EXHIBIT 1.(8)(d)(i)
FORM OF
PARTICIPATION AGREEMENT
PARTICIPATION AGREEMENT (the "Agreement") made by and between XXXXXXX
VARIABLE LIFE INVESTMENT FUND (the "Fund"), a Massachusetts business trust
created under a Declaration of Trust dated March 15, 1985, as amended, with a
principal place of business in Boston, Massachusetts and USAA LIFE INSURANCE
COMPANY, a Texas corporation (the "Company"), with a principal place of
business in San Antonio, Texas on behalf of the Separate Account of USAA Life
Insurance Company, a separate account of the Company, and any other separate
account of the Company as designated by the Company from time to time, upon
written notice to the Fund in accordance with Section 10 herein (each, an
"Account").
WHEREAS, the Fund acts as the investment vehicle for the separate
accounts established for variable life insurance policies and variable annuity
contracts (collectively referred to herein as "Variable Insurance Products")
to be offered by insurance companies which have entered into participation
agreements substantially identical to this Agreement ("Participating Insurance
Companies") and their affiliated insurance companies; and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares of beneficial interest ("Shares"), and additional series of
Shares may be established, each designated a "Portfolio" and representing the
interest in a particular managed portfolio of securities; and
WHEREAS, it is in the best interest of Participating Insurance Companies
to make capital contributions if required so that the annual expenses of each
Portfolio of the Fund in which a Participating Insurance Company is a
shareholder will not exceed a fixed percentage of the Portfolio's average
annual net assets; and
WHEREAS, the Parties desire to evidence their agreement as to certain
other matters,
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter contained, the parties hereto agree as
follows:
1. ADDITIONAL DEFINITIONS.
For the purposes of this Agreement, the following definitions shall
apply:
(a) The "expenses of a Portfolio" for any fiscal year shall mean
the expenses for such fiscal year as shown in the Statement of Operations (or
similar report) certified by the Fund's independent public accountants;
(b) A "Portfolio's average daily net assets" for each fiscal
year shall mean the sum of the net asset values determined throughout the year
for the purpose of determining net asset value per Share, divided by the
number of such determinations during such year;
(c) The Company's "Required Contribution" on behalf of each
Account in respect of a Portfolio for any fiscal year shall mean an amount
equal to the expenses of that Portfolio for such year minus the
below-indicated percentage of that Portfolio's average daily net assets for
the year:
International Portfolio . . . . . . . . . . 1.50%
Each other Portfolio. . . . . . . . . . . . 0.75%
multiplied by a fraction the denominator of which is the average daily net
assets of that Portfolio and the numerator of which is the average daily net
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asset value of the Shares of that Portfolio owned by each Account (referred to
herein as a "Participating Shareholder"). The Company's Required Contribution
in respect of a Portfolio shall be pro-rated based on the number of business
days on which this Agreement is in effect for periods of less than a fiscal
year.
(d) The "average daily net asset value of the Shares of the
Portfolio" owned by the Account for any fiscal year of the Fund shall mean the
greater of (i) $500,000 or (ii) the sum of the aggregate net asset values of
the Shares so owned determined during the fiscal year, as of each
determination of the net asset value per Share, divided by the total number of
determinations of net asset value during such year.
(e) "Shares" means shares of beneficial interest, without par
value, of any Portfolio, now or hereafter created, of the Fund.
2. CAPITAL CONTRIBUTION.
The Company on behalf of each Account shall, within sixty days after the
end of each fiscal year of the Fund, make a capital contribution to the Fund
in respect of each Portfolio equal to the Required Contribution for that
Portfolio for such year; provided, however, that in the event that both
clauses (i) and (ii) of paragraph (d) of Section 1 of this Agreement or
similar agreements are applicable to different Participating Insurance
Companies during the same fiscal year, there shall be a proportionate
reduction of the Required Contribution of each Participating Insurance Company
to which said clause (ii) is applicable so that the total of all required
capital contributions to the Fund on behalf of any Portfolio is not greater
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than the excess of the expenses of that Portfolio for that fiscal year less
the percentage of that Portfolio's total expenses set forth in paragraph (c)
of Section 1 of this Agreement for such fiscal year.
3. DUTY OF FUND TO SELL.
The Fund shall make its Shares available for purchase at the applicable
net asset value per Share by Participating Insurance Companies and their
affiliates and separate accounts on those days on which the Fund calculates
its net asset value pursuant to rules of the Securities and Exchange
Commission; provided, however, that the Trustees of the Fund may refuse to
sell Shares of any Portfolio to any person, or suspend or terminate the
offering of Shares of any Portfolio, if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion of
the Trustees, necessary in the best interest of the shareholders of any
Portfolio.
4. REQUIREMENT TO EXECUTE PARTICIPATION AGREEMENT; REQUESTS.
Each Participating Insurance Company shall, prior to purchasing Shares
in the Fund, execute and deliver a participation agreement in a form
substantially identical to this Agreement.
The Fund shall make available, upon written request from the
Participating Insurance Company given in accordance with Paragraph 10, to each
Participating Insurance Company which has executed an Agreement and which
Agreement has not been terminated pursuant to Paragraph 8 (i) a list of all
other Participating Insurance Companies, and (ii) a copy of the Agreement as
executed by any other Participating Insurance Company.
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The Fund shall also make available upon request to each Participating
Insurance Company which has executed an Agreement and which Agreement has not
been terminated pursuant to Paragraph 8, the net asset value of any Portfolio
of the Fund as of any date upon which the Fund calculates the net asset value
of its Portfolios for the purpose of purchase and redemption of Shares.
5. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless the Fund
and each of its Trustees and officers and each person, if any, who controls
the Fund within the meaning of Section 15 of the Securities Act of 1933 (the
"Act") against any and all losses, claims, damages, liabilities or litigation
(including legal and other expenses), arising out of the acquisition of any
Shares by any person, to which the Fund or such Trustees, officers or
controlling person may become subject under the Act, under any other statute,
at common law or otherwise, which (i) may be based upon any wrongful act by
the Company, any of its employees or representatives, any affiliate of or any
person acting on behalf of the Company or a principal underwriter of its
insurance products, or (ii) may be based upon any untrue statement or alleged
untrue statement of a material fact contained in a registration statement or
prospectus covering Shares or any amendment thereof or supplement thereto or
the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading
if such a statement or omission was made in reliance upon information
furnished to the Fund by the Company, or (iii) may be based on any untrue
statement or alleged untrue statement of a material fact contained in a
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registration statement or prospectus covering insurance products sold by the
Company or any insurance company which is an affiliate thereof, or any
amendments or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statement or statements therein not misleading, unless such statement or
omission was made in reliance upon information furnished to the Company or
such affiliate by or on behalf of the Fund; provided, however, that in no case
(i) is the Company's indemnity in favor of a Trustee or officer or any other
person deemed to protect such Trustee or officer or other person against any
liability to which any such person would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of his
duties or by reason of his reckless disregard of obligations and duties under
this Agreement or (ii) is the Company to be liable under its indemnity
agreement contained in this Paragraph 5 with respect to any claim made against
the Fund or any person indemnified unless the Fund or such person, as the case
may be, shall have notified the Company in writing pursuant to Paragraph 10
within a reasonable time after the summons or other first legal process giving
information of the nature of the claims shall have been served upon the Fund
or upon such person (or after the Fund or such person shall have received
notice of such service on any designated agent), but failure to notify the
Company of any such claim shall not relieve the Company from any liability
which it has to the Fund or any person against whom such action is brought
otherwise than on account of its indemnity agreement contained in this
Paragraph 5. The Company shall be entitled to participate, at its own expense,
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in the defense, or, if it so elects, to assume the defense of any suit brought
to enforce any such liability, but, if it elects to assume the defense, such
defense shall be conducted by counsel chosen by it and satisfactory to the
Fund, to its officers and Trustees, or to any controlling person or persons,
defendant or defendants in the suit. In the event that the Company elects to
assume the defense of any such suit and retain such counsel, the Fund, its
officers and Trustees or controlling person or persons, defendant or
defendants in the suit, shall bear the fees and expenses of any additional
counsel retained by them, but, in case the Company does not elect to assume
the defense of any such suit, the Company will reimburse the Fund, or such
officers and Trustees or controlling person or persons, defendant or
defendants in such suit, for the reasonable fees and expenses of any counsel
retained by them. The Company agrees promptly to notify the Fund pursuant to
Paragraph 10 of the commencement of any litigation or proceedings against it
in connection with the issue and sale of any Shares.
(b) The Fund agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls
the Company within the meaning of Section 15 of the Act against any and all
losses, claims, damages, liabilities or litigation (including legal and other
expenses) to which it or such directors, officers or controlling person may
become subject under the Act, under any other statute, at common law or
otherwise, arising out of the acquisition of any Shares by any person which
(i) may be based upon any wrongful act by the Fund, any of its employees or
representatives or a principal underwriter of the Fund, or (ii) may be based
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upon any untrue statement or alleged untrue statement of a material fact
contained in a registration statement or prospectus covering Shares or any
amendment thereof or supplement thereto or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading unless such statement or omission
was made in reliance upon information furnished to the Fund by the Company or
(iii) may be based on any untrue statement or alleged untrue statement of a
material fact contained in a registration statement or prospectus covering
insurance products sold by the Company, or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made in reliance
upon information furnished to the Company by or on behalf of the Fund;
provided, however, that in no case (i) is the Fund's indemnity in favor of a
director or officer or any other person deemed to protect such director or
officer or other person against any liability to which any such person would
otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of his duties or by reason of his reckless
disregard of obligations and duties under this Agreement or (ii) is the Fund
to be liable under its indemnity agreement contained in this Paragraph 5 with
respect to any claims made against the Company or any such director, officer
or controlling person unless it or such director, officer or controlling
person, as the case may be, shall have notified the Fund in writing pursuant
to Paragraph 10 within a reasonable time after the summons or other first
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legal process giving information of the nature of the claim shall have been
served upon it or upon such director, officer or controlling person (or after
the Company or such director, officer or controlling person shall have
received notice of such service on any designated agent), but failure to
notify the Fund of any claim shall not relieve it from any liability which it
may have to the person against whom such action is brought otherwise than on
account of its indemnity agreement contained in this Paragraph. The Fund will
be entitled to participate at its own expense in the defense, or, if it so
elects, to assume the defense of any suit brought to enforce any such
liability, but if the Fund elects to assume the defense, such defense shall be
conducted by counsel chosen by it and satisfactory to the Company, its
directors, officers or controlling person or persons, defendant or defendants,
in the suit. In the event the Fund elects to assume the defense of any such
suit and retain such counsel, the Company, its directors, officers or
controlling person or persons, defendant or defendants in the suit, shall bear
the fees and expenses of any additional counsel retained by them, but, in case
the Fund does not elect to assume the defense of any such suit, it will
reimburse the Company or such directors, officers or controlling person or
persons, defendant or defendants in the suit, for the reasonable fees and
expenses of any counsel retained by them. The Fund agrees promptly to notify
the Company pursuant to Paragraph 10 of the commencement of any litigation or
proceedings against it or any of its officers or Trustees in connection with
the issuance or sale of any Shares.
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6. PROCEDURE FOR RESOLVING IRRECONCILABLE CONFLICTS.
(a) The Trustees of the Fund will monitor the operations of the
Fund for the existence of any material irreconcilable conflict among the
interests of all the contract holders and policy owners of Variable Insurance
Products (the "Participants") of all separate accounts investing in the Fund.
An irreconcilable material conflict may arise, among other things, from: (a)
an action by any state insurance regulatory authority; (b) a change in
applicable insurance laws or regulations; (c) a tax ruling or provision of the
Internal Revenue Code or the regulations thereunder; (d) any other development
relating to the tax treatment of insurers, contract holders or policy owners
or beneficiaries of Variable Insurance Products; (e) the manner in which the
investments of any Portfolio are being managed; (f) a difference in voting
instructions given by variable annuity contract holders, on the one hand, and
variable life insurance policy owners, on the other hand, or by the contract
holders or policy owners of different participating insurance companies; or
(g) a decision by an insurer to override the voting instructions of
Participants.
(b) The Company will be responsible for reporting any potential
or existing conflicts to the Trustees of the Fund. The Company will be
responsible for assisting the Trustees in carrying out their responsibilities
under this Paragraph 6(b) and Paragraph 6(a), by providing the Trustees with
all information reasonably necessary for the Trustees to consider the issues
raised. The Fund will also request its investment adviser to report to the
Trustees any such conflict which comes to the attention of the adviser.
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(c) If it is determined by a majority of the Trustees of the
Fund, or a majority of its disinterested Trustees, that a material
irreconcilable conflict exists involving the Company, the Company shall, at
its expense, and to the extent reasonably practicable (as determined by a
majority of the disinterested Trustees), take whatever steps are necessary to
eliminate the irreconcilable material conflict, including withdrawing the
assets allocable to some or all of the separate accounts from the Fund or any
Portfolio and reinvesting such assets in a different investment medium,
including another Portfolio of the Fund, offering to the affected Participants
the option of making such a change or establishing a new funding medium
including a registered investment company.
For purposes of this Paragraph 6(c), the Trustees, or the disinterested
Trustees, shall determine whether or not any proposed action adequately
remedies any irreconcilable material conflict. In the event of a determination
of the existence of an irreconcilable material conflict, the Trustees shall
cause the Fund to take such action, such as the establishment of one or more
additional Portfolios, as they in their sole discretion determine to be in the
interest of all shareholders and Participants in view of all applicable
factors, such as cost, feasibility, tax, regulatory and other considerations.
In no event will the Fund be required by this Paragraph 6(c) to establish a
new funding medium for any variable contract or policy.
The Company shall not be required by this Paragraph 6(c) to establish a
new funding medium for any variable contract or policy if an offer to do so
has been declined by a vote of a majority of the Participants materially
adversely affected by the material irreconcilable conflict. The Company will
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recommend to its Participants that they decline an offer to establish a new
funding medium only if the Company believes it is in the best interest of the
Participants.
(d) The Trustees' determination of the existence of an
irreconcilable material conflict and its implications promptly shall be
communicated to all Participating Insurance Companies by written notice
thereof delivered or mailed, first class postage prepaid.
7. VOTING PRIVILEGES.
The Company shall be responsible for assuring that its separate account
or accounts participating in the Fund shall use a calculation method of voting
procedures substantially the same as the following: those Participants
permitted to give instructions and the number of Shares for which instructions
may be given will be determined as of the record date for the Fund
shareholders' meeting, which shall not be more than 60 days before the date of
the meeting. Whether or not voting instructions are actually given by a
particular Participant, all Fund shares held in any separate account or
sub-account thereof and attributable to policies will be voted for, against,
or withheld from voting on any proposition in the same proportion as (i) the
aggregate record date cash value held in such sub-account for policies giving
instructions, respectively, to vote for, against, or withhold votes on such
proposition, bears to (ii) the aggregate record date cash value held in the
sub-account for all policies for which voting instructions are received.
Participants continued in effect under lapse options will not be permitted to
give voting instructions. Shares held in any other insurance company general
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or separate account or sub-account thereof will be voted in the proportion
specified in the second preceding sentence for shares attributable to
policies.
8. DURATION AND TERMINATION.
This Agreement shall remain in force for the period ending five years
from the date of its execution (such date and any anniversary of such date
being hereinafter called a "Renegotiation Date"), and from year to year
thereafter provided that neither the Company nor the Fund shall have given
written notice to the other within thirty (30) days prior to a Renegotiation
Date that it desires to renegotiate the amount of contribution to capital due
hereunder ("Renegotiation Notice"). If a Renegotiation Notice is properly
given as aforesaid and the Fund and the Company shall fail, within sixty (60)
days after the Renegotiation Date, either to enter into an amendment to this
Agreement or a written acknowledgment that the Agreement shall continue in
effect, this Agreement shall terminate as of the one hundred twentieth day
after such Renegotiation Date. If this Agreement is so terminated, the Fund
may, at any time thereafter, automatically redeem the Shares of any Portfolio
held by a Participating Shareholder. This Agreement may be terminated at any
time, at the option of either of the Company or the Fund, when neither the
Company, any insurance company nor the separate account or accounts of such
insurance company which is an affiliate thereof which is not a Participating
Insurance Company own any Shares of the Fund or may be terminated by either
party to the Agreement upon a determination by a majority of the Trustees of
the Fund, or a majority of its disinterested Trustees, following certification
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thereof by a Participating Insurance Company given in accordance with
Paragraph 10 that an irreconcilable conflict exists among the interests of (i)
all contract holders and policy holders of Variable Insurance Products of all
separate accounts or (ii) the interests of the Participating Insurance
Companies investing in the Fund. Notwithstanding anything to the contrary in
this Agreement or its termination as provided herein, the Company's obligation
to make a capital contribution to the Fund in accordance with this Agreement
at the time in effect shall continue (i) following a properly given
Renegotiation Notice, in the absence of agreement otherwise, until termination
of this Agreement, and (ii) (except termination due to the existence of an
irreconcilable conflict), following termination of this Agreement, until the
later of the fifth anniversary of the date of this Agreement or the date on
which the Company, its separate account(s) or the separate account(s) of any
affiliated insurance company owns no Shares.
9. COMPLIANCE.
The Fund will comply with the provisions of Section 4240(a) of the New
York Insurance Law.
Each Portfolio of the Fund will comply with the provisions of Section
817(h) of the Internal Revenue Code of 1986, as amended (the "Code"), relating
to diversification requirements for variable annuity, endowment and life
insurance contracts. Specifically, each Portfolio will comply with either (i)
the requirement of Section 817(h)(1) of the Code that its assets be adequately
diversified, or (ii) the "Safe Harbor for Diversification" specified in
Section 817(h)(2) of the Code, or (iii) the diversification requirement of
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Section 817(h)(1) of the Code by having all or part of its assets invested in
U.S. Treasury securities which qualify for the "Special Rule for Investments
in United States Obligations" specified in Section 817(h)(3) of the Code.
The provisions of Paragraphs 6 and 7 of this Agreement shall be
interpreted in a manner consistent with any Rule or order of the Securities
and Exchange Commission under the Investment Company Act of 1940, as amended,
applicable to the parties hereto.
No Shares of any Portfolio of the Fund may be sold to the general
public.
10. NOTICES.
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in
writing to the other party.
If to the Fund:
Xxxxxxx Variable Life Investment Fund
Xxx Xxxxxxxxxxxxx Xxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
(000) 000-0000
Attn.: Xxxxxxx X. Xxxxxx
If to the Company:
USAA Life Insurance Company
0000 Xxxxxxxxxxxxxx Xxxx
Xxx Xxxxxxx, Xxxxx 00000
Attn.: Xxxxx X. Xxxxx, Esq.
11. MASSACHUSETTS LAW TO APPLY.
This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of The Commonwealth of Massachusetts.
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12. MISCELLANEOUS.
The name "Xxxxxxx Variable Life Investment Fund" is the designation of
the Trustees for the time being under a Declaration of Trust dated March 15,
1985, as amended, and all persons dealing with the Fund must look solely to
the property of the Fund for the enforcement of any claims against the Fund as
neither the Trustees, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund. No Portfolio
shall be liable for any obligations properly attributable to any other
Portfolio.
The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect. This Agreement may be executed
simultaneously in two or more counterparts, each of which taken together shall
constitute one and the same instrument.
13. ENTIRE AGREEMENT.
This Agreement and the letter agreement dated _________, 1998 together
incorporate the entire understanding and agreement among the parties hereto,
and supersede any and all prior understandings and agreements between the
parties hereto with respect to the subject matter hereof.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the ____ day of _____, 1998.
SEAL XXXXXXX VARIABLE LIFE
INVESTMENT FUND
By:
------------------------
Xxxxx X. Xxxxx
President
SEAL USAA LIFE INSURANCE COMPANY
By:
--------------------
Its:President