EXHIBIT 8(c)
AMENDED AND RESTATED
UNDERWRITING AND ADMINISTRATIVE
SERVICES AGREEMENT
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
AMENDED AND RESTATED
UNDERWRITING AND ADMINISTRATIVE
SERVICES AGREEMENT
AGREEMENT made as of this 16th day of December, 1994, amended as of the 7th
day of February, 1997, amended and restated as of the 18th day of February,
1998, and amended and restated as of the 18th day of November, 1998, by and
between USAA Life Insurance Company, a stock life insurance company organized
under the laws of Texas (the "Company"), on its own behalf and on behalf of the
Separate Account of USAA Life Insurance Company and the Life Insurance Separate
Account of USAA Life Insurance Company, each an investment account organized
under the laws of Texas ("Account"), USAA Life Investment Trust, a Delaware
business trust (the "Trust"), and USAA Investment Management Company, a
registered investment adviser and a registered broker-dealer organized as a
corporation under the laws of Delaware (the "Underwriter").
WHEREAS, the Company will be the issuer of certain variable annuity
contracts (the "Contracts") and certain variable life insurance policies (the
"Policies"), will fund the Contracts and Policies through the respective
Accounts, wishes to invest the assets of each Account in shares of the Trust for
the benefit of the owners of the Contracts and Policies (the "Contractowners"),
and wishes to provide, directly or through agents, certain administrative and
other services for the Trust; and
WHEREAS, the Company will serve as the depositor of each Account, which
will be a unit investment trust registered as an investment company under the
Investment Company Act of 1940 (the "1940 Act"), and the security interests
deemed to be issued by each Account under the respective Contracts and Policies
will be registered as securities under the Securities Act of 1933 (the "1933
Act"); and
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
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the receipt and sufficiency of which is hereby acknowledged, it is hereby agreed
between the parties as follows:
1. APPOINTMENT OF UNDERWRITER.
The Trust hereby appoints the Underwriter as the principal underwriter and
distributor of the Trust to sell its shares to each Account, and the Underwriter
hereby accepts such appointment.
2. EXCLUSIVE NATURE OF DUTIES.
The Underwriter shall be the exclusive representative of the Trust to act
as principal underwriter and distributor.
3. SALE AND REDEMPTION OF SHARES OF THE TRUST.
3.1 The Trust, during the term of this Agreement, shall sell shares of
each available Fund that the Company orders on behalf of each Account, based on
transactions under Contracts or Policies, at net asset value as set forth in the
Trust's Prospectus and Statement of Additional Information, as amended and in
effect from time to time (collectively, the "Prospectus"), and upon the terms
and conditions set forth below.
3.2 Any orders to purchase shares of an available Fund based on
transactions under Contracts or Policies will be effected at the Fund's net
asset value per share as of the close of business on the Business Day the order
is received by the Company or its designee, as agent for the Trust, provided
that such order is received prior to the time the Fund calculates its net asset
value on that Business Day. If such order is received after that time, the
order will be effected at the Fund's net asset value as of the close of business
on the next Business Day. Business Day shall mean any day on which the Trust
calculates the net asset value of its Funds pursuant to rules of the SEC and as
described in the Trust's Prospectus. Any orders to
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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
6
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 of
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the State of Delaware and has full corporate power, authority and legal right to
execute, deliver, and perform its duties and comply with its obligations under
this Agreement.
(d) The Underwriter and the Trust represent and warrant that the Trust is
a business trust duly organized, validly existing, and in good standing under
the laws of Delaware and has full power, authority, and legal right to execute,
deliver, and perform its duties and comply with its obligations under this
Agreement.
4.3 SECURITIES LAWS.
(a) The Company represents and warrants that (i) it has registered each
Account as a unit investment trust in accordance with the provisions of the 1940
Act to serve as a segregated investment account for its variable annuity
contracts and variable life insurance policies, respectively, (ii) each Account
shall comply in all material respects with the requirements of the 1940 Act and
the rules thereunder, (iii) each Account's 1933 Act registration statement
relating, respectively, to the Contracts and Policies, together with any
amendments thereto, shall at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder, and (iv) each Account
Prospectus shall at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder.
(b) The Trust and the Underwriter represent and warrant that (i) Trust
shares sold pursuant to this Agreement shall be registered under the 1933 Act to
the extent required by the 1933 Act and duly authorized for issuance and sold in
compliance with Delaware law, (ii) the Trust is and shall remain registered
under the 1940 Act to the extent required by the 1940 Act, and (iii) the Trust
shall amend the registration statement for its shares under the 1933 Act and
itself under the 1940 Act from time to time as required in order to effect the
continuous offering of its shares.
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(c) The Trust represents and warrants that (i) the Trust shall comply in
all material respects with the requirements of the 1940 Act and the rules
thereunder, (ii) its 1933 Act registration statement, together with any
amendments thereto, shall at all times comply in all material respects with the
requirements of the 1933 Act and rules thereunder, and (iii) the Prospectus
shall at all times comply in all material respects with the requirements of the
1933 Act and the rules thereunder.
(d) The Trust shall register and qualify its shares for sale in accordance
with the laws of any state or other jurisdiction only if and to the extent
reasonably deemed advisable by the Trust or the Company.
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
The Underwriter or the Trust shall immediately notify the Company of (i)
the issuance by any court or regulatory body of any stop order, cease and desist
order, or other similar order with respect to the Trust's registration statement
under the 1933 Act or the Prospectus, (ii) any request by the Securities and
Exchange Commission (the "SEC") for any amendment to such registration statement
or Prospectus, (iii) the initiation of any proceedings for that purpose or for
any other purpose relating to the registration or offering of the Trust's
shares, or (iv) any other action or circumstances that may prevent the lawful
offer or sale of Trust shares in any state or jurisdiction, including, without
limitation, any circumstances in which (x) the Trust's shares are not registered
and, in all material respects, issued and sold in accordance with applicable
state and Federal law or (y) such law precludes the use of such shares as an
underlying investment medium of the Contracts or Policies issued or to be issued
by the Company. The Underwriter and the Trust shall make every reasonable
effort to prevent the issuance of any stop order, cease and desist order or
similar order and, if any such order is issued, to obtain the lifting thereof at
the earliest possible time.
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5. DUTIES OF THE TRUST.
5.1 The Trust shall furnish to and at the request of the Underwriter (paid
for by the Company as set forth in Section 8.3) copies of the Prospectus, and
all information, financial statements and other papers for use in connection
with the distribution of shares of the Trust directly to each Account and, as
conceptualized by the SEC, to the Contractowners.
5.2 The Trust shall furnish directly to Shareholders and, as
conceptualized by the SEC, to the Contractowners (paid for by the Company as set
forth in Section 8.3) copies of annual and interim reports of the Trust.
5.3 The Trust shall provide such documentation, including a copy of any
proxy material, reports to Shareholders, and other communications to
Shareholders and other assistance as is reasonably necessary in order for the
Company or its designee to timely distribute the proxy material, reports to
Shareholders, and other communications.
5.4 The Trust reserves the right to take all actions, including but not
limited to the dissolution, merger, and sale of all assets of the Trust solely
upon the authorization of its Board of Trustees.
5.5 The Trust shall furnish, or shall cause to be furnished, to the
Company or its designee, each piece of sales literature, advertising, or other
promotional material of the Trust in which the Company and/or either of its
Accounts is named, at least fifteen (15) days prior to its intended use. No
such material shall be used if the Company or its designee objects to such
intended use within fifteen (15) days after receipt of such material.
5.6 The Trust shall not give any information or make any representations
or statements on behalf of the Company or concerning the Company, either of its
Accounts or its Contracts or Policies other than the information or
representations contained in a registration statement or an Account Prospectus,
as such registration statement and Account Prospectus may be amended or
supplemented from time to time, or in published reports for an Account that are
in the public domain or approved by the Company for distribution to
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Contract owners, or in sales literature, advertising, or other promotional
material approved by the Company or its designee, except with the permission of
the Company.
5.7 The Trust shall provide to the Company one complete copy of all
registration statements, Prospectuses, reports, proxy material, sales literature
and other promotional material, applications for exemptions, requests for no-
action letters, and all amendments to any of the above, that relate to the Trust
or its shares, contemporaneously with the filing of such document with the SEC
or other regulatory authorities.
6. DUTIES OF THE UNDERWRITER.
6.1 The Underwriter shall be subject to the direction and control of the
Trust in the sale of its shares and shall not be obligated to sell any specific
number of shares in any Fund.
6.2 The Underwriter shall distribute the Prospectuses together with
Account Prospectuses, as required by the SEC.
6.3 In selling shares of the Trust, the Underwriter shall comply in all
respects with the requirements of all Federal and state laws and regulations and
the regulations of the National Association of Securities Dealers, Inc. (the
"NASD"), relating to the sale of Trust shares. Neither the Underwriter nor any
other person is authorized by the Trust to give any information or to make any
representations, other than those contained in the Trust's registration
statement or related Prospectus, as such registration statement or Prospectus
may be amended from time to time, and any sales literature, advertising or other
promotional materials authorized by responsible officers of the Trust. The
Underwriter shall cause any sales literature, advertising, or other promotional
materials to be filed and, if necessary, approved by the NASD, the SEC, or any
other required securities regulatory body.
6.4 The Underwriter shall for all purposes herein be deemed to be an
independent contractor and shall, unless otherwise expressly provided or
authorized, have no authority to act for or represent the Trust in any way or be
deemed an employee.
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6.5 The Underwriter shall be responsible for its own conduct and the
employment, control and conduct of its agents and employees, and for injury to
such agents or employees or to others through its agents or employees. The
Underwriter shall assume full responsibility for its agents and employees under
applicable statutes and agrees to pay all employer taxes thereunder.
6.6 The Underwriter shall maintain, at its own expense, insurance against
public liability in such an amount as the Trust and the Underwriter may from
time to time agree.
6.7 The Underwriter agrees that it shall receive no compensation for the
performance of its duties hereunder, except as otherwise herein specifically
provided. No commission or other fee shall be charged or paid to any person or
entity in connection with the sale of Trust shares hereunder.
6.8 All services to be furnished by the Underwriter under this Agreement
may be furnished through the medium of any Directors, officers, employees or
agents of the Underwriter.
7. DUTIES OF THE COMPANY.
7.1 The Company, on behalf of the Underwriter, shall keep records showing
the amount of any contribution to or withdrawal from any Account or subaccount
investing in the Trust, which does not reflect an automatic transaction under a
contract or policy (such as investments of net premium, death of insureds,
deductions of fees and charges, transfers, surrenders, loans, loan repayments,
deduction of loan interest, lapses, reinstatements, and similar automatic
transactions), which records shall also include the name of the Company officer
ordering the transaction and the date and time of day the transaction was
ordered. It is hereby agreed that any issuance, redemption or repurchase of
Trust shares relating to any such non-automatic transaction shall be at the
Trust's net asset value next computed after the date and time of said order, and
said order shall become irrevocable at the time as of which
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such value is next determined. The Company shall also maintain, on behalf of the
Underwriter, records of the dates and times of day at which all transactions
occur, with the share and dollar amounts of such transactions, and all other
records required by the Securities Exchange Act of 1934 and rules thereunder
with respect to the issuance, redemption or repurchase of Trust shares. All
records required by this paragraph to be maintained by the Company shall (i) be
maintained and preserved in conformity with the requirements of Rules 17a-3 and
17a-4 under the Securities Exchange Act of 1934, (ii) be and remain the property
of the Underwriter, and (iii) be at all times subject to inspection by the SEC
in accordance with Section 17(a) of such Act, and (iv) be surrendered promptly
upon request without charge except for reimbursement of reasonable expenses.
7.2 To the extent not required to be provided by the Underwriter pursuant
to its Investment Advisory Agreement with the Trust, the Company shall provide
all management, administrative, legal, clerical, accounting, and recordkeeping
services necessary or appropriate to conduct the Trust's business and day-to-day
operations (other than (A) investment advisory, custodial and transfer agent
services, which shall be provided to the Trust pursuant to separate agreements
and (B) services provided by outside legal counsel and independent auditors
retained by the Trust). These services shall include:
(i) overseeing the Trust's insurance relationships;
(ii) preparing and or filing on behalf of the Trust (or assisting
counsel and/or auditors in the preparation of) all required tax returns,
proxy statements and reports to the Trust's Shareholders (and, as
conceptualized by the SEC, Contractowners) and Trustees and reports to and
other filings with the SEC (including, without limitation, the Trust's
annual report to the SEC), and any other governmental agency, including any
filings necessary to maintain registrations and qualifications of the Trust
and its shares under Federal and state law, together with the preparation
of related financial statements (the Underwriter and Trust agreeing to
supply or cause to be supplied to
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the Company all necessary financial and other information in connection
with the foregoing);
(iii) preparing and or filing on behalf of the Trust such applications
and reports as may be necessary to register or maintain the Trust's
registration and/or the registration of the shares of the Trust under the
securities or "Blue Sky" laws of the various states selected by the Trust's
distributor, together with the preparation of related financial statements,
(the Fund or Funds agreeing to pay all filing fees or other similar fees in
connection therewith);
(iv) overseeing all relationships between the Trust, and its service
providers, agents and/or designees, including any custodian, transfer
agent, and dividend disbursing agent, independent auditor and outside legal
counsel, including assistance in selection of such service providers agents
and/or designees, the negotiation of agreements and the supervision of the
performance of such agreements;
(v) authorizing and directing any of the Company's Directors, officers
and employees who may be elected as Trustees or officers of the Trust to
serve in the capacities in which they are elected; and
(vi) providing the services of individuals competent to perform all of
the Trust's executive, administrative, compliance and clerical functions
that are not performed by or through employees or other persons, agents or
designees engaged by the Trust.
7.3 In providing accounting services in connection with Section 7.2, the
Company may arrange with the Underwriter to delegate to the Underwriter the
performance of some or all of the accounting services.
7.4 In connection with the services furnished in Section 7.2, the Company
shall furnish personnel, and for the use of such personnel shall furnish office
space and all necessary office facilities, business equipment, supplies,
utilities and telephone service. In
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providing such services, the Company shall be at all times subject to the
supervision and review of the Board of Trustees and in compliance with all
applicable provisions, as in effect from time to time, of the Trust's Master
Trust Agreement, Bylaws, Prospectus, the 1940 Act and regulations thereunder,
and any other applicable laws and regulations. Trust records maintained by the
Company hereunder shall be and remain the property of the Trust and shall be
promptly surrendered or made available to the Trust or its designee, without
charge, except for reimbursement of expenses for surrender of such documents,
upon request by the Trust or upon termination of this Agreement.
7.5 The Company shall provide to the Trust one complete copy of all
registration statements, Account Prospectuses, reports, solicitations for voting
instructions, sales literature and other promotional material, applications for
exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to either Account or its respective Contracts or Policies,
contemporaneously with the filing of such document with the SEC or other
regulatory authorities.
7.6 The Company shall mail or otherwise distribute such proxy cards and
other material supplied to it by the Trust in connection with Shareholder
meetings of the Trust and shall receive, examine and tabulate returned proxies
and voting instructions and certify the vote of each Fund of the Trust.
7.7 If and to the extent required by law, and so long as and to the extent
that the SEC continues to interpret the 1940 Act to require pass-through voting
privileges, the Company shall, subject to Section 8 below:
(i) prepare, set in type, print in quantity and distribute proxy
materials (including proxy statements, proxy cards and voting instruction
forms) relating to either the Trust or either Account and the processing,
including tabulation, of the results of voting instruction and proxy
solicitations;
(ii) solicit voting instructions from Contractowners;
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(iii) vote Fund shares in accordance with instructions received from
Contractowners;
(iv) vote Fund shares for which no instructions have been received, as
well as Fund shares attributable to the Company other than under Contracts
or Policies, in the same proportion as shares of such Fund for which
instructions have been received;
The Company reserves the right to vote Fund shares held in any segregated
asset account or in its general account in its own right, to the extent
permitted by law.
8. ALLOCATION OF EXPENSES.
8.1 Except as set forth below, each party to this Agreement shall bear, or
arrange for others to bear, the costs and expenses of performing its obligations
hereunder. Notwithstanding the foregoing:
8.2 Subject to Section 8.4 below, the Trust agrees to bear, or arrange for
others to bear, the expense of providing all management, administrative, legal,
clerical, accounting, and recordkeeping services necessary or appropriate to
conduct the Trust's business and day-to-day operations, including the expenses
of the services of individuals under Section 7.2(vi), These expenses shall
include the expense of:
(a) all charges, commissions and fees agreed to by it pursuant to the
Investment Advisory Agreement by and between the Trust and the Underwriter in
the Underwriter's capacity as investment adviser;
(b) the charges and expenses of independent auditors and outside legal
counsel retained by the Trust;
(c) brokerage commissions for transactions in the portfolio investments of
the Trust and similar fees and charges for the acquisition, disposition, lending
or borrowing of such portfolio investments;
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(d) all taxes, including issuance and transfer taxes, and corporate fees,
payable by the Trust to Federal, state or other governmental agencies;
(e) interest payable on the Trust's borrowings;
(f) extraordinary or non-recurring expenses, such as legal claims and
liabilities and litigation costs and indemnification payments by the Trust in
connection therewith;
(g) all expenses of Shareholders and Trustees' meetings (exclusive of
compensation and travel expenses of those Trustees of the Trust who are
"interested persons" of the Trust within the meaning of the 1940 Act), including
those in Section 8.2(h), below;
(h) compensation and travel expenses of those Trustees of the Trust who are
not "interested persons" of the Trust within the meaning of the 1940 Act;
(i) the charges and expenses of any registrar, stock transfer or dividend
disbursing agent, custodian, or depository appointed by the Trust for the
safekeeping of its cash, portfolio securities and other property;
(j) the fees and expenses (other than any such expenses referred to in
Section 8.3 below) involved in registering and maintaining registrations of the
Trust and its shares with the Securities and Exchange Commission and various
states and other jurisdictions, and in preparing and or filing on behalf of the
Trust (or assisting counsel and/or auditors in the preparation of) all required
tax returns and reports to and other filings with the SEC (including, without
limitation, the Trust's annual report to the SEC), and any other governmental
agency, together with the preparation of related financial statements (the
Underwriter and Trust agreeing to supply or cause to be supplied to the Company
all necessary financial and other information in connection with the foregoing);
(k) membership or association dues for the Investment Company Institute or
similar organization;
18
(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,
19
supplements to prospectuses and statements of additional information, sales
literature (including the Trust's periodic reports to Shareholders and any
Account periodic report to Contractowners), advertising and other promotional
material relating to either the Trust or either Account and compensation paid to
sales personnel;
8.4 The Company, out of its general account agrees to pay directly or
reimburse the Trust for the Trust's expenses set out in Section 8.2 above to the
extent that such expenses, on behalf of each of the following respective Funds,
exceed 0.65% of the monthly average net assets of USAA Life Variable Annuity
World Growth Fund, 0.70% of the monthly average net assets of USAA Life Variable
Annuity Aggressive Growth Fund, 1.10% of the monthly average net assets of the
USAA Life Variable Annuity International Fund, and 0.35% of the monthly average
net assets of each other Fund. (Effective May 1, 1998 (or such date as the
Securities and Exchange Commission may declare a post-effective amendment to the
Trust's registration statement regarding the matter effective under the 1933
Act), the names of the foregoing Funds, as set out in this Section 8.4, are
changed to exclude the term "Variable Annuity.")
9. INDEMNIFICATION.
---------------
9.1 The Underwriter shall indemnify and hold harmless the Trust and the
Company and each of their Trustees, directors and officers (or former Trustees,
directors and officers) 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
20
statement, Prospectus, or annual or interim reports to Shareholders, (2) any
omission or alleged omission to state a material fact in connection with such
information furnished by the Underwriter to the Trust which is required to be
stated in any of such documents or necessary to make such information not
misleading, (3) any misrepresentation or omission or alleged misrepresentation
or omission to state a material fact on the part of the Underwriter or any agent
or employee of the Underwriter or any other person for whose acts the
Underwriter is responsible, unless such misrepresentation or omission or alleged
misrepresentation or omission was made in reliance on information furnished by
the Trust, or (4) the willful misconduct or failure to exercise reasonable care
and diligence on the part of the Underwriter or any agent or employee of the
Underwriter or any other person for whose acts the Underwriter is responsible
with respect to services rendered under this Agreement. This indemnity
provision, however, shall not operate to protect any officer or Trustee of the
Trust from any liability to the Trust or any shareholder by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of his or her
duties.
In case any action shall be brought against any Indemnitee, the Underwriter
shall not be liable under its indemnity agreement contained in this paragraph
with respect to any claim made against any Indemnitee, unless the Indemnitee
shall have notified the Underwriter in writing within a reasonable time after
the summons or other first legal process giving information of the nature of the
claim shall have been served upon the Indemnitee (or after the Indemnitee shall
have received notice of such service on any designated agent), but failure to
notify the Underwriter of any such claim shall not relieve it from liability to
the Indemnitees against whom such action is brought otherwise than on account of
this Section 9.1. The Underwriter will be entitled to participate at its own
expense in the defense, or, if it so elects, to assume the defense of any suit
brought to enforce any such liability, but if the Underwriter elects to assume
the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Indemnitees which are defendants in the suit. In the event
the
21
Underwriter elects to assume the defense of any such suit and retain such
counsel, the Indemnitees which are defendants in the suit shall bear the fees
and expenses of any additional counsel retained by them, but, in case the
Underwriter does not elect to assume the defense of any such suit, the
Underwriter will reimburse the Indemnitees which are defendants in the suit for
the reasonable fees and expenses of any counsel retained by them. The
Underwriter shall promptly notify the Trust and the Company of the commencement
of any litigation or proceedings in connection with the issuance or sales of the
shares.
9.2 The Company shall indemnify and hold harmless the Trust and the
Underwriter and each of their Trustees, directors and officers (or former
Trustees, directors and officers) and each person, if any, who controls the
Trust or the Underwriter within the meaning of Section 15 of the 1933 Act
(collectively, "Indemnitees") against any loss, liability, claim, damage, or
expense (including the reasonable cost of investigating and defending against
the same and any counsel fees reasonably incurred in connection therewith)
incurred by any Indemnitees under the 1933 Act or under common law or otherwise
which arise out of or are based upon (1) any untrue or alleged untrue statement
of a material fact contained in information furnished to the Trust for use in
the Trust's registration statement, Prospectus, or annual or interim reports to
Shareholders, (2) any omission or alleged omission to state a material fact in
connection with such information furnished by the Company to the Trust or the
Underwriter, which is required to be stated in any of such documents or
necessary to make such information not misleading, (3) any misrepresentation or
omission or alleged misrepresentation or omission to state a material fact on
the part of the Company or any agent or employee of the Company or any other
person for whose acts the Company is responsible, unless such misrepresentation
or omission or alleged misrepresentation or omission was made in reliance on
information furnished by the Trust or the Underwriter, or (4) the willful
misconduct or failure to exercise reasonable care and diligence on the part of
the Company or any agent or employee of the Company or any other person for
whose acts the Company is
22
responsible with respect to services rendered under this Agreement. This
indemnity provision, however, shall not operate to protect the Underwriter or
any officer or Trustee of the Trust from any liability to the Trust or any
shareholder by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of their duties.
Notwithstanding Section 9.1, the Company shall indemnify and hold the Trust
and the Underwriter and each of its Trustees, directors and officers, (or former
Trustees, directors and officers) and each person, if any, who controls the
Trust within the meaning of Section 15 of the 1933 Act, harmless from all loss,
cost, damage, and expense, including reasonable attorneys' fees, incurred by the
Trust as a result of the failure at any time of any Fund of the Trust (i) to
operate as a regulated investment company in compliance with Subchapter M of the
Code and the regulations thereunder or (ii) to comply with the investment
diversification rules of Section 817(h) of the Code and the regulations
thereunder; or (iii) any error or omission in any accounting data or calculation
the collection and maintenance of which data or the production of which
calculation is made the responsibility of the Company under this Agreement.
In case any action shall be brought against any Indemnitee, the Company
shall not be liable under its indemnity agreement contained in this paragraph
with respect to any claim made against any Indemnitee, unless the Indemnitee
shall have notified the Company in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon the Indemnitee (or after the Indemnitee shall
have received notice of such service on any designated agent), but failure to
notify the Company of any such claim shall not relieve it from liability to the
Indemnitees against whom such action is brought otherwise than on account of
this Section 9.2. The Company will be entitled to participate at its own
expense in the defense, or, if it so elects, to assume the defense of any suit
brought to enforce any such liability, but if the Company elects to assume the
defense, such defense shall be conducted by counsel chosen
23
by it and satisfactory to the Indemnitees which are defendants in the suit. In
the event the Underwriter elects to assume the defense of any such suit and
retain such counsel, the Indemnitees which are defendants in the suit shall bear
the fees and expenses of any additional counsel retained by them, but, in case
the Company does not elect to assume the defense of any such suit, the Company
will reimburse the Indemnitees that are defendants in the suit for the
reasonable fees and expenses of any counsel retained by them. The Company shall
promptly notify the Trust and the Underwriter of the commencement of any
litigation or proceedings in connection with the issuance or sales of the
shares.
10. REGULATORY REPORTS.
The Underwriter, the Company and the Trust agree to furnish to each other,
as appropriate, necessary cooperation, assistance and information in the
following matters (which shall nevertheless be primarily the responsibility of
the Company hereunder):
10.1 The preparation of all reports as required by Federal or state law or
regulations;
10.2 The furnishing of any information or reports in connection with the
services provided hereunder as may be requested by any state insurance
commissioner, which request is made to ascertain whether the operations of any
of the parties are being conducted in a manner consistent with applicable state
insurance laws or regulations.
10.3 The preparation of prospectuses, statements of additional
information, registration statements, and amendments thereto that may be
required by Federal or other laws or by the rules or regulations of any duly
authorized commission or administrative body.
11. DURATION AND TERMINATION OF AGREEMENT.
11.1 This Agreement shall become effective as of January 1, 1999 and shall
remain in force until January 1, 2001 and thereafter, but only so long as such
continuance is specifically approved at least annually by (i) the Board of
Trustees, or by the vote of a
24
majority of the outstanding voting securities of the Trust, cast in person or by
proxy, and (ii) a majority of those Trustees who are not parties to this
Agreement or interested persons of any such party cast in person at a meeting
called for the purpose of voting on such approval. Notwithstanding the
foregoing, the Board of Trustees may, from time to time, establish a new
effective date for the continuance of this Agreement with respect to any initial
Fund and/or additional Fund; provided, that such new effective date precedes the
then current termination date of the Agreement.
11.2 This Agreement may be terminated at any time without the payment of
any penalty, by the Board of Trustees, by vote of a majority of the outstanding
voting securities of the Trust, or by the Underwriter or the Company on 120 days
written notice to the other party. This Agreement shall automatically terminate
in the event of its assignment or in the event of termination of the Advisory
Agreement between the Underwriter and any Fund of the Trust.
11.3 The terms "assignment," "vote of a majority of the outstanding voting
securities" and "interested person," when used in this Agreement, shall have the
respective meanings specified in the 1940 Act.
12. GOVERNING LAW.
This Agreement shall be construed in accordance with the laws of the State
of Texas and the applicable provisions of the 1940 Act. To the extent the
applicable law of the State of Texas, or any of the provisions herein, conflict
with the applicable provisions of the 1940 Act, the latter shall control.
13. CONFIDENTIALITY.
Neither the Company nor the Underwriter shall disclose or use any records
or information obtained hereunder in any manner whatsoever except as expressly
authorized
25
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
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/ XXXXX X. XXXXXX
--------------------
ATTEST: XXXXX X. XXXXXX
President
/s/ XXXXX X. XXXXX
------------------
XXXXX X. XXXXX
Assistant Vice President and
Assistant Secretary
USAA LIFE INVESTMENT TRUST
BY:/s/ XXXXX X. XXXXXX
-------------------
ATTEST: XXXXX X. XXXXXX
President
/s/ XXXXX X. XXXXX
------------------
XXXXX X. XXXXX
Assistant Secretary
USAA INVESTMENT
MANAGEMENT COMPANY
BY: XXXXXXX X.X. XXXX
-----------------
ATTEST: XXXXXXX X.X. XXXX
President
/s/XXXXXXX X. XXXXXX
--------------------
XXXXXXX X. XXXXXX
Secretary
27
