopts the following Amendment to its Articles of Incorporation.
ARTICLE I
The name of the corporation is USAA Life Insurance Company.
ARTICLE II
The following amendment to Article IV, Subsection B of the Articles of
Incorporation was adopted by the shareholders of the corporation on June 10,
1997.
The Amendment is in addition to the original and amended Article IV of the
Articles of Incorporation and the full text of the provision added is as
follows:
B. The aggregate number of shares of Preferred Stock which USAA Life
Insurance Company has the authority to issue is one million two
hundred thousand (1,200,000) shares of Preferred Stock with a par
value of one hundred dollars ($100.00) per share. The preferred
shares authorized by this Amendment to the Articles of
Incorporation of USAA Life Insurance Company shall be issued from
time to time in series of one hundred thousand (100,000) shares.
Authority to issue additional series of such authorized Preferred
Stock and the terms of such series shall be determined by the
Board of Directors at its discretion.
ARTICLE III
The number of common shares of the corporation issued and outstanding at the
time of such adoption was twenty-five thousand (25,000); and the number of
shares entitled to vote thereon was twenty-five thousand (25,000). The number of
shares voted for such Amendment was twenty-five thousand (25,000); and the
number of shares voted against such Amendment was NONE.
<PAGE>
ARTICLE IV
The holder of all the shares outstanding and entitled to vote on said Amendment
has signed a consent in writing adopting said Amendment.
ARTICLE V
The proposed Amendment to Article IV, Subsection B of the Articles of
Incorporation and the additional authorized Preferred Stock will not increase
the stated capital of USAA Life Insurance Company. The state capital will not
change until the Board authorizes issuance of an additional series of Preferred
Stock.
USAA LIFE INSURANCE COMPANY
By: /s/ Edwin L. Rosane
------------------------
Edwin L. Rosane
President
By: /s/ R.T. Halinski, Jr.
------------------------
R. T. Halinski, Jr.
Assistant Secretary
<PAGE>
STATE OF TEXAS )
)
COUNTY OF BEXAR )
Before me, a notary public, on this day personally appeared Edwin L. Rosane,
---------------
known to me to be one of the person whose names are subscribed to the foregoing
document and, being by me first duly sworn, declared that the statements therein
contained are true and correct.
Given under my hand and seal of office this 10/th/ day of June, A.D., 1997.
------ ---- ----
/s/ Barbara B. Charo
---------------------
(Printed or Stamped)
NOTARY SEAL
Notary Public, State of Texas
My Commission expires:
July 27, 1997
-------------
STATE OF TEXAS )
)
COUNTY OF BEXAR )
Before me, a notary public, on this day personally appeared R. T. Halinski, Jr.,
--------------------
known to me to be one of the person whose names are subscribed to the foregoing
document and, being by me first duly sworn, declared that the statements therein
contained are true and correct.
Given under my hand and seal of office this 10/th/ day of June, A.D., 1997.
------ ---- ----
Vickie Y. Gimblet
-----------------
(Printed or Stamped)
NOTARY SEAL
Notary Public, State of Texas
My Commission expires:
02-25-, 2000
------------
<PAGE>
No. 96-0920
-------
OFFICIAL ORDER
of the
COMMISSIONER OF INSURANCE
of the
STATE OF TEXAS
AUSTIN, TEXAS
Date: AUG 19, 1996
Subject Considered:
USAA LIFE INSURANCE COMPANY
San Antonio, Texas
TDI No. 01-87930
AMENDMENT AND RESTATEMENT TO THE ARTICLES OF INCORPORATION
CONSENT ORDER
DOCKET NO. C-96-0626
General remarks and official action taken:
On this day came on for consideration by the Commissioner of Insurance, pursuant
to TEX. INS. CODE ANN. art. 3.05 and TEX. BUS. CORP. ACT art. 4.02 and art.
4.04, the application of USAA LIFE INSURANCE COMPANY, San Antonio, Texas,
hereinafter referred to as "APPLICANT", for approval of an Amendment and
Restatement to its Articles of Incorporation increasing the authorized capital
stock.
Staff for the Texas Department of Insurance and the duly authorized
representative of APPLICANT, have consented to the entry of this order as
evidenced by their signatures hereto and request the Commissioner of Insurance
informally dispose of this matter pursuant to the provisions of TEX. INS. CODE
ANN. art. 1.33(e), TEX. GOV'T CODE ANN. (S)2001.056, and 28 TEX. ADMIN. CODE
(S)1.47.
WAIVER
------
APPLICANT acknowledges the existence of its right to the issuance and service of
notice of hearing, a public hearing, a proposal for decision, rehearing by the
Commissioner of Insurance, and judicial review of this administrative action, as
provided for in TEX. INS. CODE ANN. art. 1.04 and TEX. GOV'T CODE ANN.
(S)(S)2001.051, 2001.052, 2001.145 and 2001.146, and by the signature of its
duly authorized representative on this order, has expressly waived each and
every such right and acknowledges the jurisdiction of the Commissioner of
Insurance.
<PAGE>
96-0920
COMMISSIONER'S ORDER
USAA LIFE INSURANCE COMPANY
PAGE 2 of 4
FINDINGS OF FACT
----------------
Based upon the express consent of APPLICANT and the recommendation of the Texas
Department of Insurance staff, the Commissioner of Insurance makes the following
findings of fact:
1. APPLICANT is a domestic stock life insurance company.
2. Action by the Board of Directors and Shareholders of APPLICANT authorizing
the proposed charter amendment and restatement as required and permitted by
TEX. INS. CODE ANN. art. 3.05 and TEX. BUS. CORP. ACT art. 4.02 and art.
4.04 has been evidenced to the Commissioner of Insurance.
3. As a result of the Amendment and Restatement to the Articles of
Incorporation, the APPLICANT will increase the authorized shares of capital
stock from four hundred thousand (400,000) shares of preferred stock with a
par value of one hundred dollars ($100.00) per share and twenty-five
thousand (25,000) shares of common stock with a par value of one hundred
dollars ($100.00) per share to six hundred thousand (600,000) shares of
preferred stock with a par value of one hundred dollars ($100.00) per share
and thirty thousand (30,000) shares of common stock with a par value of one
hundred dollars ($100.00) per share.
4. The stated capital will be increased from forty-two million five hundred
thousand dollars ($42,500,000) to sixty-two million five hundred thousand
dollars ($62,500,000), divided into twenty-five thousand (25,000) shares of
common stock with a par value of one hundred dollars ($100.00) per share
and six hundred thousand (600,000) shares of preferred stock with a par
value of one hundred dollars ($100.00) per share. The increase is the
result of the issuance and sale of one hundred thousand (100,000) shares of
preferred stock, Series E, and one hundred thousand (100,000) shares of
preferred stock, Series F.
5. Upon approval of the charter amendment, six hundred twenty-five thousand
(625,000) shares of the capital stock representing at least fifty percent
(50%) of the authorized capital stock will be issued and outstanding.
6. The proposed capital and surplus of APPLICANT is equal to or exceeds the
minimum requirements of capital and surplus required by the Texas Insurance
Code for a domestic stock life insurance company, and is the bona fide,
unconditional, and unencumbered property of the company.
7. APPLICANT represents to the Commissioner of Insurance that its officers,
directors and managing executives possess sufficient insurance experience,
ability, and standing to render the continued success of the company
probable.
8. APPLICANT is acting in good faith.
<PAGE>
96-0920
COMMISSIONER'S ORDER
USAA LIFE INSURANCE COMPANY
PAGE 3 of 4
CONCLUSIONS OF LAW
------------------
Based upon the foregoing findings of fact, the Commissioner of Insurance makes
the following conclusions of law:
1. The Commissioner of Insurance has authority and jurisdiction over this
application under TEX. INS. CODE ANN. art. 3.05.
2. The Commissioner of Insurance has authority to dispose of this matter under
TEX. GOV'T CODE ANN. (S)2001.056, TEX. INS. CODE ANN. art. 1.33(e), and 28
TEX. ADMIN. CODE (S)1.47.
3. APPLICANT and staff have knowingly and voluntarily waived all procedural
requirements for the entry of this order, including, but not limited to,
notice of hearing, a public hearing, a proposal for decision, rehearing by
the Commissioner of Insurance, and judicial review of the order as provided
for in TEX. GOV'T CODE ANN. (S)(S)2001.051, 2001.052, 2001.145 and
2001.146, and TEX. INS. CODE ANN. art. 1.04.
4. Action by the Board of Directors and the Shareholders of APPLICANT
authorizing the proposed amendment as required and permitted by TEX. INS.
CODE ANN. art. 3.05 and TEX. BUS. CORP. ACT art. 4.02 and art. 4.04 has
been evidenced to the Commissioner of Insurance.
5. The proposed amendment to the Articles of Incorporation of APPLICANT is
properly supported by the required documents.
IT IS, THEREFORE, THE ORDER of the Commissioner of Insurance that the charter
amendment and restatement of USAA LIFE INSURANCE COMPANY, San Antonio, Texas,
increasing the authorized capital stock from four hundred thousand (400,000)
shares of preferred stock with a par value of one hundred dollars ($100.00) per
share and twenty-five thousand (25,000) shares of common stock with a par value
of one hundred dollars ($100.00) per share to six hundred thousand (600,000)
shares of preferred stock with a par value of one hundred dollars ($100.00) per
share and thirty thousand (30,000) shares of common stock with a par value of
one hundred dollars ($100.00) per share, be, and the same is hereby, approved.
ELTON BOMER
COMMISSIONER OF INSURANCE
BY: /s/ Kathy A. Wilcox
-------------------
KATHY A. Wilcox
Director
Insurer Services
Order 94-0580
<PAGE>
98-0212
COMMISSIONER'S ORDER
USAA LIFE INSURANCE COMPANY
PAGE 4 of 4
Recommended by:
/s/ Cindy Thurman
- -----------------
Cindy Thurman
Admissions Officer
Insurer Services
/s/ Lois S. Hanke
- -----------------
Lois S. Hanke
Assistant Admissions Officer
Insurer Services
Agreed to by:
USAA LIFE INSURANCE COMPANY
/s/ Edwin L. Rosane
- -------------------
Edwin L. Rosane
President
<PAGE>
RESTATED
ARTICLES OF INCORPORATION
OF
USAA LIFE INSURANCE COMPANY
We, the undersigned natural persons of the age of twenty-one years or more,
all of whom are citizens of the State of Texas, do hereby associate ourselves
for the purpose of forming a life, health and accident insurance company
pursuant to Chapter 3 of the Insurance Code of Texas, 1951, as amended, and in
furtherance of such purpose, do hereby restate the following Articles of
Incorporation:
ARTICLE ONE
The name of the corporation is USAA LIFE INSURANCE COMPANY.
ARTICLE TWO
The period of time for which the corporation is to exist shall be five
hundred years.
ARTICLE THREE
The purpose for which the corporation is organized is to transact a life,
health and accident insurance business as now or as hereafter permitted by law.
ARTICLE FOUR
A. The aggregate number of shares of Common Stock which the corporation
shall have authority to issue is Thirty Thousand (30,000) with a par
value of One Hundred Dollars ($100.00) each, amounting in the
aggregate to Three Million Dollars ($3,000,000.00); of such aggregate
amount not less than Twenty-five Thousand (25,000) shares with a par
value of One Hundred Dollars ($100.00) each, amounting to Two Million
Five Hundred Thousand Dollars ($2,500,000) have been subscribed and
fully paid.
B. The aggregate number of shares of Preferred Stock which USAA Life
Insurance Company has the authority to issue is Six Hundred Thousand
(600,000) shares of Preferred Stock with a par value of One Hundred
Dollars ($100.00) per share. The Preferred Stock authorized by this
section shall be issued in Series A through F, consisting of
increments of One Hundred Thousand (100,000) shares. Authority to
issue additional series of such authorized Preferred Stock and terms
of such series shall be determined by the Board of Directors at its
discretion.
<PAGE>
ARTICLE FIVE
The location of the Home Office of the Company is San Antonio, Bexar
County, Texas.
ARTICLE SIX
The number of directors shall be as specified in the bylaws of the
corporation and such number may from time to time be increased or decreased in
such manner as prescribed by the bylaws.
ARTICLE SEVEN
The names and addresses of the incorporators are:
NAME ADDRESS
---- -------
Colonel Charles E. Cheever 4119 Broadway, San Antonio, Texas
Colonel Carlton G. Schenken 4119 Broadway, San Antonio, Texas
Colonel Amel T. Leonard 4119 Broadway, San Antonio, Texas
ARTICLE EIGHT
The Company reserves the right to amend, alter or repeal any provision
contained in these Articles of Incorporation in the manner now or hereafter
provided by law.
ARTICLE NINE
No director of the corporation shall be personally liable to the
corporation or its shareholders for monetary damages for any act or omission in
the director's capacity as a director occurring from and after the deposit of
the Articles of Amendment with and approval by the State Board of Insurance of
the State of Texas, except on the following instances: (i) for any breach of the
director's duty of loyalty to the corporation or its shareholders; (ii) for any
act or omission not in good faith or which involves intentional misconduct or a
knowing violation of the law; (iii) for any transaction from which the director
received an improper benefit, whether or not the benefit resulted from action
taken within the scope of the director's office; (iv) any act or omission for
which the liability of a director is expressly provided for by statute; or (v)
any act related to an unlawful stock repurchase or payment of a dividend.
ARTICLE TEN
The number of common shares of the corporation outstanding at the time of
such Restatement was Twenty-five Thousand (25,000); and the number of shares
entitled to vote thereon was Twenty-five Thousand (25,000).
<PAGE>
ARTICLE ELEVEN
The sole shareholder of all the Twenty-five Thousand (25,000) common shares
outstanding and entitled to vote on said Restatement has signed a consent in
writing adopting said Restatement.
ARTICLE TWELVE
The manner in which such Restatement effects a change in the amount of
stated capital and the amount of stated capital as changed by such Restatement,
are as follows:
The proposed Restatement to Article IV of the Articles of Incorporation and
the subsequent issuance of Preferred Stock will increase the stated capital of
USAA Life from Forty-two Million Five Hundred Thousand Dollars ($42,500,000.00)
to Sixty-two Million Five Hundred Thousand Dollars ($62,500,000.00). The
increase is the result of the issuance and proposed sale of One Hundred Thousand
(100,000) shares of Preferred Stock, Series E and One Hundred Thousand (100,000)
shares of Preferred Stock, Series F, One Hundred Dollars ($100.00) par value
each. This represents One Hundred percent (100%) of the Two Hundred Thousand
(200,000) shares authorized and issued for Preferred Stock, Series E and F of
USAA Life.
Dated: June 21/st/, 1996 USAA LIFE INSURANCE COMPANY
------
By: /s/ Edwin L. Rosane
----------------------------------
Edwin L. Rosane, President
By: /s/ Bradford W. Rich
----------------------------------
Bradford W. Rich, Secretary
STATE OF TEXAS }
COUNTY OF BEXAR }
I, Vickie Y. Gimblet, a notary public, do hereby certify that on this
-----------------
21/st/ day of June, 1996, personally appeared before me Edwin L. Rosane and
- ------ ---- ---- ---------------
Bradford W. Rich who each being by me first duly sworn, severally declared that
- ----------------
they are the persons who signed the foregoing document as incorporators, and
that the statements contained therein are true and correct.
Vickie Y. Gimblet
-----------------
Notary Public, Bexar County, Texas
{Notary Seal} My commission expires: 02-25-97
--------
<PAGE>
No. 94-1306
-------
OFFICIAL ORDER
of the
COMMISSIONER OF INSURANCE
of the
STATE OF TEXAS
AUSTIN, TEXAS
Date: DEC 06, 1994
Subject Considered:
USAA LIFE INSURANCE COMPANY
San Antonio, Texas
AMENDMENT TO THE ARTICLES OF INCORPORATION
CONSENT ORDER
DOCKET NO. C-94-556
General remarks and official action taken:
On this day came on for consideration by the Commissioner of Insurance, pursuant
to TEX. INS. CODE ANN. art. 3.05 and TEX. BUS. CORP. ACT art. 4.02 and art.
4.04, the application of USAA LIFE INSURANCE COMPANY, San Antonio, Texas,
hereinafter referred to as APPLICANT, for approval of an amendment to its
articles of incorporation increasing the authorized capital stock.
Staff for the Texas Department of Insurance and the duly authorized
representative of the APPLICANT, have consented to the entry of this order as
evidenced by their signatures hereto and request the Commissioner of Insurance
informally dispose of this matter pursuant to the provisions of TEX. INS. CODE
ANN. art. 1.33(e), TEX. GOV'T CODE ANN. (S)2001.056, and 28 TEX. ADMIN. CODE
(S)1.47.
WAIVER
------
APPLICANT acknowledges the existence of its right to the issuance and service of
notice of hearing, a public hearing, a proposal for decision, rehearing by the
Commissioner of Insurance, and judicial review of this administrative action, as
provided for in TEX. INS. CODE ANN. art. 1.04 and TEX. GOV'T CODE ANN.
(S)(S)2001.051, 2001.052, 2001.145 and 2001.146, and by the signature of its
duly authorized representative on this order, has expressly waived each and
every such right and acknowledges the jurisdiction of the Commissioner of
Insurance.
<PAGE>
94-1306
COMMISSIONER'S ORDER
USAA LIFE INSURANCE COMPANY
PAGE 2 of 4
FINDINGS OF FACT
----------------
Based upon the express consent of APPLICANT and the recommendation of the Texas
Department of Insurance staff, the Commissioner of Insurance makes the following
findings of fact:
1. APPLICANT is a domestic stock life insurance company.
2. Action by the Board of Directors and Shareholders of APPLICANT authorizing
the proposed charter amendment as required and permitted by TEX. INS. CODE
ANN. art. 3.05 and TEX. BUS. CORP. ACT art. 4.02 and art. 4.04 has been
evidenced to the Commissioner of Insurance.
3. As a result of the amendment to the Articles of Incorporation, the
APPLICANT will increase the authorized shares of capital stock from two
hundred thousand (200,000) shares of preferred stock with a par value of
one hundred dollars ($100.00) per share and twenty-five thousand (25,000)
shares of common stock with a par value of one hundred dollars ($100.00)
per share to four hundred (400,000) shares of preferred stock with a par
value of one hundred dollars ($100.00) per share and twenty-five thousand
(25,000) shares of common stock with a par value of one hundred dollars
($100.00) per share.
4. The stated capital will be increased from twenty-two million five hundred
thousand dollars ($22,500,000) to forty-two million five hundred thousand
dollars ($42,500,000), divided into twenty-five thousand (25,000) shares of
common stock with a par value of one hundred dollars ($100.00) per share
and four hundred thousand (400,000) shares of preferred stock with a par
value of one hundred dollars ($100.00) per share. The increase is the
result of the issuance and sale of one hundred thousand (100,000) shares of
preferred stock, Series C, and one hundred thousand (100,000) shares of
preferred stock, Series D.
5. Upon approval of the charter amendment, four hundred twenty-five thousand
(425,000) shares of the capital stock representing one hundred percent
(100%) of the authorized capital stock will be issued and outstanding.
<PAGE>
94-1306
COMMISSIONER'S ORDER
USAA LIFE INSURANCE COMPANY
PAGE 3 of 4
6. The proposed capital and surplus of APPLICANT is equal to or exceeds the
minimum requirements of capital and surplus required by the Texas Insurance
Code for a domestic stock life insurance company, and is the bona fide,
unconditional, and unencumbered property of the company.
7. APPLICANT represents to the Commissioner of Insurance that its officers,
directors and managing executives possess sufficient insurance experience,
ability, and standing to render the continued success of the company
probable.
8. APPLICANT is acting in good faith.
CONCLUSIONS OF LAW
------------------
Based upon the foregoing findings of fact, the Commissioner of Insurance makes
the following conclusions of law:
1. The Commissioner of Insurance has authority and jurisdiction over this
application under TEX. INS. CODE ANN. art. 3.05.
2. The Commissioner of Insurance has authority to dispose of this matter under
TEX. GOV'T CODE ANN. (S)2001.056, TEX. INS. CODE ANN. art. 1.33(e), and 28
TEX. ADMIN. CODE (S)1.47.
3. APPLICANT and staff have knowingly and voluntarily waived all procedural
requirements for the entry of this order, including, but not limited to,
notice of hearing, a public hearing, a proposal for decision, rehearing by
the Commissioner of Insurance, and judicial review of the order as provided
for in TEX. GOV'T CODE ANN. (S)(S)2001.051, 2001.052, 2001.145 and
2001.146, and TEX. INS. CODE ANN. art. 1.04.
4. Action by the Board of Directors and the Shareholders of APPLICANT
authorizing the proposed amendment as required and permitted by TEX. INS.
CODE ANN. art. 3.05 and TEX. BUS. CORP. ACT art. 4.02 and art. 4.04 has
been evidenced to the Commissioner of Insurance.
5. The proposed amendment to the Articles of Incorporation of APPLICANT is
properly supported by the required documents.
<PAGE>
94-1306
COMMISSIONER'S ORDER
USAA LIFE INSURANCE COMPANY
PAGE 4 of 4
IT IS, THEREFORE, THE ORDER of the Commissioner of Insurance that the charter
amendment of USAA LIFE INSURANCE COMPANY, San Antonio, Texas, increasing the
authorized capital stock from two hundred twenty-five thousand (225,000) shares
of preferred stock with a par value of one hundred dollars ($100.00) per share
to four hundred twenty-five thousand (425,000) shares of stock with a par value
of one hundred dollars ($100.00) per share, be, and the same is hereby,
approved.
J. ROBERT HUNTER
COMMISSIONER OF INSURANCE
BY: /s/ Jose Montemajor
-------------------
Jose Montemajor
Director
Insurer Services
Order 94-0580
Recommended by:
/s/ Lois S. Hanke
- -----------------
Lois S. Hanke
Admissions Officer
Insurer Services
Agreed to by:
USAA LIFE INSURANCE COMPANY
/s/ Edwin L. Rosane
- -------------------
Edwin L. Rosane
President
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF USAA LIFE INSURANCE COMPANY ("USAA LIFE")
Pursuant to the provisions of Article 3.05 of the Texas Insurance Code and
Article 4.04 of the Texas Business Corporation Act, the undersigned corporation
adopts the following Amendment to its Articles of Incorporation.
ARTICLE I
The name of the corporation is USAA Life Insurance Company.
ARTICLE II
The following amendment to Article IV of the Articles of Incorporation was
adopted by the shareholders of the corporation on November 10, 1994.
--
The Amendment is in addition to the original and amended Article IV of the
Articles of Incorporation and the full text of the provision added is as
follows:
The aggregate number of shares of preferred stock which USAA Life
Insurance Company has the authority to issue is four hundred
thousand (400,000) shares of preferred stock with a par value of
one hundred dollars ($100.00) per share. The preferred shares
authorized by this Amendment to the Articles of Incorporation
shall be issued from time to time in series. Authority to issue
additional series of such authorized preferred stock and the
terms of such series shall be determined by the Board of
Directors at its discretion.
ARTICLE III
The number of common shares of the corporation issued and outstanding at the
time of such adoption was twenty-five thousand (25,000); and the number of
shares entitled to vote thereon was twenty-five thousand (25,000). The number of
shares voted for such Amendment was twenty-five thousand (25,000); and the
number of shares voted against such Amendment was NONE.
<PAGE>
ARTICLE IV
The holder of all the shares outstanding and entitled to vote on said Amendment
has signed a consent in writing adopting said Amendment.
ARTICLE V
The proposed Amendment to Article IV of the Articles of Incorporation and the
subsequent issuance of Preferred Stock will increase the stated capital of USAA
Life Insurance Company from twenty-two million and five hundred thousand
($22,500,000.00) dollars to forty-two million and five hundred thousand
($42,500.000.00) dollars. The increase is the result of the issuance and
proposed sale of one hundred thousand (100,000) shares of Preferred Stock,
Series C, one hundred ($100.00) dollars par value and one hundred thousand
(100,000) shares of Preferred Stock, Series D, one hundred ($100.00) par value.
USAA LIFE INSURANCE COMPANY
By: /s/ Edwin L. Rosane
--------------------------
Edwin L. Rosane
President
By: /s/ R.T. Halinski, Jr.
--------------------------
R. T. Halinski, Jr.
Assistant Secretary
STATE OF TEXAS }
}
COUNTY OF BEXAR }
Before me, a notary public, on this day personally appeared Edwin L. Rosane,
---------------
known to me to be one of the persons whose names are subscribed to the foregoing
document and, being by me first duly sworn, declared that the statements therein
contained are true and correct.
Given under my hand and seal of office this 10/th/ day of November, A.D., 1994.
------ -------- ----
Vickie Y. Gimblet
-----------------
(Printed or Stamped)
Notary Public, State of Texas
(NOTARY SEAL) My Commission expires:
February 25, 1997.
-----------
<PAGE>
EXHIBIT 8(b)
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 26th day of February,
1998, amended and restated as of the 18th day of November, 1998, and amended and
restated as of the 31/st/ day of December, 1999, by and between USAA Life
Insurance Company, a stock life insurance company organized under the laws of
Texas (the "Company"), on its own behalf and on behalf of the Separate Account
of USAA Life Insurance Company and the Life Insurance Separate Account of USAA
Life Insurance Company, each an investment account organized under the laws of
Texas ("Account"), USAA Life Investment Trust, a Delaware business trust (the
"Trust"), and USAA Investment Management Company, a registered investment
adviser and a registered broker-dealer organized as a corporation under the laws
of Delaware (the "Underwriter").
WHEREAS, the Company will be the issuer of certain variable annuity
contracts (the "Contracts") and certain variable life insurance policies (the
"Policies"), will fund the Contracts and Policies through the respective
Accounts, wishes to invest the assets of each Account in shares of the Trust for
the benefit of the owners of the Contracts and Policies (the "Contractowners"),
and wishes to provide, directly or through agents, certain administrative and
other services for the Trust; and
WHEREAS, the Company will serve as the depositor of each Account, which
will be a unit investment trust registered as an investment company under the
Investment Company Act of 1940 (the "1940 Act"), and the security interests
deemed to be issued by each Account under the respective Contracts and Policies
will be registered as securities under the Securities Act of 1933 (the "1933
Act"); and
<PAGE>
WHEREAS, the Trust will be an open-end management investment company under
the 1940 Act, whose shares will be registered under the 1933 Act, and will make
its shares available for purchase exclusively by each Account and wishes to have
the Underwriter serve as its principal underwriter and the Company to provide,
directly or through agents, certain administrative and other services for the
Trust; and
WHEREAS, the Contracts and Policies funded through the respective Accounts
will provide for the allocation of net amounts among certain subaccounts of each
Account (hereinafter referred to as the "Shareholders" of the Trust) for
investment in such shares of the corresponding underlying funds of the Trust
(the "Funds") as may be designated from time to time in the prospectus and
statement of additional information of each Account (collectively, the "Account
Prospectus") for the respective Contracts and Policies, the selection of the
particular subaccount or subaccounts is to be made by the Contractowners, and
such selection may be changed in accordance with the terms of the Contracts and
Policies; and
WHEREAS, the Underwriter, an affiliate of the Company's parent, has agreed
to serve as investment adviser for the Trust pursuant to an investment advisory
agreement with the Trust, wishes to serve as principal underwriter for the
Trust, and has agreed to serve as the distributor for the Contracts and Policies
pursuant to an Amended and Restated Distribution and Administration Agreement
with the Company; and
WHEREAS, the Company, the Trust, and the Underwriter wish to allocate
certain expenses among themselves regarding the Trust and certain services to be
provided to the Trust.
NOW, THEREFORE, WITNESSETH: That, in consideration for the Trust's making
its shares available for purchase by the Company for each of its Accounts, for
the Company's and the Underwriter's providing services to the Trust and assuming
expenses in connection with providing such services, and for other good and
valuable consideration the
2
<PAGE>
receipt and sufficiency of which is hereby acknowledged, it is hereby agreed
between the parties as follows:
1. APPOINTMENT OF UNDERWRITER.
The Trust hereby appoints the Underwriter as the principal underwriter and
distributor of the Trust to sell its shares to each Account, and the Underwriter
hereby accepts such appointment.
2. EXCLUSIVE NATURE OF DUTIES.
The Underwriter shall be the exclusive representative of the Trust to act
as principal underwriter and distributor.
3. SALE AND REDEMPTION OF SHARES OF THE TRUST.
3.1 The Trust, during the term of this Agreement, shall sell shares of each
available Fund that the Company orders on behalf of each Account, based on
transactions under Contracts or Policies, at net asset value as set forth in the
Trust's Prospectus and Statement of Additional Information, as amended and in
effect from time to time (collectively, the "Prospectus"), and upon the terms
and conditions set forth below.
3.2 Any orders to purchase shares of an available Fund based on
transactions under Contracts or Policies will be effected at the Fund's net
asset value per share as of the close of business on the Business Day the order
is received by the Company or its designee, as agent for the Trust, provided
that such order is received prior to the time the Fund calculates its net asset
value on that Business Day. If such order is received after that time, the order
will be effected at the Fund's net asset value as of the close of business on
the next Business Day. Business Day shall mean any day on which the Trust
calculates the net asset value of its Funds pursuant to rules of the SEC and as
described in the Trust's Prospectus. Any orders to
3
<PAGE>
purchase shares of an available Fund not based on transactions under Contracts
or Policies will be effected at the Fund's net asset value per share next
computed after the order is received by the Trust.
3.3 The Trust will redeem for cash from the Company those full or
fractional shares of each Fund that the Company requests from time to time. The
Trust will effect any orders to redeem shares of an available Fund based on
transactions under Contracts or Policies at the Fund's net asset value per share
computed as of the close of business on the Business Day the order is received
by the Company or its designee, as agent for the Trust, provided that such order
is received prior to the time the Fund calculates its net asset value on that
Business Day. If such order is received after that time, the order will be
effected at the Fund's net asset value as of the close of business on the next
Business Day. Any orders to redeem shares of an available Fund not based on
transactions under Contracts or Policies will be effected at the Fund's net
asset value per share next computed after the order is received by the Trust.
3.4 The Trust reserves the right to pay any portion of a redemption in kind
of portfolio securities, if the Trust's board of trustees (the "Board of
Trustees") determines that it would be detrimental to the best interests of the
Shareholders to make a redemption wholly in cash.
3.5 No orders for the sale, redemption or repurchase of the Trust's shares
(nor payment for shares, in the case of a purchase) shall be transmitted to the
Underwriter. Sales, redemptions and repurchases shall be effected directly by
the Company or its designee as transfer agent of the Trust. Payment for shares
shall be transmitted by the Company or its designee directly to the Trust's
custodian. Redemption and repurchase proceeds shall be allocated by the Company
directly to the Trust's custodian.
3.6 The Trust shall have the right to suspend redemption of shares of any
Fund pursuant to the conditions set forth in the Prospectus. The Trust shall
also have the right to suspend the sale of shares of any or all of its Funds at
any time when it is authorized to
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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
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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
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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
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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
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of the State of Delaware and has full corporate power, authority and legal right
to execute, deliver, and perform its duties and comply with its obligations
under this Agreement.
(d) The 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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<PAGE>
Contract owners, or in sales literature, advertising, or other promotional
material approved by the Company or its designee, except with the permission of
the Company.
5.7 The Trust shall provide to the Company one complete copy of all
registration statements, Prospectuses, reports, proxy material, sales literature
and other promotional material, applications for exemptions, requests for no-
action letters, and all amendments to any of the above, that relate to the Trust
or its shares, contemporaneously with the filing of such document with the SEC
or other regulatory authorities.
6. DUTIES OF THE UNDERWRITER.
6.1 The Underwriter shall be subject to the direction and control of the
Trust in the sale of its shares and shall not be obligated to sell any specific
number of shares in any Fund.
6.2 The Underwriter shall distribute the Prospectuses together with
Account Prospectuses, as required by the SEC.
6.3 In selling shares of the Trust, the Underwriter shall comply in all
respects with the requirements of all Federal and state laws and regulations and
the regulations of the National Association of Securities Dealers, Inc. (the
"NASD"), relating to the sale of Trust shares. Neither the Underwriter nor any
other person is authorized by the Trust to give any information or to make any
representations, other than those contained in the Trust's registration
statement or related Prospectus, as such registration statement or Prospectus
may be amended from time to time, and any sales literature, advertising or other
promotional materials authorized by responsible officers of the Trust. The
Underwriter shall cause any sales literature, advertising, or other promotional
materials to be filed and, if necessary, approved by the NASD, the SEC, or any
other required securities regulatory body.
6.4 The Underwriter shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Trust in any way or be
deemed an employee.
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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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<PAGE>
such value is next determined. The Company shall also maintain, on behalf of the
Underwriter, records of the dates and times of day at which all transactions
occur, with the share and dollar amounts of such transactions, and all other
records required by the Securities Exchange Act of 1934 and rules thereunder
with respect to the issuance, redemption or repurchase of Trust shares. All
records required by this paragraph to be maintained by the Company shall (i) be
maintained and preserved in conformity with the requirements of Rules 17a-3 and
17a-4 under the Securities Exchange Act of 1934, (ii) be and remain the property
of the Underwriter, and (iii) be at all times subject to inspection by the SEC
in accordance with Section 17(a) of such Act, and (iv) be surrendered promptly
upon request without charge except for reimbursement of reasonable expenses.
7.2 To the extent not required to be provided by the Underwriter pursuant
to its Investment Advisory Agreement with the Trust, the Company shall provide
all management, administrative, legal, clerical, 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.")
8.5 The Company, out of its general account, agrees to reimburse the
Underwriter for all reasonable expenses that the Underwriter incurs in rendering
services pursuant to this Agreement, the investment advisory agreement between
the Underwriter and the Trust, and any other agreement between the Underwriter
and the Trust or the Company, but only to the extent these expenses,
collectively, exceed, on an annual basis, 0.20% of the monthly average net
assets of the Money Market Fund, the Income Fund, the Growth and Income Fund,
the World Growth Fund, the Diversified Assets Fund, 0.50% of the monthly average
net assets of the Aggressive Growth Fund, and 0.65% of the monthly average net
assets of the International Fund. As a pre-condition for such reimbursement,
the Underwriter shall submit to the Company evidence of the Underwriter's
expenses in such form as the Company and the Underwriter shall agree from time
to time.
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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 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.
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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 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
22
<PAGE>
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 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
23
<PAGE>
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 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):
24
<PAGE>
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 December 31, 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 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.
25
<PAGE>
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 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: /s/ Michael J.C. Roth
----------------------------
ATTEST: MICHAEL J.C. ROTH
President
/s/ Mark S. Howard
- -----------------------------
MARK S. HOWARD
Assistant Secretary
27
<PAGE>
EXHIBIT 9
Opinion and Consent of Counsel
<PAGE>
[LETTERHEAD OF USAA LIFE INSURANCE COMPANY]
April 18, 2000
USAA Life Insurance Company
9800 Fredericksburg Road
San Antonio, Texas 78288
Attention: James M. Middleton, President
Dear Mr. Middleton::
This opinion is furnished in connection with the filing by the USAA Life
Insurance Company ("USAA LIFE") and the Separate Account of USAA LIFE ("Separate
Account") of a post-effective amendment to a registration statement under the
Securities Act of 1933 (the "1933 Act") and an amendment under the Investment
Company Act of 1940 on Form N-4 (File No. 33-82268 and 811-8670) ("Registration
Statement"). The securities registered under the Registration Statement are
units of interest ("Units") to be issued by the Separate Account pursuant to
certain individual flexible premium variable annuity contracts (the
"Contracts"), described in the Registration Statement.
I have examined the Amended Articles of Incorporation and Bylaws of USAA
LIFE and such corporate records and other documents and such laws as I consider
necessary and appropriate as a basis for the opinion hereinafter expressed. I
have examined the Registration Statement filed with the Securities and Exchange
Commission in connection with the registration under the 1933 Act of an
indefinite number of Units. I am familiar with the proceedings taken and
proposed to be taken in connection with the authorization, issuance, and sale of
the Units. On the basis of my examination of these documents and such laws that
I consider appropriate, it is my opinion that:
1. USAA LIFE is a corporation duly organized and validly existing under
the laws of Texas.
2. The Separate Account was duly created pursuant to the provisions of
Chapter 3, Article 3.75 of the Texas Insurance Code.
3. Under Texas law, the income, gains and losses, whether or not
realized, from assets allocated to the Separate Account must be
credited to or charged against such Account, without regard to the
other income, gains or losses of USAA LIFE.
4. The portion of the assets held in the Separate Account equal to the
reserves and other liabilities under the Contracts is not chargeable
with liabilities arising out of any other business USAA LIFE may
conduct.
<PAGE>
Mr. James M. Middleton
April 18, 2000
Page 2
5. The Contracts have been duly authorized by USAA LIFE and, when issued
in the manner contemplated by the post-effective amendment to the
Registration Statement, the Units thereunder constitute validly issued
and binding obligations of USAA LIFE in accordance with the terms of
the Contracts.
I hereby consent to the filing of this opinion as an Exhibit to the post-
effective amendment to the Registration Statement and to the reference to me
under the caption "Legal Matters" in the Statement of Additional Information
contained in the post-effective amendment to the Registration Statement.
Respectfully submitted,
/s/ Dwain A. Akins
------------------------------
Dwain A. Akins
Assistant Vice President &
Managing Attorney
Life & Health Insurance Counsel
<PAGE>
EXHIBIT 10
Consent of KPMG LLP, Independent Auditors
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors of USAA Life Insurance Company
and contractowners of the Separate Account of USAA Life Insurance Company:
We consent to the use of our reports included herein for the USAA Life Insurance
Company, incorporated by reference for the Separate Account of USAA Life
Insurance Company, and to the reference to our firm under the heading "Financial
Information" and "Independent Auditors" in the Registration Statement.
/s/ KPMG LLP
San Antonio, Texas
April 25, 2000
<PAGE>
EXHIBIT 16(b)
Powers of Attorney
<PAGE>
POWER OF ATTORNEY
STATE OF : TEXAS
COUNTY OF: BEXAR
Know all men by these presents that the undersigned Director of USAA Life
Insurance Company, a Texas corporation ("Corporation"), constitutes and appoints
Cynthia Toles and Dwain A. Akins, and each of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in his
name, place and stead, in any and all capacities to sign registration statements
on any form or forms filed under the Securities Act of 1933 and the Investment
Company Act of 1940 and any and all amendments thereto, with all exhibits,
instruments, and other documents necessary or appropriate in connection
therewith and to file them with the Securities and Exchange Commission or any
other regulatory authority as may be necessary or desirable, hereby ratifying
and confirming all that said attorney-in-fact and agent or his substitute, may
lawfully do or cause to be done by virtue hereof.
/s/ James M. Middleton April 11, 2000
- ----------------------------- ------------------------------
James M. Middleton Date
Vice Chairman, President and
Chief Executive Officer
On this 11th day of April, 2000, before me, Leticia Rodriguez, the undersigned
Notary Public, personally appeared James M. Middleton, known to me to be the
person whose name is subscribed to the above Power of Attorney, and acknowledged
that he executed it.
WITNESS my hand and official seal
My Commission Expires: Leticia Rodriguez
------------------------------
Notary Public
2-12-2002 State of Texas
- ------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF : TEXAS
COUNTY OF: BEXAR
Know all men by these presents that the undersigned Director of USAA Life
Insurance Company, a Texas corporation ("Corporation"), constitutes and appoints
Cynthia Toles and Dwain A. Akins, and each of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in his
name, place and stead, in any and all capacities to sign registration statements
on any form or forms filed under the Securities Act of 1933 and the Investment
Company Act of 1940 and any and all amendments thereto, with all exhibits,
instruments, and other documents necessary or appropriate in connection
therewith and to file them with the Securities and Exchange Commission or any
other regulatory authority as may be necessary or desirable, hereby ratifying
and confirming all that said attorney-in-fact and agent or his substitute, may
lawfully do or cause to be done by virtue hereof.
/s/ Bradford W. Rich 4/26/00
- --------------------------- ______________________________
Bradford W. Rich Date
Director
26th Barbara B. Charo
On this ________ day of April, 2000, before me, __________________________, the
undersigned Notary Public, personally appeared Bradford W. Rich, known to me to
be the person whose name is subscribed to the above Power of Attorney, and
acknowledged that he executed it.
WITNESS my hand and official seal
My Commission Expires: Barbara B. Charo
______________________________
7-27-2001 Notary Public
____________________ State of Texas
<PAGE>
POWER OF ATTORNEY
STATE OF : TEXAS
COUNTY OF: BEXAR
Know all men by these presents that the undersigned Director of USAA Life
Insurance Company, a Texas corporation ("Corporation"), constitutes and appoints
Cynthia Toles and Dwain A. Akins, and each of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in his
name, place and stead, in any and all capacities to sign registration statements
on any form or forms filed under the Securities Act of 1933 and the Investment
Company Act of 1940 and any and all amendments thereto, with all exhibits,
instruments, and other documents necessary or appropriate in connection
therewith and to file them with the Securities and Exchange Commission or any
other regulatory authority as may be necessary or desirable, hereby ratifying
and confirming all that said attorney-in-fact and agent or his substitute, may
lawfully do or cause to be done by virtue hereof.
/s/ Josue Robles, Jr. 4/11/2000
- -------------------------- ______________________________
Josue Robles, Jr. Date
Director
11th Barbara B. Charo
On this ________ day of April, 2000, before me, ____________________________,
the undersigned Notary Public, personally appeared Josue Robles, Jr., known to
me to be the person whose name is subscribed to the above Power of Attorney, and
acknowledged that he executed it.
WITNESS my hand and official seal
My Commission Expires: Barbara B. Charo
______________________________
7-27-2001 Notary Public
____________________ State of Texas
<PAGE>
POWER OF ATTORNEY
STATE OF : TEXAS
COUNTY OF: BEXAR
Know all men by these presents that the undersigned Director of USAA Life
Insurance Company, a Texas corporation ("Corporation"), constitutes and appoints
Cynthia Toles and Dwain A. Akins, and each of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in his
name, place and stead, in any and all capacities to sign registration statements
on any form or forms filed under the Securities Act of 1933 and the Investment
Company Act of 1940 and any and all amendments thereto, with all exhibits,
instruments, and other documents necessary or appropriate in connection
therewith and to file them with the Securities and Exchange Commission or any
other regulatory authority as may be necessary or desirable, hereby ratifying
and confirming all that said attorney-in-fact and agent or his substitute, may
lawfully do or cause to be done by virtue hereof.
/s/ Michael J.C. Roth April 11, 2000
- --------------------------- ------------------------------
Michael J.C. Roth Date
Director
On this 11th day of April, 2000, before me, Brenda C. Urban , the undersigned
Notary Public, personally appeared Michael J.C. Roth, known to me to be the
person whose name is subscribed to the above Power of Attorney, and acknowledged
that he executed it.
WITNESS my hand and official seal
My Commission Expires: Brenda C. Urban
-----------------------------
Notary Public
12-03-2003 State of Texas
- --------------------------
<PAGE>
POWER OF ATTORNEY
STATE OF : TEXAS
COUNTY OF: BEXAR
Know all men by these presents that the undersigned Senior Vice President
and Treasurer of USAA Life Insurance Company, a Texas corporation
("Corporation"), constitutes and appoints Cynthia Toles and Dwain A. Akins, and
each of them, as her true and lawful attorney-in-fact and agent, with full power
of substitution, for her and in her name, place and stead, in any and all
capacities to sign registration statements on any form or forms filed under the
Securities Act of 1933 and the Investment Company Act of 1940 and any and all
amendments thereto, with all exhibits, instruments, and other documents
necessary or appropriate in connection therewith and to file them with the
Securities and Exchange Commission or any other regulatory authority as may be
necessary or desirable, hereby ratifying and confirming all that said attorney-
in-fact and agent or her substitute, may lawfully do or cause to be done by
virtue hereof.
/s/ Larkin W. Fields April 11, 2000
- ---------------------------- ------------------------------
Larkin W. Fields Date
Senior Vice President and Treasurer
On this 11th day of April, 2000, before me, Dora Zapata , the undersigned Notary
Public, personally appeared Larkin W. Fields, known to me to be the person whose
name is subscribed to the above Power of Attorney, and acknowledged that she
executed it.
WITNESS my hand and official seal
My Commission Expires: Dora Zapata
------------------------------
Notary Public
09-08-2002 State of Texas
- --------------------------
<PAGE>
EXHIBIT 17
Persons Controlled By
or Under Common Control with 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 insurance coverage (personal-line property and casualty
insurance policies only) 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 Garrison Property &
Casualty Association, acquired by USAA on December 31, 1997.
B. GARRISON PROPERTY & CASUALTY ASSOCIATION
Texas Reciprocal Interinsurance Exchange.
Organized to provide insurance coverage (personal-line property and
casualty policies only) 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 products and
services 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 INSURANCE AGENCY, INC. (Alabama)
Alabama 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.
6. USAA INSURANCE AGENCY, INC. (New Mexico)
New Mexico 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.
1
<PAGE>
7. USAA INSURANCE AGENCY, INC. (TX-LIFE)
Texas corporation, wholly owned by USAA Life Insurance Company
Organized by officers of USAA Life Insurance Company to offer a complete
line of life and health insurance products to the general public on a
brokerage basis.
8. 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.
9. USAA CASUALTY INSURANCE COMPANY
Florida corporation, wholly owned by USAA.
Organized to provide the insurance needs of persons who do not meet the
subscribership eligibility requirements of USAA but are: (i) residual market
policyholders under Automobile Insurance Plans of the various states; (ii)
non-dependent children of USAA members; (iii) assigned risks; and/or (iv)
senior Foreign Officers of the United States government.
10. 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.
11. 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.
12. 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.
13. 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.
14. USAA INSURANCE AGENCY, INC. (Florida)
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.
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.
2
<PAGE>
16. USAA FUNDING COMPANY
Delaware corporation, wholly owned by USAA.
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 ALLIANCE SERVICES COMPANY
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.
20. USAA MERCHANDISE SERVICES COMPANY
Delaware corporation, wholly owned by the USAA Alliance Services Company
Organized to act as a corporate General Partner for USAA Alliance Services
Company
21. USAA ALLIANCE SERVICES L.P.
Delaware limited partnership. USAA owns 99% as Limited Partner with the
remaining 1% owned by USAA Alliance Services, Inc. as General Partner.
Organized to provide travel and discount buying services to its subscribers.
22. 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 USAA Information Technology, L.P.
23. 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
Company as General Partner.
Organized to engage in the provision of information technology and related
services primarily to USAA and its subsidiary and affiliates.
24. 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.) and as a
general purpose financing company for USAA, its subsidiaries and affiliates.
3
<PAGE>
25. USAA FINANCIAL SERVICES CORPORATION
Utah corporation, wholly owned by USAA Capital Corporation.
Organized as a Utah Industrial Loan Company.
26. HTO, INC.
Delaware corporation, wholly owned by USAA Capital Corporation.
Organized for ownership of certain real property and mineral assets in the
La Cantera Development and other legally permissible corporate activities.
27. 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 of the company
primarily to tax-qualified "employee pension benefit plans" covered by Title
I of ERISA.
28. USAA CAPITAL DEVELOPMENT, INC.
Delaware corporation, wholly owned by USAA Capital Corporation.
Organized to engage in real estate investment, management and other legally
permissible corporate activities.
29. HAUSMAN ROAD WATER SUPPLY
Texas non-profit corporation, wholly owned by USAA Capital Corporation.
Organized to operate a surface water project.
30. USAA FINANCIAL PLANNING NETWORK, INC.
Delaware corporation, wholly owned by USAA Capital Corporation.
Organized to provide financial planning services to the general public.
31. 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.
32. USAA INVESTMENT 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.
4
<PAGE>
33. 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.
34. USAA TRACO Service, GmbH, Inc.
German corporation, 80% owned by USAA Investment Management Company, and 20%
owned by USAA Transfer Agency Company.
No current corporate operations.
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 through its
association with PHH Destination Services, the industry leader in relocation
services.
37. USAA SAVINGS BANK
Nevada Chartered Thrift Company, wholly owned by USAA Federal Savings Bank
Organized to engage in the activities of a Nevada chartered thrift company.
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.
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41. LA CANTERA DEVELOPMENT COMPANY
Delaware corporation, wholly owned by USAA Capital Corporation.
Organized to develop or sell land in northwest San Antonio, Texas.
42. LA CANTERA GROUP, LIMITED PARTNERSHIP
Texas limited partnership. La Cantera Development Company owns a 51%
interest as General Partner with the remaining 49% owned by La Cantera
Innovations, 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.
43. FIESTA TEXAS THEME PARK, LTD.
Texas limited partnership. La Cantera Group, Limited owns an 85.89% interest
as General Partner with the remaining 14.11% owned by La Cantera
Innovations, 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. LA CANTERA INNOVATIONS, INC.
Delaware corporation, wholly owned by La Cantera Development Company.
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 Cantera Development Company.
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 La Cantera Innovations, Inc. 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. Makes a wide variety of real estate and financial services
available to its affiliates, subsidiaries, and the general public.
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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 MANAGEMENT COMPANY
Delaware corporation, wholly owned by USAA Real Estate Company.
Organized to provide management services for properties owned by USAA Real
Estate Development Company.
52. QUORUM REAL ESTATE SERVICE CORPORATION
d/b/a USAA REALTY COMPANY
Delaware corporation, wholly owned by USAA Real Estate 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.
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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.
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/or 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, construct, 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 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.
69. USGC JOINT VENTURE
Connecticut joint venture. USAA Real Estate Company owns a 70% interest with
the remainder owned by a non-affiliate company.
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
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of real estate) following the contribution of the Owners' equity interests
in Windsor X to the Joint Venture.
70. 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.
71. USAA CHELMSFORD ASSOCIATES
Texas limited liability company. American Industrial Properties REIT owns a
55.84% interest with the remaining 44.l6% owned by USAA Real Estate Company.
Organized to acquire an interest in, 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.
72. 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.
73. 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.
74. 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.
75. 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.
76. 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.
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77. PRIME REAL ESTATE EQUITIES I, L.P.
Georgia limited partnership. USAA Real Estate Equities, Inc. owns a 1%
interest as General Partner and a 38.7% interest as Limited Partner and USAA
Real Estate Company owns a 3.6% interest as Limited Partner with the
remaining owned by non-affiliated companies, National Equities, L.L.C. owns
a 1% interest as General Partner and U.S. Property Fund Gmb H & Co.; KG owns
a 57.5% interest as Limited Partner.
Organized to acquire, own, develop, lease operate, manage, finance and hold
for investment, office or industrial property.
78. PRIME REAL ESTATE EQUITIES II, L.P.
Georgia limited partnership. USAA Real Estate Equities, Inc. owns a 1%
interest as General Partner and a 38.7% interest as Limited Partner and USAA
Real Estate Company owns a 3.6% interest as Limited Partner with the
remaining owned by non-affiliated companies, National Equities, L.L.C. owns
a 1% interest as General Partner and U.S. Property Fund Gmb H & Co.; KG owns
a 57.5% interest as Limited Partner.
Organized to acquire, own, develop, lease operate, manage, finance and hold
for investment, office or industrial property.
79. 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.
80. 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.
81. 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.
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