<PAGE>
Registration No. 333-45343
As filed with the Securities and Exchange Commission
on April 27, 2000
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 3 TO
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933 OF
SECURITIES OF UNIT INVESTMENT TRUSTS REGISTERED ON FORM N-8B-2
LIFE INSURANCE SEPARATE ACCOUNT OF
USAA LIFE INSURANCE COMPANY
(Exact Name of Trust)
USAA LIFE INSURANCE COMPANY
(Name of Depositor)
9800 Fredericksburg Road, C-3-W
San Antonio, Texas 78288
(Complete Address of Depositor's Principal Executive Offices)
CYNTHIA A. TOLES, ESQ.
Vice President and Assistant Secretary
DWAIN A. AKINS, ESQ.
Assistant Vice President and Assistant Secretary
USAA Life Insurance Company
9800 Fredericksburg Road, C-3-W
San Antonio, Texas 78288
(Name and Complete Address of Agent for Service)
Please send copies of all communications to:
GARY O. COHEN, ESQ.
Freedman, Levy, Kroll & Simonds
1050 Connecticut Avenue, N.W., Suite 825
Washington, D.C. 20036
(202) 457-5107
Exhibit Index on Page ___
Page 1 to ___
<PAGE>
This filing is made pursuant to Rules 6c-3 and 6e-3(T) under the Investment
Company Act of 1940.
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 and Amount of Securities Being Registered: An Indefinite Amount of
Interests in Life Insurance Separate Account of USAA Life Insurance Company
Under Variable Universal Life Insurance Policies.
Approximate Date of Proposed Public Offering: Continuous.
ii
<PAGE>
RECONCILIATION AND TIE BETWEEN ITEMS IN
FORM N-8B-2 AND THE PROSPECTUS
LIFE INSURANCE SEPARATE ACCOUNT OF
USAA LIFE INSURANCE COMPANY
ITEM NO. OF FORM N-8B-2 * CAPTION IN PROSPECTUS**
1 Cover Page
2 Cover Page
3 Not Applicable
4 Policy Distribution
5 Definitions
6 Separate Account
7 Not Required***
8 Not Required***
9 Legal Matters
10 Death Benefit; Other Policy Benefits;
Payment of Policy Benefits; Transfer of
Cash Value; Loans; Surrenders; Policy
Lapse and Reinstatement; Investment
Options -Voting Privileges; Investment
Options - Additions or Changes to
Investment Options; The Contract
11 Investment Options
12 Investment Options
13 The Policy at a Glance - Policy Charges
and Deductions; The Policy at a Glance -
Fund Fees and Other Expenses; Charges and
Deductions; USAA Life
14 Policy Issuance; Premium Payments
15 Premium Payments; Investment Options
16 Premium Payments - Allocation of Premiums;
Investment Options
iii
<PAGE>
17 Death Benefit; Other Policy Benefits;
Payment of Policy Benefits; Transfer of
Cash Value; Loans; Surrenders; Policy
Lapse and Reinstatement
18 Tax Matters - Taxation of Policy Proceeds:
Our Taxes; Separate Account; Charges and
Deductions - Monthly Deductions: Mortality
and Expense Risk Charge; Financial
Statements
19 USAA Life; Reports and Records
20 Not Applicable
21 Loans
22 Not Applicable
23 Not Applicable**
24 Charges and Deductions; Cash Value;
Telephone Transactions; Free Look Right;
Postponement of Payments; More Policy
Information
25 USAA Life
26 Not Applicable
27 USAA Life
28 USAA Life - Directors of USAA Life; USAA
Life - Officers (other than Directors)
29 USAA Life
30 Not Applicable
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 Policy Distribution
36 Not Required***
37 Not Applicable
iv
<PAGE>
38 Policy Distribution
39 Policy Distribution
40 Not Applicable
41 Policy Distribution; Investment Options
42 Not Applicable
43 Not Applicable
44 Charges and Deductions - Other Charges;
investment Options
45 Not Applicable
46 Charges and Deductions - Other Charges;
Investment Options
47 Not Applicable
48 Not Applicable
49 Not Applicable
50 Not Applicable
51 Not Applicable**
52 Investment Options - Additions or Changes
to Investment Options
53 Tax Matters - Taxation of USAA Life
54 Not Applicable
55 Not Applicable**
56 Not Required***
57 Not Required***
58 Not Required***
59 Not Required***
v
<PAGE>
* Registrant includes this Reconciliation and Tie Sheet in the amendment
to its Registration Statement in compliance with Instruction 4 as to the
Prospectus as set out in Form S-6. Registrant filed a Notification of
Registration as an investment company on Form N-8A and a Form N-8B-2
Registration Statement under the Investment Company Act of 1940 on January 30,
1998. Pursuant to Sections 8 and 30(b)(1) of the Investment Company Act of
1940, Rule 30a-1 under that Act, and Forms N-8B-2 and N-SAR under that Act,
Registrant will keep its Form N-8B-2 Registration Statement current through the
filing of periodic reports required by the Securities and Exchange Commission.
** Caption in Prospectus, to the extent relevant to this Form. Certain
items are not relevant pursuant to the administrative practice of the Commission
and its staff of adapting the disclosure requirements of the Commission's
registration statement forms in recognition of the differences between variable
life insurance policies and other periodic payment plan certificates issued by
investment companies and between separate accounts organized as management
companies and unit investment trusts.
*** Not required pursuant to Instruction 1(a) as to the Prospectus as set
out in Form S-6.
vi
<PAGE>
[LOGO] Usaa Life Insurance Company
Variable Universal Life
Prospectus
May 1, 2000
<PAGE>
USAA Life Insurance Company
Variable Universal Life
Table of Contents
Section
- -------
A. Variable Universal Life Insurance Policy Prospectus...............3A-86A
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)...........................
*Formerly known as BT Insurance Funds Trust.
1
<PAGE>
This page left blank intentionally
<PAGE>
VARIABLE UNIVERSAL LIFE INSURANCE POLICY
Prospectus
May 1, 2000
Offered By: USAA LIFE INSURANCE COMPANY
9800 Fredericksburg Road, San Antonio, Texas 78288
Telephone: toll free 1-800-531-2923
This Prospectus describes a Variable Universal Life Insurance Policy ("Policy")
that we are offering, through our Life Insurance Separate Account, to individual
members of the United Services Automobile Association ("USAA"), the parent
company of the USAA Group of Companies, as well as to the general public.
The Policy offers you:
. Life insurance protection guaranteed by USAA Life. (See "Payment of
Policy Benefits.")
. 12 investment options. (See "Investment Options" and the accompanying
Fund prospectuses for a description of the Funds.)
USAA Life Investment Trust Scudder Variable Life Investment Fund
--------------------------- -------------------------------------
USAA Life Money Market Fund Capital Growth Portfolio
USAA Life Income Fund
USAA Life Growth and Income Fund The Alger American Fund
-----------------------
USAA Life World Growth Fund Alger American Growth Portfolio
USAA Life Diversified Assets Fund
USAA Life Aggressive Growth Fund Deutsche Asset Management VIT Funds*
------------------------------------
USAA Life International Fund Deutsche VIT Equity 500 Index Fund
Deutsche VIT Small Cap Index Fund
Deutsche VIT EAFE(R) Equity Index Fund
*Formerly know as BT Insurance Funds
Trust.
. Flexible premium payments. (See "Premium Payments.")
Please read this Prospectus carefully and keep it for future reference. Your
Prospectus and Policy may reflect variations required by the laws of your state.
This Prospectus is not valid unless accompanied by the current prospectuses for
the Funds. Defined terms used in this Prospectus appear at the beginning of this
booklet.
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 to investment risks, and may lose
value.
IMPORTANT
NOTICES The Securities and Exchange Commission("SEC") 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.
YOU MAY CANCEL THE POLICY WITHIN 10 DAYS AFTER RECEIVING
IT, OR SUCH LONGER PERIOD AS THE LAWS OF YOUR STATE MAY
REQUIRE.
3A
<PAGE>
- -----------------
TABLE OF CONTENTS
- -----------------
<TABLE>
<S> <C>
DEFINITIONS......................................................................................................6A
THE POLICY AT A GLANCE...........................................................................................9A
QUESTIONS AND ANSWERS...........................................................................................12A
POLICY INFORMATION..............................................................................................16A
Policy Issuance........................................................................................16A
Who May Purchase a Policy.....................................................................16A
How to Purchase a Policy......................................................................16A
Effective Date of Your Policy.................................................................16A
Premium Payments.......................................................................................16A
Methods of Payment............................................................................16A
Amount and Frequency of Payments..............................................................16A
Allocation of Premiums.................................................................................17A
Planned Periodic Premium Payments.............................................................17A
Annual Target Premium Payment.................................................................18A
Investment Options.....................................................................................18A
Additions or Changes to Investment Options....................................................20A
Voting Privileges.............................................................................20A
Special Considerations........................................................................20A
Policy Lapse and Reinstatement.........................................................................21A
Lapse.........................................................................................21A
Grace Period..................................................................................21A
Guaranteed Death Benefit......................................................................21A
Reinstatement.................................................................................22A
Charges and Deductions.................................................................................22A
Premium Charge................................................................................22A
Monthly Deductions from Cash Value............................................................22A
Separate Account Charges......................................................................23A
Transfer Charges..............................................................................23A
Surrender Charges.............................................................................23A
Other Charges.................................................................................24A
Deduction of Charges..........................................................................24A
Death Benefit..........................................................................................24A
Choosing Between Option A and Option B........................................................25A
Illustrations of Option A and Option B........................................................25A
Changing Your Death Benefit Option............................................................25A
Changing Your Policy's Specified Amount.......................................................26A
Other Policy Benefits..................................................................................26A
Optional Insurance Benefits...................................................................26A
Benefits at Maturity..........................................................................28A
Payment of Policy Benefits.............................................................................28A
Payment of Death Benefit......................................................................28A
Payment of Maturity Benefit...................................................................28A
Death Benefit Payment Options.................................................................28A
Cash Value.............................................................................................29A
Calculating Your Value in the Variable Fund Accounts..........................................29A
</TABLE>
4A
<PAGE>
<TABLE>
<S> <C>
Transfer of Value......................................................................................30A
Loans .................................................................................................30A
Loan Collateral...............................................................................30A
Loan Interest.................................................................................31A
Repayment of Indebtedness.....................................................................31A
Effect of Policy Loans........................................................................31A
Surrenders.............................................................................................31A
Full Surrenders...............................................................................32A
Partial Surrenders............................................................................32A
Telephone Transactions.................................................................................32A
Dollar Cost Averaging Program..........................................................................32A
Free Look Right........................................................................................33A
Postponement of Payments...............................................................................33A
MORE POLICY INFORMATION.........................................................................................33A
Owners and Beneficiaries...............................................................................33A
Owners........................................................................................33A
Beneficiaries.................................................................................34A
Calculating Your Cost of Insurance.....................................................................34A
Net Amount at Risk............................................................................34A
Net Amount at Risk - More Than One Rate Class.................................................35A
Cost of Insurance Rates.......................................................................35A
Minimum Amount Insured.................................................................................35A
The Contract...........................................................................................36A
Incontestability.......................................................................................36A
Misstatement of Age or Sex.............................................................................37A
Suicide Exclusion......................................................................................37A
Non-Participating Policy...............................................................................37A
Reports and Records....................................................................................37A
PERFORMANCE INFORMATION.........................................................................................38A
OTHER INFORMATION...............................................................................................38A
USAA Life..............................................................................................38A
Directors of USAA Life........................................................................39A
Officers (other than Directors)...............................................................39A
Separate Account.......................................................................................41A
Policy Distribution....................................................................................41A
Tax Matters............................................................................................41A
Taxation of Policy Proceeds...................................................................41A
Taxation of USAA Life.........................................................................45A
State Regulation of USAA Life..........................................................................45A
Legal Matters..........................................................................................46A
Independent Auditors...................................................................................46A
Registration Statement.................................................................................46A
Financial Statements...................................................................................46A
</TABLE>
5A
<PAGE>
- ---------------------
DEFINITIONS
- ---------------------
In This Prospectus:
- ------------------
Accumulation Unit or UNIT means an accounting unit of measure that we use to
calculate values in each Variable Fund Account. The value of one unit is known
as the Accumulation Unit Value.
Administrative Charge means a monthly charge deducted from the Policy's cash
value during the first Policy Year only. The Administrative Charge compensates
us for the start-up expenses we incur in issuing the Policy. The Administrative
Charge is shown on the Policy Information Page.
Anniversary means the same date each succeeding year as the Effective Date of
the Policy.
Annual Target Premium Payment means an annual amount of premium payment that we
establish when we issue your Policy. It is shown on the Policy Information Page.
We use it to determine whether a premium charge will be deducted from premium
payments, whether a surrender charge is imposed on a full surrender, and whether
the Guaranteed Death Benefit applies.
Beneficiary means the person or entity designated to receive the death benefit
upon the Insured's death.
Cash Surrender Value means your Policy cash value less the surrender charge, if
any, payable on full surrender of your Policy.
Cash Value, on the Effective Date, means the Net Premium less the Monthly
Deduction for the following month. Thereafter, on any Valuation Date, cash value
means the sum of:
. your Policy's value that you invest in the Variable Fund Accounts;
. plus, if applicable, any value that you transfer from the Separate
Account to USAA Life's general account to secure any Policy loan;
. plus any interest earnings we credit on the value held in the general
account;
. less the amount of any outstanding loan including any unpaid loan
interest; and
. less any Monthly Deductions, transfer charges, and partial surrender
charges we apply through that date.
Date Of Receipt means the date we actually receive the item at our Home Office,
subject to two exceptions:
. if we receive the item on a date other than a Valuation Date, the
Date of Receipt will be the following Valuation Date; and
. if we receive the item on a Valuation Date after close of regular
trading of the New York Stock Exchange, the Date of Receipt will be
the following Valuation Date.
Death Benefit means the benefit we pay in accordance with the death benefit
option in effect on the Insured's death (1) reduced by any Indebtedness and any
due and unpaid Monthly Deductions; and (2) increased by any optional insurance
benefits provided by rider.
Death Benefit Option means one of the two death benefit options that the Policy
provides, namely, Option A and Option B. Option A is the greater of the current
Specified Amount or the Minimum Amount Insured. Option B is the greater of the
current Specified Amount, plus the Policy's cash value, or the Minimum Amount
Insured.
6A
<PAGE>
Effective Date means the date we approve the application and issue your Policy
or the date we approve any increase in Specified Amount under your Policy. The
Effective Date is shown on the Policy Information Page.
Free Look Period means the period of time required by state law during which you
may return the Policy for cancellation and receive a refund. The Free Look
Period is shown on the Policy Information Page. You may cancel your Policy
within 10 days of receipt (or a longer period depending on where you reside).
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 "Free Look Right.")
Fund means an investment portfolio that has specific investment objectives and
policies and is offered by a Mutual Fund.
Guaranteed Death Benefit means that if you pay a sufficient amount of premium,
we guarantee your Policy will not lapse during the first 5 Policy Years and that
we will pay a death benefit.
Home Office means USAA Life Insurance Company, USAA Building, 9800
Fredericksburg Road, San Antonio, Texas 78288.
Indebtedness means the sum of all unpaid Policy loans and any unpaid accrued
interest due on such loans.
Insured means the person whose life is insured. The Insured is identified on the
Policy Information Page. The Insured may or may not be the Owner.
Lapse means your Policy has terminated because of insufficient cash value from
which to deduct the Monthly Deduction and any loan interest then due. No
insurance coverage exists when your Policy has lapsed.
Maintenance Charge means a monthly charge that we deduct from the Policy's cash
value. The Maintenance Charge compensates us for recurring administrative
expenses related to the maintenance of the Policy and the Separate Account. The
Maintenance Charge is shown on the Policy Information Page.
Maturity Date means the date that we will pay your Policy's cash value to you,
as long as the Policy has not terminated because of lapse, full surrender, or
the Insured's death. The Maturity Date is shown on the Policy Information Page.
Monthly Anniversary means the same date of each succeeding month as the
Effective Date of your Policy.
Monthly Deduction means a charge we make under your Policy each month against
the Policy's cash value. The charge is equal to:
. the cost of insurance and any riders; plus
. the administrative charge that is applied during the first 12 months
that the Policy is in effect; plus
. the maintenance charge.
Minimum Amount Insured means the amount of life insurance required by the
Internal Revenue Code to qualify your Policy as life insurance and to exclude
the death benefit from a Beneficiary's taxable income.
Mutual Fund means an open-end investment company registered under federal
securities law. It may offer shares of several different Funds for
investment.
7A
<PAGE>
Net Asset Value means the current value of each Fund's total assets, less all
liabilities, divided by the total number of shares outstanding.
Net Premium Payment means the amount of a premium payment less the Policy's
premium charge.
Notice To Us means your signed statement that we receive at our Home Office and
that is in a form satisfactory to us.
Owner means the person to whom we owe the rights and privileges of the Policy.
Policy Information Page means the page that identifies certain information about
the Policy and specifies certain terms of the Policy.
Policy Year means a period of 12 calendar months starting with the Effective
Date of the Policy, and each 12-month period thereafter. For example, if your
Policy was issued on July 15, your first Policy Year would end on the following
July 14. Each subsequent Policy Year would start on July 15 and end on July 14.
Premium Charge means an amount that we deduct from premium payments to
compensate us for sales charges and taxes related to the Policy.
Separate Account means the Life Insurance Separate Account of USAA Life
Insurance Company. The Separate Account is an investment account established
under Texas law through which we invest the Net Premium Payments we receive for
investment in the Variable Fund Accounts under the Policy. The Separate Account
is divided into subdivisions called the Variable Fund Accounts. Each Variable
Fund Account invests the Net Premium Payments allocated to it in a particular
Fund. We own the assets of the Separate Account. To the extent that the assets
are equal to the reserves and other contractual liabilities, they are not
chargeable with liabilities arising out of any other business of ours. We credit
or charge the income, gains, and losses, realized or unrealized, from the assets
of the Separate Account against the Separate Account without regard to our other
income, gains or losses. We registered the Separate Account as an investment
company under federal securities law.
Specified Amount means the minimum death benefit payable as long as the Policy
is in effect. It is also the amount of life insurance we issue. The specified
amount is shown on the Policy Information Page.
Surrender Charge means an amount that we may deduct from your Policy's cash
value if you surrender your Policy in full.
Valuation Date means any business day, Monday through Friday, on which the New
York Stock Exchange is open for regular trading, except
. any day on which the value of the shares of a Fund is not computed,
or
. any day during which no order for the purchase, surrender or transfer
of Accumulation Units is received.
Valuation Period means the period of time from the end of any Valuation Date to
the end of the next Valuation Date.
Variable Fund Account means a subdivision of the Separate Account in which you
may invest Net Premium Payments. The Policy provides several Variable Fund
Accounts. Each Variable Fund Account corresponds to a particular Fund. Net
Premium Payments that you allocate to a Variable Fund Account are invested in a
particular Fund. We also refer to the Variable Fund Accounts as Accounts in this
Prospectus.
We, Our, Us, Or USAA Life means USAA Life Insurance Company.
You, Your Or Yours refers to the Owner of the Policy.
8A
<PAGE>
- --------------------------------
THE POLICY AT A GLANCE
- --------------------------------
The following is a snapshot of the Policy. Please refer to the remainder of the
Prospectus for further details and other information.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Premium Payments and Withdrawals
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
MINIMUM AMOUNTS
Initial Premium Depends on Specified Amount of insurance coverage
Subsequent Premiums Depends on Specified Amount of insurance coverage
Withdrawals None
- ------------------------------------------------------------------------------------------------------------------------
Insurance Benefits
- ------------------------------------------------------------------------------------------------------------------------
DEATH BENEFITS
Option A Greater of Specified Amount or Minimum Amount Insured
Option B Greater of Specified Amount plus cash value
or Minimum Amount Insured
Minimum Coverage Required $100,000 ($25,000 for Insureds under age 18)
Minimum Increase or Decrease $25,000, subject to $50,000 minimum coverage amount ($25,000 for
in Coverage Insureds under age 18) with certain exceptions
OPTIONAL INSURANCE Accelerated Benefit for Terminal Illness
BENEFITS AVAILABLE Accidental Death Benefit
BY RIDER* Children Term Life Insurance
(*Not available in all states) Extended Maturity Date
Waiver of Monthly Deduction in Event of Permanent Disability
BENEFITS AT MATURITY Current Policy cash value
- ------------------------------------------------------------------------------------------------------------------------
Policy Charges and Deductions
- ------------------------------------------------------------------------------------------------------------------------
PREMIUM CHARGE 3% from each premium payment received until 10 Annual Target Premium
Payments paid
MONTHLY DEDUCTIONS FROM CASH VALUE
Issue Class Current Monthly Guaranteed Monthly/2/
-----------
Cost of Insurance Charge/1/ Cost of Insurance Cost of Insurance
(per $1000 of net amount at Per (000) Per (000)
risk)
Minimum Monthly Cost of
Insurance Rates
Male, Age 9 Standard $0.08 $0.12
Male, Age 26 Preferred Ultra $0.05 $0.12
Female, Age 9 Standard $0.08 $0.12
Female, Age 32 Preferred Ultra $0.03 $0.11
Maximum Monthly Cost of
Insurance Rates
Male, Age 99 Standard $53.50 $83.33
Male, Age 99 Preferred Ultra $22.20 $83.33
Female, Age 99 Standard $52.12 $83.33
Female, Age 99 Preferred Ultra $16.44 $83.33
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
____________________
/1/ The cost of insurance charge for an Insured depends on the age, sex, and
rate class of the Insured. (See "Calculating Your Cost of Insurance.")
/2/ Based on the 1980 Commissioners Standard Ordinary Mortality Table.
9A
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
Administrative Charge $10 per month (applies only during first Policy Year)
Maintenance Charge $5 per month
Terminal Illness Rider None
Accidental Death Benefit Rider $.07 per $1,000 coverage per month
Children Term Life Insurance Rider $.50 per $1,000 coverage
Extended Maturity Date Rider None
Waiver of Monthly Deduction Depends on age of Insured. We apply the Waiver of Monthly Deduction
Rider rates to the amount of Monthly Deduction to be waived. The rates
vary from a minimum of $.05 per $1.00 of Monthly Deduction at ages
15-30 to a maximum of $.277 per $1.00 of Monthly Deduction at age
59. The rates do not vary by underwriting class or sex.
TRANSFER CHARGE $0 for first 6 transfers each Policy Year; $25 per transfer in excess of 6
per Policy Year
SEPARATE ACCOUNT CHARGES
Mortality and Expense Charge 0.75% of average net assets of Separate Account/3/
Federal Income Tax Charge Currently none/4/
SURRENDER CHARGES
Partial Surrender Lesser of $25 or 2% of amount withdrawn
Full Surrender Maximum of 50% of Annual Target Premium Payment (declines each Policy Year to
0% after the 10/th/ Policy Year)
Minimum and Maximum
Surrender Charges:
Minimum Surrender Charges
Per $1,000 of Insurance
Male, Standard Age 1 $2.45 at issue, grading to $0.00 after 10 Policy Years
Male, Preferred Ultra Age 18 $1.76 at issue, grading to $0.00 after 10 Policy Years
Female, Standard Age 1 $2.41 at issue, grading to $0.00 after 10 Policy Years
Female, Preferred Ultra Age 18 $1.53 at issue, grading to $0.00 after 10 Policy Years
Maximum Surrender Charges
Per $1,000 of Insurance
Male, Standard Age 80 $39.35 at issue, grading to $0.00 after 10 Policy Years
Male, Preferred Ultra Age 80 $28.50 at issue, grading to $0.00 after 10 Policy Years
Female, Standard Age 80 $36.89 at issue, grading to $0.00 after 10 Policy Years
Female, Preferred Ultra Age 80 $24.70 at issue, grading to $0.00 after 10 Policy Years
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
________________________________________________________________________________
/3/ We deduct the Mortality and Expense Charge on a daily basis at an annual
rate of 0.75% of the average net assets of each Variable Fund Account.
/4/ We do not currently deduct a Federal Income Tax Charge from the assets of
the Separate Account, because USAA Life does not currently incur any income
tax on the earnings or the realized capital gains attributable to the
Separate Account.
10A
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Fund Fees and Other Expenses
- -----------------------------------------------------------------------------------------------------------------------
Total Fund
Total Fund Operating
Other Expenses Other Expenses Operating Expenses Expenses
Management Before Expense After Expense Before Expense After Expense
Name of Fund Fees Reimbursement Reimbursement Reimbursement Reimbursement/5/
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
USAA LIFE
INVESTMENT
TRUST
Money Market .20% .36% .15% .56% .35%
- -----------------------------------------------------------------------------------------------------------------------
Income .20% .48% .15% .68% .35%
- -----------------------------------------------------------------------------------------------------------------------
Growth and Income .20% .17% .15% .37% .35%
- -----------------------------------------------------------------------------------------------------------------------
World Growth .20% .55% .45% .75% .65%
- -----------------------------------------------------------------------------------------------------------------------
Diversified Assets .20% .30% .15% .50% .35%
- -----------------------------------------------------------------------------------------------------------------------
Aggressive Growth .50% .44% .20% .94% .70%
- -----------------------------------------------------------------------------------------------------------------------
International .65% .64% .45% 1.29% 1.10%
- -----------------------------------------------------------------------------------------------------------------------
SCUDDER VARIABLE
LIFE INVESTMENT
FUND
Capital Growth
Portfolio
Class A Shares .46% .03% .03% .49% .49%
- -----------------------------------------------------------------------------------------------------------------------
ALGER
AMERICAN
FUND
Growth Portfolio .75% .04% .04% .79% .79%
- -----------------------------------------------------------------------------------------------------------------------
DEUTSCHE ASSET
MANAGEMENT VIT
FUNDS/6/
Equity 500 Index .20% .23% .10% .43% .30%
- -----------------------------------------------------------------------------------------------------------------------
Small Cap Index .35% .83% .10% 1.18% .45%
- -----------------------------------------------------------------------------------------------------------------------
EAFE(R) Equity
Index .45% .70% .20% 1.15% .65%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
_____________________
/5/ We based the fee and expense figures shown with respect to each Fund on
amounts incurred during the most recent fiscal year. During this period,
certain expense reimbursement arrangements had the effect of reducing
expenses actually paid by certain Funds of the USAA Life Investment Trust
and the Deutsche Asset Management VIT Funds. The expense reimbursement
arrangements for the Funds of the USAA Life Investment Trust exist pursuant
to an Underwriting and Administrative Services Agreement, under which USAA
Life, out of its general account, has agreed to assume Fund expenses to the
extent that such expenses exceed, on an annual basis, .65% of the monthly
average net assets of the World Growth Fund, .70% of the monthly average
net assets of the Aggressive Growth Fund, 1.10% of the monthly average net
assets of the International Fund, and .35% of the monthly average net
assets of each other Fund. This Agreement is terminable by any party
thereto upon 120 days' notice to the other parties. Pursuant to a voluntary
expense reimbursement arrangement, Bankers Trust Company reimburses the
Deutsche VIT Funds for certain expenses so that the Equity 500 Index Fund,
Small Cap Index Fund and EAFE(R) Equity Index Fund total operating expenses
will not exceed .30%, .45%, and .65%, respectively. Bankers Trust Company
may terminate such expense reimbursements at its discretion.
/6/ The BT Insurance Funds Trust recently changed its name to Deutsche Asset
Management VIT Funds. The Funds are now referred to as Deutsche VIT Equity
500 Index Fund, Deutsche VIT Small Cap Index Fund and Deutsche VIT EAFE(R)
Equity Index Fund.
11A
<PAGE>
- --------------------------------------------------------------------------------
Transfers
- --------------------------------------------------------------------------------
Number of free
Transfers 6 per Policy Year
Minimum amount
of Transfer $250 (or remaining value in Variable Fund Account, if less)
- --------------------------------------------------------------------------------
Loans
- --------------------------------------------------------------------------------
Minimum Loan
Amount None
Maximum Loan
Amount 85% of cash surrender value
Maximum Interest
Rate 6% payable in advance, 4.5% preferred rate payable in advance
- --------------------------------------------------------------------------------
- ---------------------
QUESTIONS AND ANSWERS
- ---------------------
The following are answers to some basic questions about the Policy. Please read
the remainder of this Prospectus for further details.
What kind of life insurance is the Policy?
- ------------------------------------------
The Policy is a flexible premium variable life insurance policy. The Policy is
called "flexible premium" because it gives you the flexibility to vary the
amount and frequency of your premium payments, within certain limits. (See
"Premium Payments.") The Policy is called "variable" life insurance because your
cash value, your cost of insurance charges, and your life insurance (death)
benefits can vary according to your investment in one or more Variable Fund
Accounts. (See "Cash Value," "Charges and Deductions - Monthly Deductions from
Cash Value," and "Death Benefit.") Your investment experience in the Variable
Fund Accounts may be positive or negative. The Policy has no minimum guaranteed
cash value, which means you bear the entire investment risk that your cash value
could decline to zero.
How do I buy a Policy?
- ----------------------
You can buy a Policy by calling us at 1-800-531-2923 or by contacting one of our
regional offices. Our licensed insurance representatives can help you complete
an application and assist you through our application or "underwriting" process,
which normally involves a medical exam. We will issue a Policy to you, provided
you meet our requirements for insurability. We will not issue a Policy that
insures a person older than age 80. We also reserve the right to reject an
application for any reason. Insurance coverage under your Policy begins on its
Effective Date. (See "Policy Issuance.")
How much insurance can I buy?
- -----------------------------
The minimum amount of insurance you can buy is $100,000 ($25,000 if the Insured
is less than 18 years of age). We call the amount of insurance that you specify
on your application the "Specified Amount." Federal tax law limits your ability
to make certain amounts of large premium payments relative to your Policy's
Specified Amount and may impose penalties on amounts you take out of your Policy
if you do not observe certain additional requirements. (See "Premium Payments -
Amount and Frequency of Payments" and "Tax Matters.") We will monitor your
premium payments to be sure that you do not exceed permitted amounts or
inadvertently incur any tax penalties due to excess premium payments. You can
change the Specified Amount, at any time, subject to the conditions described
under "Death Benefit - Changing Your Policy's Specified Amount."
12A
<PAGE>
What insurance protection does the Policy offer?
- ------------------------------------------------
The Policy offers two types of insurance protection or "death benefit" options.
If you select the Option A death benefit, upon the Insured's death, we will pay
your Beneficiary the greater of:
. your Policy's Specified Amount, or
. the Minimum Amount Insured.
If you select the Option B death benefit, upon the Insured's death, we will pay
your Beneficiary the greater of the sum of your Policy's Specified Amount and
your cash value, on the one hand, or the Minimum Amount Insured on the other.
(See "Death Benefit.") As long as the Policy remains in effect, under either
option, the death benefit will never be less than the Policy's Specified Amount,
less any Indebtedness and any due and unpaid Monthly Deductions.
In addition, you can add optional insurance death benefits to a Policy by rider.
(See "Other Policy Benefits - Optional Insurance Benefits.")
How much are the premium payments?
- ----------------------------------
Within certain limits, you have the flexibility to determine the amount and
timing of your premium payments to reflect your changing financial conditions or
objectives. We generally require a minimum initial premium to issue a Policy,
but we do not impose a minimum on your subsequent premium payments. (See
"Premium Payments.") You must, of course, maintain sufficient cash value to keep
your Policy in effect, which may require you to make additional unscheduled
premium payments. (See "Policy Lapse and Reinstatement.")
You will usually plan a periodic premium schedule when applying for a Policy. If
you wish, we will bill you for these amounts. However, you are not required to
follow this schedule. (See "Premium Payments.")
What are the charges and deductions?
- ------------------------------------
We assess certain charges and deductions to support the operation of your Policy
and the Separate Account. Some charges apply to your premium payments, some
apply to your cash value, and others apply to the Separate Account. In addition,
we assess administrative fees for processing Policy transactions, such as
partial surrenders of cash value and transfer of value among Variable Fund
Accounts in excess of 6 free transfers per Policy Year. (See "The Policy At a
Glance" and "Charges and Deductions.")
What factors affect my cost of insurance?
- -----------------------------------------
If you are the Insured, your cost of insurance will depend on your age, sex, and
rate class. The rate class that applies depends on your health, whether you use
tobacco, and other factors that we use to determine your insurability. During
the life of the Policy, the maximum monthly cost of insurance charges will never
exceed the guaranteed monthly cost of insurance rates specified in your Policy.
(See "Calculating Your Cost of Insurance.")
What is the Separate Account?
- -----------------------------
The Separate Account is a segregated asset account of USAA Life that supports
the Policy's variable life insurance benefits. The Separate Account consists of
12 Variable Fund Accounts, each of which invests in a corresponding Fund. (See
"Investment Options.")
13A
<PAGE>
What are my investment choices?
- -------------------------------
You may invest in up to 12 Variable Fund Accounts, each of which invests
exclusively in a corresponding Fund of the USAA Life Investment Trust ("Trust"),
Scudder Variable Life Investment Fund ("Scudder Fund"), The Alger American Fund
("Alger Fund"), or Deutsche Asset Management VIT Funds* ("Deutsche VIT Funds").
(See "Investment Options.")
*Formerly known as BT Insurance Funds Trust.
How will my Policy's cash value vary?
- -------------------------------------
Your Policy's cash value will vary on a daily basis to reflect the investment
experience of the Variable Fund Accounts. Your Policy's cash value also will
reflect the amount and frequency of premium payments, any partial surrenders of
cash value, any Policy loans and the charges and deductions connected with the
Policy. Your Policy has no minimum guaranteed cash value, which means you bear
the entire investment risk that your cash value could decline to zero. (See
"Cash Value.")
How may I allocate my cash value?
- ---------------------------------
You may allocate your cash value to any of the Variable Fund Accounts by
specifying on your Policy application how much of your Net Premium Payment you
would like us to apply to each Account. We will allocate your Net Premium
Payments in accordance with your allocation instructions on your application,
until you direct otherwise. You may change future allocations at any time by
telephone or by Notice to Us. You may allocate your Net Premium Payment in
increments as small as 1/10/th/ of one percent. (See "Premium Payments.")
Can I transfer value among investment options?
- ----------------------------------------------
Yes. You can transfer value among the Variable Fund Accounts up to 6 times per
Policy Year without charge. Each transfer above 6 in a Policy Year is subject to
a $25 transfer charge. You may authorize transfers by telephone or by Notice to
Us. (See "Telephone Transactions.") Each transfer must be at least $250, or the
remaining value in the Variable Fund Account, if less. (See "Transfer of
Value.")
How do I keep track of my Policy's cash value?
- ----------------------------------------------
You now have access to information about your Policy 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 Policy 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). We will also send you periodic reports concerning your Policy and the
Separate Account. (See "Reports and Records.")
How do I access my cash value?
- ------------------------------
You can partially or fully surrender the Policy for a portion or all of its cash
value, less any applicable charges, any Indebtedness, and any due and unpaid
Monthly Deductions. We assess an administrative charge equal to the lesser of
$25 or 2% of the amount withdrawn for each partial surrender paid. We also
assess a surrender charge for full surrenders. (See "Surrenders" and "Charges
and Deductions - Surrender Charges.") Partial surrenders and related surrender
charges will reduce your Policy's death benefit on a dollar for dollar basis.
(See "Changing Your Policy's Specified Amount" under "Death
14A
<PAGE>
Benefits.") Full surrenders will terminate the Policy. (See "Tax Matters" for a
discussion of the tax consequences of surrenders.)
Can I borrow against the Policy's cash value?
- ---------------------------------------------
Yes. You may borrow money from us, after your Policy has been in effect one
year. You may borrow by using your Policy as the sole security for the loan. The
most you can borrow against your Policy is 85% of its cash surrender value. In
some cases, we may reduce the amount you can borrow. Interest on any loan is
payable in advance at the maximum annual interest rate of 6% (4.5% for preferred
loans). Lower rates may be available. A loan, whether repaid or not, will have a
permanent effect on the death benefit and cash value of your Policy. (See
"Loans.")
What will cause the Policy to lapse without value?
- --------------------------------------------------
Lapse will only occur when your cash value is insufficient to pay the Monthly
Deduction plus any loan interest then due and we do not receive sufficient
payment during the grace period, unless you have paid enough premiums to qualify
for the Guaranteed Death Benefit. (See "Lapse and Reinstatement.")
Will the Policy's death benefit and cash value be taxed?
- --------------------------------------------------------
The Policy is intended to meet the definition of a "life insurance contract"
under federal tax law. Therefore, the Policy's death benefit should be fully
excludable from the Beneficiary's gross income if paid by reason of the death of
the Insured. In addition, any earnings on your investment in a Variable Fund
Account should not be taxable to you while the Policy is in effect unless you
surrender some or all of your Policy's cash value. We do not intend this
discussion to be tax advice. You should consult with your own tax advisor before
purchasing a Policy. (See "Tax Matters.")
Can I obtain personalized illustrations demonstrating how the Policy might work?
- --------------------------------------------------------------------------------
Yes. We will furnish, upon request and at no charge, a personalized illustration
reflecting the proposed Insured's age, sex, and rate class. Where applicable, we
will also furnish upon request an illustration for a Policy that is not affected
by the sex of the Insured. We will base all such personalized illustrations, to
the extent appropriate, upon the methodology and format of the form of
illustration filed with the SEC. (See "Registration Statement.")
Do I have a "free look" right to examine the Policy?
- ----------------------------------------------------
Yes. You may cancel the Policy within 10 days after receiving it, or such longer
period as state law may require. 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. If you cancel, we
will give you a refund. (See "Free Look Right.")
15A
<PAGE>
- ------------------
POLICY INFORMATION
- ------------------
Policy Issuance
- ---------------
Who May Purchase a Policy
Any individual of legal age in a state where we may lawfully sell the Policies
can apply to purchase a Policy. However, we will not issue a Policy that insures
a person who is over 80 years of age.
How to Purchase a Policy
To obtain a Policy, you must complete an application and submit it, along with
your initial premium payment (if required), to our Home Office. You also must
provide us with satisfactory evidence of your insurability as part of the
application or "underwriting" process. During the underwriting process, we will
normally ask you to complete a medical examination so that we can assign you to
an underwriting or "rate" class that we will use to determine your cost of
insurance charges.
After we complete our underwriting process, we will promptly notify you of our
decision regarding your application. We reserve the right to reject any
application for any reason. If we accept your application, the insurance
coverage provided by your Policy will begin as of the Effective Date. We may, at
our discretion, backdate the Effective Date of a Policy by up to 6 months prior
to the date of your application, if by doing so the Insured's issue age, and
hence your cost of insurance charges, would be lower. If we backdate a Policy,
your initial premium must include sufficient premium to cover the backdating
period. We will make Monthly Deductions for the period the Policy is backdated.
You will not receive any investment performance for the backdating period.
Effective Date of Your Policy
Insurance coverage begins on the Policy's Effective Date. We will need to
receive your first premium payment to put your Policy into effect, unless the
Specified Amount you are applying for, plus any other insurance you currently
have with USAA Life, exceeds $500,000, in which case we will bill you. If you
pay your first full premium with your Policy application and we issue the Policy
as applied for, the Effective Date will ordinarily be the date we approve the
application and issue your Policy.
Premium Payments
- ----------------
Methods of Payment
We accept premium payments made by check or money order drawn on a U.S. bank in
U.S. dollars and made payable to "USAA Life Insurance Company" or "USAA Life."
We also accept premium payments made by bank draft, by wire, or by exchange from
another insurance company. All premium payments must be sent directly to our
Home Office. You can also use our Automatic Payment Plan to have monthly premium
payments automatically deducted from your bank account. For further information
about how to make premium payments by these methods and any other method we may
make available, please contact us by calling 1-800-531-4265.
Amount and Frequency of Payments
You generally have the flexibility to determine the amount and frequency of your
premium payments. You must, however, maintain sufficient cash value to keep your
Policy in effect. (See "Lapse and Reinstatement.") In addition, you must observe
the limitations described below.
Initial Premium Payment. To issue a Policy, we generally require that you
provide us with an initial premium payment equal to at least one full
Planned Periodic Premium Payment, as specified in your Policy. If you have
elected to use our Automatic Payment Plan, the minimum initial premium
payment would equal 2 monthly payments under the Plan.
16A
<PAGE>
Minimum and Maximum Premium Payments. Except for your initial premium
payment, we do not require any minimum premium payment. However, at no
time may the total amount of your premium payments exceed the maximum
amount allowed by federal tax law, unless necessary to prevent lapse. We
will monitor your Policy's cash value and the amount of life insurance at
risk to us that is required to qualify the Policy as life insurance and to
exclude the death benefit from the Beneficiary's taxable income. If a
premium payment would cause you to exceed the maximum amount allowed by
federal tax law, we will refund the excess premium payment to you. We also
may invite you to apply, subject to proof of insurability, to increase the
Specified Amount of your Policy. For more information, please refer to
"Tax Matters."
Allocation of Premiums
- ----------------------
On your Policy application, you must specify how much of your Net Premium
Payments you want to allocate to each Variable Fund Account. You can specify
allocations in increments as small as 1/10th of one percent, provided that the
total amount of your allocations equals 100%.
Premiums Received During the Application Process. We will hold your
initial premium payment in our general account during the application
process. During this time, we will not credit any earnings to you.
Premiums Received During Free Look Period. We will allocate your initial
Net Premium Payment to the USAA Life Money Market Variable Fund Account at
the Account's Accumulation Unit Value next computed on the date we accept
your application. We will allocate any subsequent Net Premium Payment that
you make during your Free Look Period to the USAA Life Money Market
Variable Fund Account at the Account's Accumulation Unit Value next
computed on the Date of Receipt of the payment. (See "Calculating Your
Value in the Variable Fund Accounts.") Your Net Premium Payments will
remain in the USAA Life Money Market Variable Fund Account for the Free
Look Period plus 5 days. On the Valuation Date immediately following the
end of that period, we will allocate your Net Premium Payments, plus any
earnings, among the Variable Fund Accounts in accordance with the
allocation instructions you specify on your Policy application, at the
Accumulation Unit Value next computed on that Date.
Premiums Received After Free Look Period. We will allocate Net Premium
Payments that you make after your Free Look Period in accordance with the
allocation instructions you specify on your Policy application, unless you
direct otherwise. We will credit your Net Premium Payments to the Variable
Fund Accounts on the Date of Receipt at the Accumulation Unit Value next
computed on that date.
Changing Your Allocations. You may change your allocation instructions at
any time by telephone or by Notice to Us. There are no charges or fees for
changing your allocation instructions. The allocation change will become
effective with the first premium payment we receive on or following the
Date of Receipt of your request.
Planned Periodic Premium Payments
You may, for convenience, choose to make planned periodic premium payments. Your
Policy will show a schedule of planned periodic premium payments and, if you
like, we will send you premium notices at quarterly, semiannual, or annual
intervals. To facilitate planned periodic premium payments, we also will accept
monthly premium payments through our Automatic Payment Plan. You are not
obligated to follow the schedule of planned periodic premium payments and
failing to do so will not itself cause your Policy to lapse. Conversely,
following the schedule will not guarantee that your Policy will remain in
effect, unless you have made enough premium payments to qualify for the
Guaranteed Death Benefit. (See "Guaranteed Death Benefit.")
17A
<PAGE>
Annual Target Premium Payment
We will use the Annual Target Premium Payment specified in your Policy to
determine whether we will deduct a premium charge from your premium payments or
a surrender charge if you fully surrender. (See "Premium Charge" and "Surrender
Charge" under "Charges and Deductions.") We also will use the Annual Target
Premium Payment to determine whether the Guaranteed Death Benefit applies. (See
"Guaranteed Death Benefit" under "Lapse and Reinstatement.") We determine the
Annual Target Premium Payment actuarially based on the age, sex and rate class
of the Insured, and the insurance benefits contained in the Policy.
Investment Options
- ------------------
Currently, you may invest, through the Separate Account, in up to 12 Funds. The
Separate Account consists of 12 Variable Fund Accounts, 7 of which correspond to
Funds of the USAA Life Investment Trust ("Trust"), 3 of which correspond to the
Deutsche Asset Management VIT Funds* ("Deutsche VIT Funds"), and one each of
which corresponds to a Fund of the Scudder Variable Life Investment Fund
("Scudder Fund") and The Alger American Fund ("Alger Fund"). You can invest in a
Fund by allocating Net Premium Payments to the corresponding Variable Fund
Account.
USAA Investment Management Company ("USAA IMCO"), 9800 Fredericksburg Road, San
Antonio, Texas 78288, serves as the investment adviser to the Trust. USAA IMCO
is a wholly-owned indirect subsidiary of USAA. Bankers Trust Company ("Bankers
Trust"), 130 Liberty Street, New York, New York 10006, serves as the investment
adviser of the Deutsche VIT Funds. Scudder Kemper Investments, Inc. ("Scudder"),
Two International Place, Boston, Massachusetts 02110, serves as the investment
adviser to the Scudder Fund's Capital Growth Portfolio. Fred Alger Management,
Inc. ("Alger Management"), 1 World Trade Center, Suite 9333, New York, New York
10048, serves as investment manager of the Alger Fund's Growth Portfolio. USAA
is not affiliated with Bankers Trust, Scudder, or Alger Management.
*Formerly known as BT Insurance Funds Trust.
18A
<PAGE>
A brief description of each Fund appears in the table below. For more
information, including a discussion of potential investment and other risks,
please refer to the accompanying prospectuses for the Funds.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
Fund Investment Objective
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
USAA Life Investment Trust
Money Market Fund Highest level of current income consistent with preservation of capital
and maintenance of liquidity
Income Fund Maximum current income without undue risk to principal
Growth and Income Fund Capital growth and current income
World Growth Fund Long-term capital appreciation
Diversified Assets Fund Long-term capital growth, consistent with preservation of capital and
balanced by current income
Aggressive Growth Fund Appreciation of capital
International Fund Capital appreciation with current income as a secondary objective
Scudder Variable
Life Investment Fund
Capital Growth Portfolio - Maximize long-term capital growth from a portfolio consisting primarily
Class A shares of equity securities
The Alger American Fund
Growth Portfolio Long-term capital appreciation
Deutsche Asset Management VIT Funds*
Equity 500 Index Fund To match, as closely as possible, before the deduction of expenses, the
performance of the Standard & Poor's 500 Composite Stock Price Index (the
"S&P 500 Index"), which emphasizes stocks of large U.S. companies
Small Cap Index Fund To match, as closely as possible, before the deduction of expenses, the
performance of the Russell 2000 Small Stock Index (the "Russell 2000
Index"), which emphasizes stocks of small U.S. companies
EAFE(R)Equity Index Fund To match, as closely as possible, before the deduction of expenses, the
performance of the Morgan Stanley Capital International ("MSCI") EAFE(R)
Index ("EAFE(R)Index")
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
*Formerly known as BT Insurance Funds Trust.
19A
<PAGE>
Additions or Changes to Investment Options
We may, from time to time, make additional Funds or Mutual Funds available as
investment options through corresponding Variable Fund Accounts. We may do so
when, for example, we believe marketing or investment conditions warrant.
We also reserve the right, subject to compliance with applicable law, to change
the Funds that are or may be available as investment options. We may, for
example, eliminate or merge one or more Funds or substitute the shares of a Fund
for those of another Fund or Mutual Fund. We may do so, in our sole discretion,
if in our judgment further investment in any Fund would be inappropriate in view
of the purposes of the Policies. We will give you written notice of the
addition, elimination, merger, or substitution of any Fund to the extent
required by law. In any event, the Separate Account may purchase other
securities for other classes of policies.
In the event of any substitution or other change, we may, by appropriate
endorsement, make any changes in your Policy and any future policies as may be
necessary or appropriate to reflect the substitution or change. Also, we may
operate the Separate Account as a management company, we may deregister it with
the SEC in the event such registration is no longer required, or we may combine
it with other USAA Life separate accounts.
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 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 Policies 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.
20A
<PAGE>
Policy Lapse and Reinstatement
- ------------------------------
Lapse
Your Policy will lapse at any time that your Policy cash value is insufficient
to pay the Monthly Deduction and any loan interest then due, unless you have
paid enough premiums to qualify for the Guaranteed Death Benefit. (See
"Guaranteed Death Benefit.") You should not consider any deduction for the cost
of insurance after lapse a reinstatement of the Policy (or of any benefit
provided by rider) nor a waiver by us of the lapse.
Grace Period
You have a grace period of 61 days during which to provide us with sufficient
payment to keep your Policy in force. The grace period will begin on any Monthly
Anniversary when your Policy cash value is insufficient to cover the Monthly
Deduction for the following month and any loan interest then due. We will notify
you, and any assignee of record, of the date the grace period expires and of the
premium necessary to continue the Policy in effect. During the grace period, you
must submit enough premium to cover 3 Monthly Deductions and any loan interest
due. The grace period is 61 days long and begins on the date we send notice to
you.
If you fail to pay the necessary premium within the grace period, a Policy lapse
will occur, terminating all insurance, including benefits provided by rider. If
the Insured dies during the grace period, we will pay the death benefit, less
any due and unpaid Monthly Deductions and any loan interest due through the
month of death, to your Beneficiary. We will not refund any cash value remaining
in the Policy at the beginning of the grace period during the grace period or at
lapse.
Guaranteed Death Benefit
You have the option to pay planned periodic premium payments based on the Annual
Target Premium Payment specified in your Policy. If on any Monthly Anniversary
during your first 5 Policy Years the total premium you have paid, less any
partial surrenders, is equal to or greater than the Annual Target Premium
Payment specified in your Policy, adjusted to reflect the number of Monthly
Anniversaries that have occurred since the Policy's Effective Date, then we
guarantee that your Policy will not lapse, even if the cash value is
insufficient to pay for the Monthly Deduction and any loan interest then due.
The Guaranteed Death Benefit is only available during the first 5 Policy Years.
To illustrate how the Guaranteed Death Benefit works, let's assume your Annual
Target Premium Payment is $2,000. If you have paid an amount equal to 3 1/2
Annual Target Premium Payments or $7,000, your Policy will not lapse, during the
first 3 1/2 Policy Years, even if your cash value on any Monthly Anniversary
during that period is insufficient to pay your Monthly Deduction and any loan
interest then due. The same would be true on any Monthly Anniversary thereafter,
until after the 5th Policy Year, provided you have met the then applicable
Annual Target Premium Payment requirements. Conversely, if you have not met the
applicable Annual Target Premium Payment requirements on any Monthly
Anniversary, the Guaranteed Death Benefit would not apply and your Policy would
lapse if your cash value is insufficient to pay your Monthly Deduction and any
loan interest then due.
If you change your Policy's Specified Amount within the first 5 Policy Years, we
will declare a new Annual Target Premium Payment and use it to determine whether
the Guaranteed Death Benefit applies.
21A
<PAGE>
Reinstatement
You may reinstate a lapsed Policy within 5 years from the date of lapse and
before the Policy's Maturity Date. We will require the following for
reinstatement:
. a completed written application for reinstatement;
. proof of insurability satisfactory to USAA Life;
. payment of premium sufficient to pay the estimated Monthly Deductions
for at least the 3 Policy months beginning with the effective date of
reinstatement; and
. payment of, or agreement to reinstate, any Policy Indebtedness.
The Effective Date of the reinstated Policy will be the Monthly Anniversary on
or before approval date of reinstatement.
Upon reinstatement, we will reinstate your Policy's death benefit to the
Specified Amount in effect at lapse, less, if applicable, any reinstated
Indebtedness. Your Policy's initial reinstated cash value will be the net
reinstated premium less the Monthly Deduction for the month following the
Effective Date of the reinstatement plus, if applicable, any reinstated
Indebtedness plus any interest earnings credited to the loan collateral held in
the general account. You will not receive any past performance during the grace
period.
One advantage of reinstating a lapsed Policy is that we will not deduct the
first-year-only administrative charge again if it has already been paid. A
possible disadvantage of reinstatement is that you must pay or reinstate any
Policy Indebtedness.
Charges and Deductions
- ----------------------
Premium Charge
We deduct a 3% premium charge from each premium we receive to compensate us for
selling expenses and taxes. The resulting Net Premium Payment is the amount we
allocate to the Variable Fund Accounts that you select.
We will deduct the premium charge from all of your premium payments until the
gross amount of premium payments we receive exceeds the sum of the Annual Target
Premium Payments payable over 10 years. (See "Annual Target Premium Payment.")
If you increase or decrease the Specified Amount, we will calculate a new Annual
Target Premium Payment for you and use it to determine whether the premium
charge applies.
To illustrate how this charge works, if your Annual Target Premium Payment is
$2,000, we would no longer deduct the premium charge once you have paid in
premiums of $20,000 ($2,000 per Policy Year for 10 years).
Monthly Deductions from Cash Value
On your Policy's Effective Date, and each Monthly Anniversary thereafter, we
will deduct certain monthly charges from your Policy's cash value. (See
"Deduction of Charges.") The Monthly Deduction will include your cost of
insurance charges, charges for any optional insurance benefits provided by
rider, an administrative charge, and a maintenance charge, as described
below.
Cost of Insurance Charges. Your monthly cost of insurance charges will depend
on a number of variables, including:
. the Specified Amount of insurance coverage and death benefit option you
select (both of which affect the net amount at risk to us);
. your cost of insurance rate (which is based on the Insured's age, sex,
and rate class); and
. the investment experience of your value in the Variable Fund Accounts.
For more information on how we determine your cost of insurance
charges, see "Calculating Your Cost of Insurance."
22A
<PAGE>
Charges for Optional Insurance Benefits. The Monthly Deduction will
include charges for any optional insurance benefits added to the Policy by
rider. (See "Optional Insurance Benefits.")
Administrative Charge (First Policy Year Only). During your first 12
Policy months only, we will deduct a monthly administrative charge of $10.
This charge compensates us for start-up administrative expenses that we
incur in issuing your Policy. These expenses include, for example, the
cost of processing your application, conducting a medical examination,
determining insurability and rate class, and establishing Policy records.
The investment advisers or other affiliates of certain Mutual Funds
reimburse USAA Life for the cost of administrative services provided to
the Funds as investment options under the Policies. Compensation is paid
out of fee earnings, based on a percentage of a Fund's average net assets
attributable to a Policy.
Recurring Maintenance Charge. The Monthly Deduction will include a
recurring maintenance charge of $5. This charge compensates us for the
recurring administrative expenses related to the maintenance of your
Policy and of the Separate Account. These expenses include, for example,
premium notices and collection, recordkeeping, processing death benefit
claims, Policy changes, reporting, and overhead costs. We guarantee that
this charge will not increase during the life of the Policy.
Separate Account Charges
We deduct certain charges on a daily basis as a percentage of the value of each
Variable Fund Account of the Separate Account. These charges have the affect of
reducing your Policy's cash value.
Mortality and Expense Charge. We assess a daily charge of .00204% (equal
to 0.75% annual rate) against the values of each Variable Fund Account for
mortality and expense risks that we assume under the Policies. We
guarantee that this charge will not increase during the life of your
Policy. The mortality risk that we assume is that Insureds may live for a
shorter period of time than we estimate and, thus a greater amount of
death benefits than expected will be payable. The expense risk we assume
is that expenses incurred in issuing and administering the Policies will
be greater than we estimate.
Federal Income Tax Charge. Currently, we make no charge against the
Separate Account for federal income taxes that may be attributable to the
Separate Account. We may, however, make such a charge in the future,
should it be necessary. We also may make charges for other taxes, if any,
attributable to the Separate Account. (See "Tax Matters.")
Transfer Charges
We assess a $25 charge for each value transfer between Variable Fund Accounts in
excess of 6 per Policy Year. (See "Transfer of Value" and "Deduction of
Charges.")
Surrender Charges
Partial Surrender Charge. For each partial surrender of cash value, we
assess a charge equal to the lesser of $25 or 2% of the amount withdrawn.
We also refer to this charge as an "administrative processing fee." (See
"Partial Surrenders" and "Deduction of Charges.")
Full Surrender Charge. For full surrenders prior to the end of the 10th
Policy Year, we assess the surrender charge described below. The purpose
of the surrender charge is to compensate us for the expenses we incur in
distributing the Policies. The amount of the surrender charge will equal a
percentage of the Annual Target Premium Payment specified in your Policy,
regardless of the amount of premiums you actually pay. (See "Annual Target
Premium Payment.") The applicable percentage depends on when you
surrender. As shown in the table below, the applicable percentage declines
each Policy Year to 0% after the 10th Policy Year.
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- ------------------------------------------------------------------------------
Surrender Charge as a % of Annual Target Premium Payment
Policy Year 1 2 3 4 5 6 7 8 9 10 11+
Applicable % 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%
- ------------------- ----------------------------------------------------------
To illustrate how the surrender charge works, if your Annual Target Premium
Payment is $2,000 and you surrendered your Policy in full during the first
Policy Year, the surrender charge would be determined by multiplying 50% times
$2,000 = $1,000. Thus, in this example the surrender charge would be $1,000.
If you increase or decrease your Policy's Specified Amount within the first 10
Policy Years, we will declare a new Annual Target Premium Payment for you, which
we will use to determine the surrender charge. (See "Changing Your Policy's
Specified Amount.") However, we will not impose a surrender charge at the time
you decrease your Policy's Specified Amount.
Other Charges
The Variable Fund Accounts purchase shares of the Funds at the Net Asset Value
of the shares. The net asset value reflects the investment management fees and
other expenses already deducted from each Fund's assets. These fees and other
expenses appear under "The Policy At a Glance." Please refer to the accompanying
prospectuses for the Funds for more information on these fees and expenses.
Deduction of Charges
We will deduct the Monthly Deduction, any partial surrender charge, and any
transfer charge from your value in each Variable Fund Account in the same
proportion as each Variable Fund Account's value has to the total Policy cash
value. If you direct us in advance, we will permit you to specify from which
Variable Fund Account(s) you want the partial surrender charge and transfer
charge deducted.
Death Benefit
- -------------
The Policy offers two death benefit options, Option A and Option B, which you
select on your Policy application.
If you select Option A, your death benefit will be the greater of:
. your Policy's Specified Amount, or
. the Minimum Amount Insured (which is a specified percentage of your cash
value based on the Insured's age). (See "Minimum Amount Insured.")
If you select Option B, your death benefit will be the greater of:
. your Policy's Specified Amount plus your cash value, or
. the Minimum Amount Insured. (See "Minimum Amount Insured.")
Under either option, we will reduce the amount of death benefit we pay by the
amount of any outstanding Indebtedness and any due and unpaid Monthly
Deductions. (See "Payment of Policy Benefits.") Please note that partial
surrenders and related surrender charges also will reduce the amount of your
death benefit. (See "Changing Your Policy's Specified Amount.")
The death benefit payment will be increased by any applicable optional insurance
benefits provided by rider. (See "Optional Insurance Benefits.")
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Choosing between Option A and Option B.
Both Option A and Option B provide insurance protection and the opportunity to
build your cash value. When choosing between Option A and Option B, one way to
differentiate the two may be to think of Option A as emphasizing potential cash
value growth and Option B as emphasizing potential death benefit growth, as
explained below.
Under Option A, any cash value you build will decrease the net amount at risk to
us relative to the amount of death benefit we must pay if the Insured dies. As a
result, all other things being equal, your cost of insurance charges generally
will be lower under Option A than under Option B for the same Specified Amount.
Lower monthly cost of insurance charges may enable you to build cash value
faster than if you were paying higher cost of insurance charges under Option B.
There is, however, no minimum guaranteed cash value, which means you bear the
entire investment risk that your cash value could fall to zero. (See "Cash
Value.")
Under Option B, unlike Option A, any cash value you build will increase the
amount of your death benefit. As a result, all other things being equal, your
death benefit under Option B generally will be greater than your death benefit
under Option A for the same Specified Amount.
Illustrations of Option A and Option B
To illustrate the differences between Option A and Option B, let's assume that
the Insured is less than 40 years old, that your Policy's Specified Amount is
$100,000, that you have no loan or outstanding Monthly Deductions, and that your
Policy cash value is $25,000.
Under Option A, your death benefit would be the greater of $100,000 and the
Minimum Amount Insured. Under Option B, your death benefit would be the greater
of $125,000 ($100,000 plus $25,000) and the Minimum Amount Insured.
Under both Options, the death benefit would be higher than the Minimum Amount
Insured, which would be $62,500, in this example. (The Minimum Amount Insured is
calculated by multiplying the cash value (ignoring the amount of any outstanding
Indebtedness) by a specific percentage which is based on the Insured's age. In
this example, the prescribed percentage would be 250%. Different percentages
apply at different ages, and generally decline as you get older. (See "Minimum
Amount Insured.")
Now let's assume that instead of $25,000 your cash value is $50,000. The Minimum
Insured Amount would be $125,000 (250% times $50,000). Under Option A, your
Minimum Insured Amount would be greater than the Specified Amount. As a result,
your death benefit would be $125,000. On the other hand, under Option B, your
death benefit ($150,000) would be higher than the Minimum Amount Insured
($125,000).
Changing Your Death Benefit Option
After the death benefit option you selected on your application has been in
effect for one Policy Year, you may change it by sending Notice to Us. The new
death benefit option also must remain in effect for one Policy Year before we
will allow another change. There is no charge or fee for changing the death
benefit option. The change will become effective on the Monthly Anniversary on
or following the date we approve the change.
If you change your death benefit from Option A to Option B, your Policy's new
Specified Amount will be the old Specified Amount decreased by your Policy's
cash value (ignoring the amount of any outstanding Indebtedness) as determined
on the Date of Receipt of your Notice to Us. We will not allow this change if it
would result in a Specified Amount that is less than the minimum Specified
Amount of $50,000 ($25,000 for Insureds less than 18 years of age). Changing
from Option A to Option B will require proof of insurability, if you wish your
Policy's new Specified Amount under Option B to be the same as the old Specified
Amount under Option A.
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If you change your death benefit option from Option B to Option A, your Policy's
new Specified Amount will be the old Specified Amount increased by your Policy's
cash value (ignoring the amount of any outstanding Indebtedness) next determined
on the Date of Receipt of your Notice to Us. Changing from Option B to Option A
does not require proof of insurability, unless you make changes in your Policy's
Specified Amount or elect optional benefits available by rider.
A change in death benefit option will affect your cost of insurance. (See
"Calculating Your Cost of Insurance.") We will recalculate the maximum premium
limitation following a change in death benefit option. (See "Minimum Amount
Insured" under "Calculating Your Cost of Insurance.")
Changing Your Policy's Specified Amount
Within certain limits, you may increase or reduce your Policy's Specified
Amount. A change in Specified Amount may increase or decrease your cost of
insurance charges. (See "Calculating Your Cost of Insurance.") A change in the
Specified Amount also may have tax consequences. (See "Tax Matters.") Changes in
Specified Amount do not necessarily require changes in planned periodic
premiums. (See "Planned Periodic Premium Payments.") However, any increase or
decrease in Specified Amount will require us to declare a new Annual Target
Premium Payment for the new Specified Amount. (See "Annual Target Premium
Payment.") Whether the premium charge applies will be determined using the new
Annual Target Premium Payment. (See "Premium Charge.") We will recalculate the
maximum premium limitation following an increase or decrease in Specified
Amount. (See "Premium Payments" and "Tax Matters.")
The minimum amount by which you can increase your Policy's Specified Amount is
$25,000, unless such increase is made in conjunction with a change in death
benefit option or to satisfy Internal Revenue Code requirements. For any
increase, you must apply in writing and we will require satisfactory proof of
insurability. The increase will become effective on the Monthly Anniversary on
or following the date we approve the increase. Your rights to cancel your Policy
do not apply to increases in Specified Amount.
We will not allow a reduction in your Policy's Specified Amount (other than that
resulting from a partial surrender of cash value under Option A) that results in
a Specified Amount that is less than $50,000 ($25,000 if the Insured is less
than 18 years of age), nor will we allow a reduction that would cause your
Policy not to qualify as life insurance for federal tax law purposes. You must
make requests for reduction in writing. For purposes of determining your cost of
insurance charge, we will apply any decrease in Specified Amount against the
most recent increase in Specified Amount. The decrease will become effective on
the Monthly Anniversary on or following the Date of Receipt of your Notice to
Us.
Partial surrenders will reduce your Policy's death benefit on a dollar for
dollar basis unless the death benefit is the Minimum Amount Insured, in which
case your death benefit will be reduced by a multiple of the amount surrendered.
Under death benefit Option A, we will reduce the Specified Amount and the cash
value by the amount of the partial surrender. Under death benefit Option B, we
will reduce only the cash value portion of the death benefit by the amount of
the partial surrender.
Other Policy Benefits
- ---------------------
Optional Insurance Benefits
Subject to certain underwriting or issue requirements, you may add one or more
of the following optional insurance benefits to your Policy by rider. Each
rider's description in this Prospectus is subject to the specific terms of the
rider as each contains definitions, contractual limitations, and conditions. We
will deduct the cost of any optional insurance benefits as part of the Monthly
Deduction. (See "Monthly Deductions.")
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Accelerated Benefits for Terminal Illness Rider. This rider provides for
an early benefit payment to you upon receipt of proof that the Insured is
terminally ill (as defined in the rider). The rider is not available in
all states. The maximum amount you may receive under the rider prior to
the Insured's death is 50% of the then current death benefit payable under
the Policy (excluding additional benefits payable under other riders) or,
if less, $250,000. We will deduct the amount of any Indebtedness from the
amount of the early payment. We treat the early payment as a "lien"
against Policy values. We reduce the death benefit by the amount of the
lien and any Policy loans, plus accrued interest. We will continue to make
Monthly Deductions after the early payment. The Owner's access to the cash
value of the Policy through Policy loans, partial surrenders, or full
surrender is limited to any excess of the cash value over the amount of
the lien. We charge interest on the amount of the early payment and any
unpaid Monthly Deductions. We require premium payments to be made for cost
of insurance that are still required to be made after the early payment.
If such payment is not paid when due, we will pay the premium on behalf of
the Owner and add that amount to the early payment amount to be deducted
from the death benefit. If the amount of the early payment plus accrued
interest and required unpaid cost of insurance premiums ever exceed the
amount of the death benefit, we will terminate the Policy and no
additional insurance benefits will be payable.
Accidental Death Benefit Rider. This rider provides an additional life
insurance benefit if the Insured's death results from accidental bodily
injury (as defined in the rider). You can select an additional life
insurance benefit up to a maximum of $200,000, or the Specified Amount,
whichever is less. The premium for this rider is $.84 per $1,000 of
coverage per year.
Children Term Life Insurance Rider. This rider provides level term life
insurance on the lives of the Insured's children (as defined in the
rider). The cost for this rider is $6 per $1,000 of coverage per year.
Extended Maturity Date Rider. This rider permits you to extend your
Policy's Maturity Date up to 10 years beyond what it otherwise would be
(i.e., the Monthly Anniversary following the Insured's 100th birthday).
The death benefit during the extended maturity period will be your
Policy's cash value less any Indebtedness. Also during this period, the
Policy's cash value will continue to accrue in the same manner as
described in the Policy, and any Policy loans in effect will continue to
accrue interest. We will not deduct cost of insurance charges or accept
additional premium payments during this period. We will assess a
maintenance charge during this period. Extension of the Maturity Date is
subject to all of the terms and conditions of the Policy, except where
they are inconsistent with the rider. Extending the maturity date of your
Policy beyond the Insured's age 100 may result in the current taxation of
any increases in your Policy's cash value that result from investment
experience in the Variable Fund Accounts. You should consult a qualified
tax adviser before making such an extension.
Waiver of Monthly Deduction Rider. This rider waives your Monthly
Deduction during periods of total and permanent disability of the Insured,
but only if the Insured has been totally and permanently disabled (as
defined in the rider) for at least 6 consecutive months. We will not
deduct the amount of any Monthly Deduction waived under this rider from
the cash value proceeds payable upon maturity of your Policy, or the death
benefit proceeds payable if the Insured dies before the Policy matures. If
Option A is in effect when we approve a claim under the rider, we will
change your death benefit option from Option A to Option B as of the
Monthly Anniversary after the disability began. While we are paying
benefits under the rider, you may not increase your Policy's Specified
Amount. Please note that the rider does not apply to interest under your
Policy loans. As a result, it is possible that your Policy could lapse for
nonpayment of loan interest. The premium for this rider varies based upon
the age of the Insured.
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If you would like further information about the optional insurance benefits
available under your Policy, please contact us at 1-800-531-2923. Please note
that adding or deleting riders, or increasing or decreasing coverage under the
riders, can have tax consequences. (See "Tax Matters.") You should consult a
qualified tax adviser.
Benefits at Maturity
If the Insured is living, we will pay the cash value of your Policy, less any
Indebtedness, when your Policy matures. All Policies will mature on the Monthly
Anniversary following the Insured's 100th birthday unless extended by rider.
Payment of Policy Benefits
- --------------------------
Payment of Death Benefit
As long as your Policy has not terminated due to lapse, maturity, or full
surrender, we will pay your Policy's death benefit to your Beneficiary. We will
usually pay the death benefit within 7 days after we receive due proof of death
at our Home Office and all other requirements necessary to make payment. We will
determine the cash value portion of the death benefit as of the Valuation Date
immediately following the date of death. We will pay the death benefit in cash
or under one or more of the payment options you have selected in advance. If you
have not selected a payment option, your Beneficiary may select the payment
option prior to (or after) the Insured's death. We may postpone payment of the
death benefit in certain circumstances. (See "Postponement of Payments.")
We will reduce the death benefit by any Indebtedness and any due and unpaid
Monthly Deductions. These proceeds will be increased by any applicable
additional optional insurance death benefits provided by rider.
Payment of Maturity Benefit
If your Policy matures before the Insured dies, we will normally pay you the
cash value of your Policy (reduced by any Indebtedness and any due and unpaid
Monthly Deductions) within 7 days after the Valuation Date on which the Policy
matures. We may postpone payments in certain circumstances. (See "Postponement
of Payments.")
Death Benefit Payment Options
We will pay the death benefit in a lump sum or under one of the payment options
below. During the Insured's lifetime, you may select a payment option. If the
Insured dies and you have not chosen a payment option, your Beneficiary can
choose a payment option. If you have selected a payment option before the
Insured's death, your Beneficiary may not change that option after the Insured's
death. Proceeds applied under a payment option will no longer vary by the
investment experience of the Variable Fund Accounts.
The nature and timing of your choice of payment option can effect the tax
consequences to you or your Beneficiary. You should consult your tax
adviser.
Interest Only Option. The Policy's principal amount may be left on deposit
with USAA Life for a mutually determined period, not to exceed 30 years.
We will make interest payments at mutually determined regular intervals.
The principal amount will earn interest at a minimum rate of 3% compounded
annually. At the end of the fixed period, we will pay the principal
amount.
Installments for a Fixed Period Option. Under this option, we will pay the
principal amount plus interest in equal or unequal installments for a
specified number of years (not more than 30), as mutually agreed upon. The
amount of the installments will not be less than that shown in the Table
of Guaranteed Payments contained in your Policy.
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Installments of a Fixed Amount Option. Under this option, we will pay the
principal amount plus interest in equal or unequal installments, as
mutually agreed upon, until the amount applied, together with interest on
the unpaid balance, is paid in full.
Other Options. We will apply the sum under any other option mutually
agreed upon.
Any arrangements involving more than one payment option, or involving a
Beneficiary that is not a natural person (e.g., a corporation) or who is a
fiduciary (e.g., a trustee) are subject to our approval. In addition, the
details of the arrangements are subject to our rules in effect at the time the
arrangements take effect.
The Beneficiary may designate a successor payee as to any amount that we would
otherwise pay to the Beneficiary's estate. Amounts applied under these payment
options will not be subject to the claims of creditors or to legal process, to
the extent permitted by law.
Cash Value
- ----------
Your Policy's cash value will vary:
. on a daily basis with the investment experience of the Variable Fund
Accounts to which you have allocated your Net Premium Payments;
. to reflect the effect of various Policy transactions, such as additional
premium payments, partial surrenders, and Policy loans; and
. to reflect applicable charges and deductions.
Your Policy does not provide a minimum guaranteed cash value, which means you
bear the entire investment risk that your cash value could fall to zero.
On your Policy's Effective Date, your cash value will equal your Net Premium
Payments, less the Monthly Deduction for the following Policy month. Thereafter,
your cash value on any Valuation Date will equal the sum of:
. your Policy's value in each Variable Fund Account;
. plus, if applicable, any value held in our general account to secure any
Policy loan;
. plus any interest earnings credited on the value held in the general
account;
. less the amount of any outstanding Indebtedness; o less any Monthly
Deductions, transfer charges, and partial surrender charges applied
through that date. (See "Loans.")
On each Monthly Anniversary, the Monthly Deduction will reduce your Policy's
cash value.
Calculating Your Value in the Variable Fund Accounts
When you invest in a Variable Fund Account, you are purchasing units of interest
or "Accumulation Units" ("units") of that Account. You purchase units at their
price next determined on any given Valuation Date following the receipt of your
payment. Therefore, on any given Valuation Date, you can calculate the value of
your investment in a Variable Fund Account by multiplying (1) the number of
units of each Variable Fund Account credited to your Policy by (2) the price of
the units on that Date.
We determine the number of units to credit to you by dividing (1) the Net
Premium Payment you allocate to a Variable Fund Account by (2) that Variable
Fund Account's price per unit or "unit value" next computed on the Date of
Receipt of the premium payment. Certain transactions will affect the number of
units in a Variable Fund Account credited to you. Net Premium Payments will
increase the number of full or fractional units. Loans, partial or full
surrenders, partial surrender charges, transfer charges, and Monthly Deductions
involve redemption of full or fractional units and will decrease the number of
units. In addition, Transfer of Value among Variable Fund Accounts will decrease
the number of units in the Variable Fund Accounts from which value is
transferred and increase the number of units in the Variable Fund Accounts to
which value is transferred.
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Each Variable Fund Account's units are valued separately. We calculate the value
of an Accumulation Unit ("Accumulation Unit Value") for each Variable Fund
Account on any Valuation Date by adjusting the unit value from the previous
Valuation Date for:
. the investment performance of the corresponding Fund;
. any dividends or distributions paid by that Fund; and
. the Separate Account charges that we assess. (See "Separate Account
Charges.")
To find out daily what your cash value is, including the value and number of
units of each Variable Fund Account credited to your Policy, please call us at
1-800-531-4265.
Transfer of Value
- -----------------
Except during the first 30 days after your Policy becomes effective, you may
transfer all or part of the value in any Variable Fund Account to any other
Variable Fund Account of the Separate Account, up to 6 times per Policy Year,
without charge. Each transfer thereafter is subject to a $25 charge.
The minimum amount you can transfer from any Variable Fund Account is $250 (or
the remaining Account value if less). A transfer will result in the redemption
or purchase (or both) of units of the Variable Fund Accounts involved. You may
request a transfer by telephone or by Notice to Us. A request for transfer must
clearly state the amount to be transferred, the Variable Fund Account from which
it is to be withdrawn, and the Variable Fund Account to which it is to be
credited. We will effect the transfer using the Variable Fund Account unit
values next computed on the Date of Receipt of your request, unless a
postponement of payments is in effect. (See "Postponement of Payments.")
We reserve the right, at any time and without prior notice, to terminate,
suspend, or modify these transfer privileges.
Loans
- -----
After your first Policy Year, you may borrow money from USAA Life by using your
Policy as the sole security for the loan. The amount that you may borrow is the
"loan value." The maximum loan value is 85% of your cash surrender value.
You may request a loan by telephone or by Notice to Us, but you must obtain the
written consent of all assignees and irrevocable Beneficiaries, if any, before
we can make the loan.
We will usually pay you the loan proceeds within 7 days after the Date of
Receipt of your loan request, unless a postponement of payments is in effect.
(See "Postponement of Payments.")
Loan Collateral
When you take a loan, we will transfer an amount equal to the loan from your
value in the Variable Fund Accounts to our general account. We make this
transfer of "loan collateral" to secure your loan. You may specify the Variable
Fund Accounts from which you want us to withdraw the loan collateral. If you do
not so specify, we will withdraw the loan collateral from the Variable Fund
Accounts in the same proportion as each Account's value has to the total Policy
cash value. While a loan is outstanding, we will credit the loan collateral on a
daily basis with interest at an effective annual rate of 4%.
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Loan Interest
You are charged interest on the loan at a maximum annual rate of 6% payable in
advance. We have the option of charging less. For Policies that have been in
effect more than 10 Policy Years and if the Insured is age 55 or older, we
charge a preferred loan interest rate of 4.5%. We have the option of charging
less for a preferred loan. The entire amount of interest on your loan balance
for each Policy Year is payable in advance at the commencement of the loan and
at the beginning of each Policy Year thereafter. We will automatically deduct
the interest from your Variable Fund Account(s) in the same proportion as each
Account's value has to the total Policy cash value on the date the loan starts.
Similarly, we will deduct interest from your Variable Fund Account(s) at the
beginning of each Policy Year in the same proportion as each Account's value has
to the total Policy cash value as of that date. If there is insufficient value
in your Variable Fund Account(s) to pay the interest in advance, your policy
will enter its grace period.
Because interest is paid in advance, loan repayments during a Policy Year may
result in an overpayment of interest. We will credit any overpayment of interest
to you on the date of any loan repayment.
Repayment of Indebtedness
You may repay your Indebtedness (i.e., loans and any unpaid interest) in full or
in part at any time before the Insured's death and while the Policy is in
effect. If not repaid, we will deduct the Indebtedness from any death benefit,
maturity benefit, or full surrender proceeds. You may not repay loans and unpaid
loan interest in existence at the end of the grace period until the Policy is
reinstated.
You must designate any loan repayment as such. Otherwise, we will treat it as a
premium payment instead. You may direct how you want your loan repayment to be
allocated among the Variable Fund Accounts. If you do not specify an allocation,
we will allocate your loan repayment to the Variable Fund Accounts in the same
proportion as Net Premium Payments are being allocated to the Accounts.
Effect of Policy Loans
A loan will reduce the value of the Variable Fund Accounts from which it is
deducted. Thus, the amount loaned will not share in the investment experience of
the Variable Fund Accounts. Therefore, a loan, whether repaid or not, will have
a permanent effect on the cash value of the Policy.
We will determine loan values as of the Date of Receipt of the loan request. For
situations where a Policy loan may be treated as a taxable distribution, see
"Tax Matters."
Surrenders
- ----------
You may fully or partially surrender your Policy for all or part of its cash
value to the extent described below. We will usually pay full or partial
surrenders of cash value within 7 days after we receive your written request at
our Home Office. We will determine the cash value of the surrendered amount as
of the Date of Receipt of your request for surrender. There may be tax
consequences in connection with a full or partial surrender. (See "Tax
Matters.") You must obtain the written consent of all assignees or irrevocable
Beneficiaries, if any, before we will process any request for surrender.
We will effect any surrenders using the Variable Fund Account unit values next
computed on the Date of Receipt of your Notice to Us or, in the case of partial
surrenders, your Notice to Us or telephone request. In certain circumstances, we
may postpone the payment of surrenders. (See "Postponement of Payments.")
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Full Surrenders
At any time before the Insured's death and while the Policy is still in effect,
you may surrender your Policy for its entire cash surrender value by sending
Notice to Us. We may require the return of the Policy. We also may assess a
surrender charge. (See "Surrender Charges.") We sometimes refer to the net
amount you would receive as the Policy's "cash surrender value." We will
terminate your Policy and all insurance on the Date of Receipt of your Notice to
Us.
Partial Surrenders
After your first Policy Year and while your Policy is still in effect, but
before the Insured's death, you may surrender a portion of your Policy for cash.
We will assess an administrative processing fee equal to the lesser of $25 or 2%
of the amount withdrawn. You may direct how you would like us to withdraw a
partial surrender and the administrative processing fee from your current value
in the Variable Fund Accounts. If you do not specify a withdrawal allocation, we
will withdraw the partial surrender and the administrative processing fee from
the Variable Fund Accounts in the same proportion as each Account's value has to
the total Policy cash value. (See "Surrender Charges" and "Deduction of
Charges.") You may request a partial surrender by telephone or by Notice to
Us.
Your Policy's remaining cash value after a partial surrender may not be less
than an amount equal to the then current surrender charge for a full surrender.
Partial surrenders and related surrender charges will reduce your death benefit.
(See "Changing Your Policy's Specified Amount" under "Death Benefit.")
Telephone Transactions
- ----------------------
You may submit requests to change your premium payment allocation, requests for
partial surrenders, requests for loans, and requests for Transfer of Value among
Variable Fund Accounts by telephone. We will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine, and only if we
do not, will we be liable for any losses because of unauthorized or fraudulent
instructions. We will obtain information prior to any discussion regarding your
Policy including, but not limited to:
. your USAA number or Policy number,
. your name, and
. your Social Security number.
In addition, we will record all telephone communications with you and will send
confirmations of all transactions to your address. Your Policy automatically
authorizes you to make telephone transactions, subject to our right to modify,
suspend, or discontinue this telephone transaction privilege at any time without
prior notice. You may decline the option of utilizing the telephone transaction
privilege when filling out your Policy application.
Dollar Cost Averaging Program
- -----------------------------
The Dollar Cost Averaging Program enables you to make regular, equal investments
over time into one or more of the Variable Fund Accounts, by transferring a
fixed dollar amount at regular intervals from one or more Variable Fund Accounts
under the Policy.
To begin the Dollar Cost Averaging Program, you must have at least $5,000 in the
Variable Fund Account from which you intend to transfer value. The minimum
amount that you may transfer is $100, or the remaining value of the Account, if
less. The transfers must be scheduled to occur over a period of at least 12
months at monthly, quarterly, or semiannual intervals, as you elect.
32A
<PAGE>
You may select this Program by submitting a written request to our Home Office
or by making a request by telephone. You may cancel your participation in this
Program in the same manner.
We will process transfers under the Dollar Cost Averaging Program to be
effective at the Accumulation Unit Values at the end of the Valuation Period
that includes the date of the transfer. No charges apply to transfers made under
the Dollar Cost Averaging Program.
We reserve the right to suspend, terminate, or modify the offering of the Dollar
Cost Averaging Program upon providing you written notice 30 days in advance.
Should we suspend or terminate the Program, the suspension or cancellation will
not affect any Policy for which the Dollar Cost Averaging Program is already in
effect.
Free Look Right
- ---------------
You may cancel your Policy within 10 days after receiving it, or such longer
period as state law may require, by returning the Policy to us along with a
written request for cancellation. Upon its return, we will refund the greater
of:
. your premium payments, or
. the value of the Variable Fund Accounts as of the Date of Receipt of your
written request to cancel, plus any premium charge, Monthly Deduction,
and mortality and expense charge that we deducted.
Postponement of Payments
- ------------------------
We may postpone payments of partial surrenders, full surrenders, Policy loans,
maturity benefits, death benefits, and Variable Fund Account transfers beyond 7
days whenever:
. the New York Stock Exchange is closed,
. the SEC, by order, permits postponement for the protection of Policy
Owners, or
. the SEC requires trading to be restricted or declares an emergency.
We reserve the right to defer payment of any partial surrenders, full
surrenders, Policy loans or refunds that would be derived from a premium payment
made by a check until the check has cleared the banking system.
- ----------------------------
MORE POLICY INFORMATION
- ----------------------------
Owners And Beneficiaries
- ------------------------
Owners
If you are the Owner of the Policy, the rights and privileges of the Policy
during the lifetime of the Insured belong to you. Generally, the Owner is also
the Insured, unless a different Owner is designated in the application or at a
later date.
Successor Owner. As Owner, you may designate a successor Owner. If you die
without designating a successor Owner, ownership of the Policy will pass to
your estate.
Change of Ownership. As Owner, you may change ownership of your Policy, at
any time, during the Insured's lifetime, by submitting Notice to Us. The
change will take effect on the Date of Receipt of the request. A change of
ownership is subject to the rights of an assignee of record and those of
any irrevocable Beneficiary. We are not responsible for any payments made
or actions taken before we receive your Notice to Us.
33A
<PAGE>
Collateral Assignment. As Owner, you may assign the Policy as collateral
security by submitting a Notice to Us. You will need to obtain the written
consent of any irrevocable Beneficiaries and assignees of record before we
recognize any assignment; however, a collateral assignment takes
precedence over the interest of a revocable Beneficiary. The assignment
will take effect as of the date we receive your Notice to Us. We are not
responsible for the validity or effect of any collateral assignment, nor
are we responsible for any payment or other action taken before we receive
the Notice to Us. We are not bound by an assignment until we receive it at
our Home Office.
We will pay any death benefit payable to an assignee in one lump sum. We will
pay any remaining proceeds to the designated Beneficiary or Beneficiaries. A
collateral assignee is not an Owner. A collateral assignment is not a transfer
of ownership, unless it is an absolute assignment. All collateral assignees of
record must consent to any full surrender, partial surrender, loan or payment
from a Policy under an Accelerated Benefits for Terminal Illness Rider. There
may be unfavorable tax consequences, including recognition of taxable income and
the loss of income tax-free treatment for any death benefit payable to the
Beneficiary. Therefore, you should consult a qualified tax adviser prior to
making an assignment.
Beneficiaries
You may name one or more Beneficiaries in your Policy application. You may
classify Beneficiaries as primary, contingent, revocable, or irrevocable. If no
primary Beneficiary survives the Insured, we will pay the Policy proceeds to the
contingent Beneficiaries. Beneficiaries in the same class will receive equal
payments unless you direct otherwise. A Beneficiary must survive the Insured in
order to receive his or her share of the death benefit proceeds. If a
Beneficiary dies before the Insured dies, his or her unpaid share is divided
among the remaining Beneficiaries of the same class who survive the Insured. If
no Beneficiary survives the Insured, we will pay the proceeds to you, if you are
alive, or, if not, to your estate.
Change of Beneficiary. You may change the Beneficiary while the Insured is
living, by submitting a Notice to Us. You must obtain the written consent
of any irrevocable Beneficiaries before we will accept any change in
Beneficiary. A change in Beneficiary will take effect on the Date of
Receipt of the request. We will not be responsible for any payment or
other action taken before receipt of your Notice to Us. If we make a
payment of death benefits in good faith before receiving the Notice to Us,
we will receive credit for the payment against our liability under the
Policy. A change of Beneficiary is subject to the rights of an assignee of
record.
Calculating Your Cost of Insurance
- ----------------------------------
For each Monthly Anniversary, we determine your monthly cost of insurance by
multiplying (1) the net amount at risk under your Policy by (2) your cost of
insurance rate, and (3) dividing the resulting amount by 1000.
Net Amount at Risk
We determine the net amount at risk by (1) subtracting your Policy's cash value
on any Monthly Anniversary from (2) your Policy's current death benefit (divided
by a factor that discounts the death benefit to the beginning of the month).
Your Policy's death benefit may be the death benefit required to qualify the
Policy as life insurance. (See "Minimum Amount Insured.")
The net amount at risk may be greater if you have selected death benefit Option
B rather than death benefit Option A. (See "Death Benefits.") Since the death
benefit payable under Option B is the Specified Amount plus the cash value, the
difference between the death benefit and the cash value will be greater under
Option B than under Option A (unless the Minimum Amount Insured applies). As the
net amount at risk will be greater, so the cost of insurance also will be
greater. The net amount at risk also may be affected by changes in your Policy's
cash value or in the Specified Amount. (See "Cash Value" and "Death
Benefits.")
34A
<PAGE>
The net amount at risk for each Policy continues to be determined generally by
subtracting the Policy's cash value from the Policy's death benefit (divided by
a factor that discounts the death benefit to the beginning of the month),
regardless of whether the death benefit is the Policy's current Specified Amount
or the Minimum Amount Insured. The cost of insurance rate applied against the
net amount at risk will continue to increase as the Insured's age increases.
Net Amount at Risk - More Than One Rate Class
If you increase the Specified Amount and the rate class applicable to the
increase is different from that of the initial Specified Amount, then, in
determining the cost of insurance charge, we will calculate the net amount at
risk separately for each rate class. The method of determining the net amount at
risk for each rate class will differ between Option A and Option B. If Option A
is in effect, we will apportion the cash value among the initial Specified
Amount and any increases in Specified Amount. The cash value will first be
considered a part of the initial Specified Amount. If the cash value is greater
than the initial Specified Amount, the balance of the cash value will then be
considered a part of each increase in Specified Amount, beginning with the first
increase.
If Option B is in effect, we will determine the net amount at risk by the
proportional relationship of the initial Specified Amount and the Specified
Amount increases for each new rate class to the total Specified Amount.
Because the method of calculating the net amount at risk is different between
Option A and Option B when more than one rate class is in effect, a change in
the death benefit option may result in a different net amount at risk for each
rate class than would have occurred had the death benefit option not been
changed. Thus, the total cost of insurance will be increased or decreased.
Cost of Insurance Rates
Your cost of insurance rates are based on your Insured's age, sex, and rate
class. Generally, we set cost of insurance rates based on our expectations as to
future mortality experience. We apply any changes to cost of insurance rates to
all persons of the same age, sex, and rate class. We will give you 30 days'
notice before any increase in your current cost of insurance rates becomes
effective. We guarantee that your cost of insurance rates will never be greater
than the maximum cost of insurance rates shown in your Policy. These guaranteed
rates are based on the 1980 Commissioners Standard Ordinary Mortality Table, and
age on the Insured's last birthday.
The rate class of the Insured will affect your cost of insurance rate. USAA Life
currently places Insureds into one of three preferred rate classes or into one
of two standard rate classes involving higher mortality risks. In an otherwise
identical Policy, Insureds in the preferred rate class will have a lower cost of
insurance rate than those in a standard rate class. We make all final
determinations of an Insured's rate class.
Minimum Amount Insured
- ----------------------
The Minimum Amount Insured is the amount of insurance proceeds that the Internal
Revenue Code requires for your Policy to qualify as life insurance and to
exclude the death benefit from your Beneficiary's taxable income. If higher than
the death benefit under Option A or Option B, we will pay you the Minimum Amount
Insured. You can determine the Minimum Amount Insured by multiplying your
Policy's cash value (ignoring the amount of any outstanding loan and any unpaid
loan interest) by a specified percentage based on the Insured's age. The
specified percentages, which generally decline as the Insured gets older,
are:
35A
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Minimum Insured Amount as a Percentage of Cash Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Insured's 40 or 95 and
Age* Under 45 50 55 60 65 70 75 to 90 older
Percentage 250% 215% 185% 150% 130% 120% 115% 105% 100%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* Last birthday at the beginning of the Policy Year. A more complete table
appears in your Policy.
If, prior to the Insured's death, unexpected increases in your Policy's cash
value would cause your Policy not to satisfy Internal Revenue Code requirements,
we will increase the death benefit to the Minimum Amount Insured so that the
death benefit will be excluded from the Beneficiary's taxable income.
The Contract
- ------------
The Policy is a legal contract between you and us. The consideration for issuing
the Policy is:
. completion of the application, and
. payment of the first full premium.
The entire contract consists of:
. your Policy,
. your Policy application, and
. any supplemental applications, riders, endorsements, and amendments.
We will consider statements in the application as representations and not
warranties. We will not use any representation to void your Policy or defend a
claim under your Policy unless it is contained in your written application or
supplemental application. Only the president or secretary of USAA Life has
authority to change or waive a provision of your Policy, and then only in
writing.
All requests for changes to your Policy must be clear and in writing, and must
be received by our Home Office.
This Policy is subject to the laws of the state where it is issued. To the
extent that the Policy may not comply, it will be interpreted and applied to
comply.
Incontestability
- ----------------
We will not contest a Policy, or any increase in Specified Amount, except for
lapse or fraud, after the Policy or increase has been in effect during the
Insured's lifetime for 2 years. Each increase in the Specified Amount will have
its own 2-year contestable period beginning with the Effective Date of the
increase. During any 2-year contestable period, we have the right to contest the
validity of your Policy based on material misstatements made in the application
or any supplemental application. The 2-year contestable period begins on the
Effective Date of your Policy, or, in the case of an increase, on the date the
increase is approved and made effective.
If your Policy is reinstated after lapse, a new 2-year contestable period begins
on the date of reinstatement. If the Policy has been in force for 2 years during
the lifetime of the Insured, it will be contestable only as to statements made
in the reinstatement application. If the Policy has been in force for less than
2 years, it will be contestable as to statements made in any reinstatement
applications as well as the initial application.
36A
<PAGE>
The incontestability provisions do not apply to optional insurance benefits
added to your Policy by rider. Each rider contains its own incontestability
provision.
If we contest and rescind your Policy, you will receive your premiums paid, less
any Indebtedness and any previous partial surrenders.
Misstatement of Age or Sex
- --------------------------
Age means the Insured's age on his or her last birthday. If the Insured's age or
sex has been misstated on the application or any supplemental application, we
will adjust the cash value and death benefit to those based on the correct
Monthly Deductions since the Policy's Effective Date.
Suicide Exclusion
- -----------------
Your Policy does not cover suicide by the Insured, while sane or insane, during
the first 2 years after the Policy's Effective Date. If the Insured commits
suicide during this period, our sole liability will be to refund all premiums
paid, less any Indebtedness and previous partial surrenders. We will not pay any
death benefit in those circumstances.
If your Policy lapses and is later reinstated, we will measure the 2-year
suicide exclusion period from the Effective Date of reinstatement. If you
increase your Policy's Specified Amount, we will measure the 2-year suicide
exclusion period for the increase from the increase's Effective Date. If the
Insured dies as a result of suicide (whether sane or insane) during the separate
2-year suicide exclusion period, we will only pay the death benefit attributable
to the initial Specified Amount (on which the 2-year suicide exclusion period
has expired). We will refund the premium payments less any Indebtedness and any
partial surrenders attributable to the increase in the Specified Amount.
Non-Participating Policy
- ------------------------
Your Policy is "non-participating," which means you will not share in any of our
profits or surplus earnings. We will not pay dividends on your Policy.
Reports And Records
- -------------------
We will maintain all records relating to the Policy and the Separate Account. We
will mail to you a Policy annual statement showing:
. the amount of death benefit;
. the cash value;
. any Indebtedness;
. any loan interest charge;
. any loan repayment since the last annual statement;
. any partial surrender since the last annual statement;
. all premium payments since the last annual statement;
. all deductions and charges since the last annual statement; and
. other pertinent information required by any applicable law or regulation,
or that we deem helpful to you.
We will mail the statement within 30 days after the Policy's anniversary, or, at
our discretion, within 30 days after the end of each calendar year showing
information as of a date not more than 60 days prior to the mailing of the
annual statement. We also will send you periodic reports for the Funds that
correspond to the Variable Fund Accounts, periodic reports for the Separate
Account, and any other information, as required by state and federal law.
37A
<PAGE>
We will mail confirmation notices (or other appropriate notification) promptly
at the time of the following transactions:
. Policy issue;
. receipt of premium payments;
. transfers among Variable Fund Accounts;
. change of premium allocation;
. change of death benefit option;
. increases or decreases in Specified Amount;
. partial surrenders;
. receipt of loan repayments; and
. reinstatement.
- -----------------------------
PERFORMANCE INFORMATION
- -----------------------------
From time to time, we may quote performance information for the Variable Fund
Accounts of the Separate Account in advertisements, sales literature, or reports
to Owners or prospective investors.
We may quote performance information in any manner permitted under applicable
law. We may, for example, present such information as a change in a hypothetical
Owner's cash value or death benefit. We also may present the yield or total
return of the Variable Fund Accounts based on a hypothetical investment in a
Policy. The performance information shown may cover various periods of time,
including periods beginning with the commencement of the operations of the
Variable Fund Account or the Fund in which it invests. The performance
information shown may reflect the deduction of only some of the applicable
charges to the Policy. We may, for example, exclude the deduction of one or more
charges, such as the premium charge or surrender charge, and we generally expect
to exclude cost of insurance charges because of the individual nature of these
charges.
We may compare a Variable Fund Account's performance to that of other variable
life 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. We also may
advertise ratings of USAA Life's financial strength or claims-paying ability as
determined by firms that analyze and rate insurance companies and by nationally
recognized statistical rating organizations.
Performance information for any Variable Fund Account reflects the performance
of a hypothetical Policy and are not illustrative of how actual investment
performance would affect the benefits under your Policy. Therefore, you should
not consider such performance information to be an estimate or guarantee of
future performance.
- -----------------------
OTHER INFORMATION
- -----------------------
USAA Life
- ---------
USAA Life is a stock insurance company incorporated in the State of Texas in
June 24, 1963. USAA Life is principally engaged in writing life insurance
policies, health insurance policies, and annuity contracts. 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 on a consolidated
basis prepared in accordance with Generally Accepted Accounting Principles
("GAAP") had total assets of $8,609,414,000 on December 31, 1999. USAA Life is a
wholly-owned stock subsidiary of USAA. The commitments under the Policies are
USAA Life's, and USAA has no legal obligation to back those commitments.
38A
<PAGE>
USAA Life is the depositor administering the Separate Account. USAA Life's
obligations as depositor of the Separate Account may not be transferred without
notice to and consent of the Owners. USAA Life also issues variable annuity
contracts through another separate account, which is also a registered
investment company. In addition, USAA Life serves as transfer agent of the USAA
Life Investment Trust.
Directors of USAA Life. USAA Life is managed by its Board of Directors,
described below, all of whom are also officers of either USAA or USAA Life and
have the same principal business address as USAA Life, as shown on the front
cover page of this Prospectus.
Name Principal Occupation (Past Five Years)
- ---- --------------------------------------
Robert G. Davis Chairman since June 1997; prior thereto, Director
since December 1996; President and Chief Executive
Officer, USAA, since April 2000; prior thereto, Chief
Operating Officer and President, USAA, since June
1999; prior thereto; Deputy CEO-Capital Management,
USAA, since June 1998 and Chief Executive Officer and
President, USAA CAPCO, since December 1996; prior
thereto, Special Assistant to CEO, USAA, since June
1996; prior thereto, Chief Executive Officer and
President of Bank One, Columbus, since 1991.
James M. Middleton Vice Chairman since March 2000; President and Chief
Executive Officer, USAA Life, since March 1, 2000;
prior thereto, Senior Vice President, Operations
Integration & Program Control, USAA Life, since July,
1999; prior thereto, Vice President, Systems
Integration & Program Control, USAA Life, since
September 1997; prior thereto, Vice President, Systems
Integration & Program Control, USAA Life, since
September 1997; prior thereto, Assistant Vice
President, Systems Integration & Analysis, USAA Life,
since March 1994.
Bradford W. Rich Director since November 1996; General Counsel and
Secretary; Senior Vice President, USAA, since January
1996; prior thereto, Senior Vice President and Special
Assistant to CEO, USAA, since December 1995.
Josue Robles, Jr. Director since September 1994; Senior Vice President,
Chief Financial Officer/Treasurer, USAA, since August
1995; prior thereto, Senior Vice President, Chief
Financial Officer/Controller, USAA, since September
1994.
Michael J.C. Roth Director; Chief Executive Officer and President, USAA
IMCO.
Officers (other than Directors). Set forth below are the 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 universal life policies
offered by the Registrant, including each senior executive officer of USAA Life.
The principal business address of each person listed is same as the address of
USAA Life, as shown on the cover page of this Prospectus.
Name Principal Occupation (Past Five years)
- ---- -------------------------------------
Edward R. Dinstel Senior Vice President, Life & Health
Underwriting/Issue since November, 1999; prior
thereto, Vice President, Life & Health
Underwriting/Issue.
39A
<PAGE>
John W. Douglas Senior Vice President, Health & Risk Management, since
January 1997; prior thereto, Senior Vice President,
Life & Health Marketing.
Larkin Fields Treasurer/Senior Vice President, Finance, since May
1999; prior thereto, Vice President, Life Marketing
Services, since November 1995; prior thereto, Vice
President, Corporate Actuary, since September 1994.
Kenneth A. McClure Senior Vice President, Sales & Marketing, since
January 1997; prior thereto, Senior Vice President,
Life & Health Operations.
Ronald W. Holtkamp Assistant Treasurer/Vice President-Senior Financial
Officer, Financial Service Center, USAA, since
December 1997; prior thereto, Senior Vice President,
Controller, USAA, since June 1989.
King Mawhinney Vice President,Face-to-Face, since July 1999; prior
thereto, Vice President, Life Sales, since May 1997;
prior thereto, Vice President, Health Insurance.
Pattie S. McWilliams Vice President, Life/Annuity Member Relations; since
July 1999; prior thereto, Vice President, Life/Annuity
Service & Claims.
Cynthia A. Toles Assistant Secretary/Vice President, Life/Health
Insurance Counsel, USAA, since February 2000; prior
thereto, Senior Vice President, General Counsel &
Secretary, Variable Annuity Life Insurance Company
(VALIC), since April 1981, and Senior Vice President,
General Counsel & Secretary, American Annuity
Insurance Company, since February 1999.
Dwain A. Akins Assistant Secretary/ Assistant Vice President and
Managing Attorney, Life/Health Insurance Counsel,
USAA.
Bobby L. Casey Assistant Vice President, Life Accounting and
Analysis, since December 1998; prior thereto, Director
of Management Accounting (1987 - 90, 1991 -1992, 1995
to 1998); and Director of Cash Management and Control
& Support (1993 - 1995).
Ted E. Johnson Assistant Vice President, Life/Annuity Member
Relations, since January, 2000; prior thereto,
Executive Director, Life/Annuity Member Relations,
since May, 1997; prior thereto, Director, Life
Operations, since March 1996; prior thereto, Director,
Life/Annuity Policy Service, since January 1995.
Diana L. Scheel Assistant Vice President, Life/Health/Annuity Claims
and Benefits, since November, 1999; prior thereto,
Executive Director, Life/Annuity Claims, Benefits and
Analysis, since August, 1998; prior thereto, Director,
Life Operations, since March, 1996; prior thereto,
Director, Life/Annuity Policy Service, since January,
1995.
You should also review the accompanying Fund prospectuses for a description of
the management of the Funds.
40A
<PAGE>
Separate Account
- ----------------
By a resolution of the Board of Directors of USAA Life, we established the
Separate Account as a separate account on January 20, 1998. The Separate Account
is organized as a unit investment trust and registered with the SEC under the
Investment Company Act of 1940. Registration does not involve supervision of the
management of the Separate Account by the SEC.
The assets of the Separate Account are the property of USAA Life and are held
for the benefit of the Owners and other persons entitled to payments under
Policies issued through the Separate Account. The assets of the Separate Account
equal to the reserves and other liabilities of the Separate Account are not
chargeable with liabilities that arise from any other business which USAA Life
may conduct.
The Separate Account is divided into Variable Fund Accounts, each representing a
different investment objective. Net Premium Payments are allocated to the
Variable Fund Accounts in accordance with your instructions. (See "Investment
Options.") Each Variable Fund Account invests exclusively in the shares at the
Net Asset Value of a Fund. Income and gains and losses from assets in each
Variable Fund Account are credited to, or charged against, that Variable Fund
Account without regard to income, gains, or losses in the other Variable Fund
Accounts.
Policy Distribution
- -------------------
We intend to sell the Policy in all states in which we are licensed and the
District of Columbia. USAA IMCO, located at 9800 Fredericksburg Road, San
Antonio, Texas 78288, is the principal underwriter distributing the Policy. USAA
IMCO, a Texas corporation organized in May 1970, is registered with the SEC
under the Securities Exchange Act of 1934 as a broker-dealer and is an active
member of the National Association of Securities Dealers, Inc.
The Policy will be sold by licensed life insurance sales representatives who are
also registered representatives of USAA IMCO. These licensed insurance sales
representatives are salaried employees of USAA Life and receive neither direct
nor indirect commissions nor any renewal commissions from the sale of the
Policies.
USAA IMCO serves as principal underwriter for the Policies pursuant to an
amended and restated Distribution and Administration Agreement with USAA Life
dated March 30, 1998. Pursuant to this agreement, USAA Life bears the cost of
the salaries of the sales representatives who sell the Policies and
substantially all other distribution expenses of the Policies. The agreement
terminates upon its assignment or upon at least 90 days' notice by either party.
USAA IMCO serves as both principal underwriter and investment adviser for the
following registered investment companies: USAA Tax Exempt Fund, Inc., USAA
Investment Trust, USAA State Tax-Free Trust, USAA Mutual Fund, Inc., and USAA
Life Investment Trust. In addition, USAA IMCO serves as principal underwriter
for the Separate Account of USAA Life, a registered investment company.
Tax Matters
- -----------
The following is a discussion of certain federal income tax matters. We do not
intend this to be tax advice, nor does the following summary purport to be
complete or to cover all situations. The discussion is general in nature, and
should not be considered tax advice, for which you should consult a qualified
tax adviser.
The particular situation of each Owner or Beneficiary will determine how
ownership or receipt of Policy proceeds will be treated for purposes of the
federal estate tax, the state inheritance tax and other taxes.
Taxation of Policy Proceeds
The following discussion is based on current federal income tax law and
interpretations. It assumes that the Owner is a natural person who is a U.S.
citizen and resident. The tax effects on non-U.S. residents or non-U.S. citizens
may be different.
41A
<PAGE>
General. A Policy will be treated as "life insurance" for federal income
tax purposes (a) if it meets the definition of life insurance under
Section 7702 of the Internal Revenue Code (the "Code") and (b) for as long
as the investments made by the underlying Mutual Funds satisfy certain
investment diversification requirements under Section 817(h) of the Code.
We believe that the Policies will meet these requirements and that:
. the death benefit received by the Beneficiary under your Policy will
not be subject to federal income tax; and
. increases in your Policy's cash value as a result of investment
experience will not be subject to federal income tax unless and
until there is a distribution from your Policy, such as a surrender
or a partial surrender.
The federal income tax consequences of a distribution from your Policy can be
affected by whether your Policy is determined to be a "modified endowment
contract" (which is discussed below). In all cases, however, the character of
all income that is described below as taxable to the payee will be ordinary
income (as opposed to capital gain).
Testing for modified endowment contract status. Your Policy will be a
"modified endowment contract" if, at any time during the first 7 Policy
Years, you have paid a cumulative amount of premiums that exceeds the
premiums that would have been paid by that time under a similar
fixed-benefit insurance policy that was designed (based on certain
assumptions mandated under the Code) to provide for paid-up future
benefits after the payment of 7 level annual premiums. This is called the
"seven-pay" test.
Whenever there is a "material change" under a Policy, the Policy will generally
be (1) treated as a new contract for purposes of determining whether the Policy
is a modified endowment contract, and (2) subject to a new seven-pay period and
a new seven-pay limit. The new seven-pay limit would be determined taking into
account, under a prescribed formula, the accumulation value of the Policy at the
time of such change. A materially changed Policy would be considered a modified
endowment if it failed to satisfy the new seven-pay limit. A material change for
these purposes could occur as a result of a change in death benefit option, the
selection of additional rider benefits, an increase in your Policy's Specified
Amount of coverage, and certain other changes.
If your Policy's benefits are reduced during the first 7 Policy Years (or within
7 years after a material change), the calculated seven-pay premium limit will be
redetermined based on the reduced level of benefits and applied retroactively
for purposes of the seven-pay test. (Such a reduction in benefits could include,
for example, a decrease in Specified Amount you request or, in some cases, a
partial surrender or termination of additional benefits under a rider.) If the
premiums previously paid are greater than the recalculated seven-payment premium
level limit, the Policy will become a modified endowment contract. A life
insurance policy that is received in exchange for a modified endowment contract
will also be considered a modified endowment contract.
Other effects of Policy changes. Changes made to your Policy (for example,
a decrease in benefits or a lapse or reinstatement of your Policy) may
also have other effects on your Policy. Such effects may include impacting
the maximum amount of premiums that can be paid under your Policy, as well
as the maximum amount of accumulation value that may be maintained under
your Policy.
Taxation of pre-death distributions if your Policy is not a modified
endowment contract. As long as your Policy remains in force during the
Insured's lifetime as a non-modified endowment contract, a Policy loan
will be treated as Indebtedness, and no part of the loan proceeds will be
subject to current federal income tax. Interest on the loan generally will
not be tax deductible.
After the first 15 Policy Years, the proceeds from a partial surrender will not
be subject to federal income tax except to the extent such proceeds exceed your
"basis" in your Policy. (Your basis generally will equal the premiums you have
paid, less the amount of any previous distributions from your Policy that were
not taxable.) During the first 15 Policy Years, the proceeds from a partial
surrender or a reduction in insurance coverage could be subject to federal
income tax, under a complex formula, to the extent that your cash value exceeds
your basis in your Policy.
42A
<PAGE>
On the Maturity Date or upon full surrender, any excess in the amount of
proceeds we pay (including amounts we use to discharge any Policy loan) over
your basis in the Policy, will be subject to federal income tax. In addition, if
a Policy terminates after a grace period while there is a Policy loan, the
cancellation of such loan and accrued loan interest will be treated as a
distribution and could be subject to tax under the above rules. Finally, if you
make an assignment of rights or benefits under your Policy you may be deemed to
have received a distribution from your Policy, all or part of which may be
taxable.
Taxation of pre-death distributions if your Policy is a modified endowment
contract. If your Policy is a modified endowment contract, any
distribution from your Policy during the Insured's lifetime will be taxed
on an "income-first" basis. Distributions for this purpose include (1) a
loan (including any increase in the loan amount to pay interest on an
existing loan or an assignment or a pledge to secure a loan), or (2)
partial surrender. Any such distributions will be considered taxable
income to you to the extent your cash value exceeds your basis in the
Policy. (For modified endowment contracts, your basis is similar to the
basis described above for other Policies, except that it also would be
increased by the amount of any prior loan under your Policy that was
considered taxable income to you.) For purposes of determining the taxable
portion of any distribution, all modified endowment contracts issued by
the same insurer (or its affiliate) to the same owner (excluding certain
qualified plans) during any calendar year are aggregated. The U.S.
Treasury Department has authority to prescribe additional rules to prevent
avoidance of "income-first" taxation on distributions from modified
endowment contracts.
A 10% penalty tax also will apply to the taxable portion of most distributions
from a Policy that is a modified endowment contract. The penalty tax will not,
however, apply to distributions (1) to taxpayers 59 1/2 years of age or older,
(2) in the case of a disability (as defined in the Code), or (3) received as
part of a series of substantially equal periodic annuity payments for the life
(or life expectancy) of the taxpayer or the joint lives (or joint life
expectancies) of the taxpayer and his or her Beneficiary. If your Policy
terminates after a grace period while there is a Policy loan, the cancellation
of such loan will be treated as a distribution to the extent not previously
treated as such and could be subject to tax, including the 10% penalty tax, as
described above. In addition, on the Maturity Date and upon a full surrender,
any excess of the proceeds we pay (including any amounts we use to discharge any
loan) over your basis in the Policy, will be subject to federal income tax and,
unless an exception applies, the 10% penalty tax.
Distributions that occur during a Policy Year in which your Policy becomes a
modified endowment contract, and during any subsequent Policy Years, will be
taxed as described in the two preceding paragraphs. In addition, distributions
from a Policy within 2 years before it becomes a modified endowment contract
also will be subject to tax in this manner. This means that a distribution made
from a Policy that is not a modified endowment contract could later become
taxable as a distribution from a modified endowment contract. The Treasury
Department has been authorized to prescribe rules which would treat similarly
other distributions made in anticipation of a Policy becoming a modified
endowment contract.
Policy lapses and reinstatements. A Policy which has lapsed may have the
tax consequences described above, even though you may be able to reinstate
that Policy. For tax purposes, some reinstatements may be treated as the
purchase of a new insurance contract.
Terminal illness rider. Amounts received under an insurance policy on the
life of an individual who is terminally ill, as defined by the tax law,
are generally excludable from the payee's gross income. We believe that
the benefits provided under our terminal illness rider meet the law's
definition of terminally ill and can qualify for this income tax
exclusion. This exclusion does not apply, however, to amounts paid to
someone other than the Insured, if the payee has an insurable interest in
the Insured's life because the Insured is a director, officer or employee
of the payee or by reason of the Insured being financially interested in
any trade or business carried on by the payee.
Diversification. Under Section 817(h) of the Code, the Treasury Department
has issued regulations that implement investment diversification
requirements. Failure by us to comply
43A
<PAGE>
with these regulations would disqualify your Policy as a life insurance
policy under Section 7702 of the Code. If this were to occur, you would be
subject to federal income tax on the income under the Policy for the
period of the disqualification and for subsequent periods. Our Separate
Account, through the Mutual Funds, intends to comply with these
requirements.
In connection with the issuance of then temporary diversification regulations,
the Treasury Department stated that it anticipated the issuance of guidelines
prescribing the circumstances in which the ability of a Policy Owner to direct
his or her investment to particular Mutual Funds within a Separate Account may
cause the Owner, rather than the insurance company, to be treated as the Owner
of the assets in the account. If you were considered the Owner of the assets of
the Separate Account, income and gains from the account would be included in
your gross income for federal income tax purposes. USAA Life reserves the right
to amend the Policies in any way necessary to avoid any such result. As of the
date of this Prospectus, no such guidelines have been issued, although the
Treasury Department has informally indicated that any such guidelines could
limit the number of investment funds or the frequency of transfers among such
funds. These guidelines may apply only prospectively, although retroactive
application is possible if such standards are considered not to embody a new
position.
Estate and generation skipping taxes. If the Insured is the Policy Owner,
the death benefit under a Policy will generally be includable in the
Owner's estate for purposes of federal estate tax. If the Owner is not the
Insured person, under certain conditions, only an amount approximately
equal to the cash surrender value of the Policy would be includable.
Federal estate tax is integrated with federal gift tax under a unified
rate schedule. In general, estates less than $675,000 (increasing annually
to $1 million in 2006 and thereafter) will not incur a federal estate tax
liability. In addition, an unlimited marital deduction may be available
for federal estate tax purposes.
As a general rule, if a "transfer" is made to a person two or more generations
younger than the Policy's Owner, a generation skipping tax may be payable at
rates similar to the maximum estate tax rate in effect at the time. The
generation skipping tax provisions generally apply to "transfers" that would be
subject to the gift and estate tax rules. Individuals are generally allowed an
aggregate generation skipping tax exemption of $1,030,000 (indexed in future
years by a cost of living adjustment). Because these rules are complex, you
should consult with a qualified tax adviser for specific information, especially
where benefits are passing to younger generations.
If the Owner of the Policy is not the Insured, and the Owner dies before the
Insured, the value of the Policy, as determined under Internal Revenue Service
regulations, is includable in the federal gross of the Owner for federal estate
tax purposes. Whether a federal estate tax is payable depends on a variety of
factors, including those listed in the preceding paragraph.
Pension and profit-sharing plans. If Policies are purchased by a trust or
other entity that forms part of a pension or profit-sharing plan qualified
under Section 401(a) of the Code for the benefit of participants covered
under the plan, the federal income tax treatment of such Policies will be
somewhat different from that described above.
If purchased as part of a pension or profit-sharing plan, the reasonable net
premium cost for such amount of insurance is required to be included annually in
the plan participant's gross income. This cost (generally referred to as the
"P.S. 58" cost) is reported to the participant annually. If the plan participant
dies while covered by the plan and the Policy proceeds are paid to the
participant's Beneficiary, then the excess of the death benefit over the
Policy's cash value will not be subject to federal income tax. However, the
Policy's cash value will generally be taxable to the extent it exceeds the
participant's cost basis in the Policy. The participant's cost basis will
generally include the costs of insurance previously reported as income to the
participant. Special rules may apply if the participant had borrowed from the
Policy or was an owner-employee under the plan.
There are limits on the amounts of life insurance that may be purchased on
behalf of a participant in a pension or profit-sharing plan. Complex rules, in
addition to those discussed above, apply whenever life insurance is purchased by
a tax qualified plan. You should consult a qualified tax adviser.
44A
<PAGE>
Other employee benefit programs. Complex rules may also apply when a
Policy is held by an employer or a trust, or acquired by an employee, in
connection with the provision of other employee benefits. These Policy
Owners must consider whether the Policy was applied for by or issued to a
person having an insurable interest under applicable state law and with
the Insured person's consent. The lack of an insurable interest or consent
may, among other things, affect the qualification of the Policy as life
insurance for federal income tax purposes and the right of the Beneficiary
to receive a death benefit.
ERISA. Employers and employer-created trusts may be subject to reporting,
disclosure and fiduciary obligations under the Employee Retirement Income
Security Act of 1974. You should consult a qualified legal adviser.
When we withhold income taxes. Generally, unless you provide us with an
election to the contrary before we make the distribution, we are required
to withhold income tax from any proceeds we distribute as part of a
taxable transaction under your Policy. In some cases, where generation
skipping taxes may apply, we may also be required to withhold for such
taxes unless we are provided satisfactory written notification that no
such taxes are due.
Tax changes. The U.S. Congress frequently considers legislation that, if
enacted, could change the tax treatment of life insurance policies. In
addition, the Treasury Department may amend existing regulations, issue
regulations on the qualification of life insurance and modified endowment
contracts, or adopt new interpretations of existing law. State and local
tax law or, if you are not a U.S. citizen and resident, foreign tax law,
may also affect the tax consequences to you, the Insured, or your
Beneficiary, and are subject to change. Any changes in federal, state,
local or foreign tax law or interpretation could have a retroactive
effect. We suggest you consult a qualified tax adviser.
Taxation of USAA Life
USAA Life is taxed as a life insurance company under federal income tax laws.
USAA Life does not initially expect to incur any income tax on the earnings or
the realized capital gains attributable to the Separate Account. If, in the
future, USAA Life determines that the Separate Account may incur federal income
taxes, then we may assess a charge against the Separate Account Variable Fund
Accounts for those taxes. Any charge will reduce the Policy's cash value.
We may have to pay state, local or other taxes in addition to applicable taxes
based on premiums. At present, these taxes are not substantial. If they
increase, we may make charges for such taxes when they are attributable to our
Separate Account or allocable to the Policies.
Certain Mutual Funds in which your cash value is invested may elect to pass
through to USAA Life taxes withheld by foreign taxing jurisdictions on foreign
source income. Such an election will result in additional taxable income and
income tax to USAA Life. The amount of additional income tax, however, may be
more than offset by credits for the foreign taxes withheld which are also passed
through. These credits may provide a benefit to USAA Life.
State Regulation of USAA Life
- -----------------------------
USAA Life, a stock life insurance company organized under the laws of Texas, is
subject to regulation by the Texas Department of Insurance. An annual statement
is filed with the Texas Department of Insurance on or before March 1st of each
year covering the operations and reporting on the financial condition of USAA
Life as of December 31 of the preceding year. Periodically, the Commissioner of
Insurance examines the liabilities and reserves of USAA Life and the Separate
Account and certifies their adequacy.
In addition, USAA Life is subject to the insurance laws and regulations of all
other states and jurisdictions where it is licensed. Generally, the Insurance
Department of any other state applies the laws of the state of Texas in
determining USAA Life's permissible investments.
45A
<PAGE>
Legal Matters
- -------------
Freedman, Levy, Kroll, and Simonds, Washington, D.C., has advised USAA Life on
certain federal securities law matters. All matters of Texas law pertaining to
the Policy, including the validity of the Policy and USAA Life's right to issue
the Policy under Texas insurance law, have been passed upon by Dwain A. Akins,
Assistant Vice President and Assistant Secretary of USAA Life.
Independent Auditors
- --------------------
The audited financial statements of the Separate Account as of December 31,
1999, and for each of the years or periods in the two-year period ended December
31, 1999, 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 this Prospectus in reliance upon the accompanying reports thereon of
KPMG LLP, independent certified public accountants, and upon the authority of
said firm as experts in accounting and auditing through their offices located at
112 E. Pecan, Suite 2400, San Antonio, Texas 78205.
Registration Statement
- ----------------------
USAA Life has filed a registration statement under the Securities Act of 1933
with the SEC relating to the offering described in this Prospectus. This
Prospectus does not contain all the information set forth in the registration
statement and amendments thereto and the exhibits filed as part thereof, to all
of which reference is hereby made for additional information concerning the
Separate Account, USAA Life and the Policies.
The exhibits to the registration statement include a form of hypothetical
illustration of the Policy that shows how cash value, cash surrender value, and
the death benefit could vary over an extended period of time assuming
hypothetical gross rates of return (i.e., investment income and capital gains
and losses, realized or unrealized) for the Funds equal to annual rates of 0%,
6%, and 12%, Insureds in the rate class illustrated, and based on current and
guaranteed Policy charges.
The additional information contained in the registration statement may be
obtained at the SEC's main office in Washington, D.C., upon payment of the
prescribed fees.
Financial Statements
- --------------------
You should consider the consolidated financial statements of USAA Life only as
bearing on the ability of USAA Life to meet its contractual obligations under
the Policies. They do not bear on the investment performance of the Separate
Account. The financial statements of the Separate Account and USAA Life appear
on the pages that follow.
46A
<PAGE>
Independent Auditors' Report
To the Board of Directors of USAA Life Insurance Company and Policyowners of the
Life Insurance Separate Account of USAA Life Insurance Company:
We have audited the accompanying statements of assets and liabilities as of
December 31, 1999, the related statements of operations, the statements of
changes in net assets, and unit value information presented in note 5 for each
of the years or periods in the two-year period then ended, for the USAA Life
Money Market Fund Account, USAA Life Income Fund Account, USAA Life Growth and
Income Fund Account, USAA Life World Growth Fund Account, USAA Life Diversified
Assets Fund Account, USAA Life Aggressive Growth Fund Account, USAA Life
International Fund Account, the Fund Account of the Capital Growth
Portfolio-Class A shares of the Scudder Variable Life Investment Fund (Scudder
VLIF Capital Growth Portfolio Fund Account), the Fund Account of the American
Growth Portfolio of the Alger American Fund (Alger American Growth Portfolio
Fund Account), and the Fund Accounts of the Equity 500 Index Fund, Small Cap
Index Fund and EAFE(R) Equity Index Fund, which are funds of the Bankers Trust
(BT) Insurance Funds Trust series (BT Equity 500 Index Fund Account, BT Small
Cap Index Fund Account, and BT EAFE(R) Equity Index Fund Account), available
within the Life Insurance Separate Account of USAA Life Insurance Company. These
financial statements and unit value information are the responsibility of the
Life Insurance Separate Account's management. Our responsibility is to express
an opinion on these financial statements and unit value information 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 and unit value
information are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investments owned at December 31, 1999, were verified by examination
of the underlying portfolios of the USAA Life Investment Trust or through
confirmation for the Scudder, Alger, and BT Insurance Funds Trust Funds'
portfolios. 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 financial statements and unit value information referred to
above present fairly, in all material respects, the financial position of the
aforementioned fund accounts of the Life Insurance Separate Account of USAA Life
Insurance Company as of December 31, 1999, and the results of their operations,
the changes in their net assets, and the unit value information for each of the
years or periods in the two-year period then ended, in conformity with generally
accepted accounting principles.
/s/ KPMG LLP
San Antonio, Texas KPMG LLP
February 4, 2000
47A
<PAGE>
VARIABLE UNIVERSAL LIFE INSURANCE SEPARATE ACCOUNT OF
USAA LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
Variable Fund Accounts (In Thousands, Except Per Unit Data) December 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment at
Fund Shares Cost Market Value
------------- ---------- -----------------
<S> <C> <C> <C>
Assets
Investments at market value:
USAA Life Money Market Fund 339 $ 339 $ 339
USAA Life Income Fund 13 134 119
USAA Life Growth and Income Fund 15 296 276
USAA Life World Growth Fund 3 50 51
USAA Life Diversified Assets Fund 11 170 142
USAA Life Aggressive Growth Fund 18 348 455
USAA Life International Fund 1 6 7
Scudder VLIF Capital Growth Portfolio-Class A Shares 13 345 384
Alger American Growth Portfolio 8 493 546
BT Equity 500 Index Fund 47 667 713
BT Small Cap Index Fund 7 75 78
BT EAFE(R) Equity Index Fund 1 11 12
---------- -------------
Total investments $ 2,934 3,122
Other assets:
Receivable from USAA Life Insurance Company 2
-------------
Net assets $ 3,124
=============
</TABLE>
<TABLE>
<CAPTION>
Fund Account Accumulation
Units Unit Value Reserves
--------------- --------------- --------------
<S> <C> <C> <C>
Net assets
USAA Life Money Market Fund Account 276 $ 1.227534 $ 339
USAA Life Income Fund Account 9 13.262741 119
USAA Life Growth and Income Fund Account 12 23.296591 276
USAA Life World Growth Fund Account 2 23.209674 51
USAA Life Diversified Assets Fund Account 7 19.192009 142
USAA Life Aggressive Growth Fund Account 17 26.991318 455
USAA Life International Fund Account 1 13.269162 7
Scudder VLIF Capital Growth Portfolio Fund Account 12 32.816021 384
Alger American Growth Portfolio Fund Account 15 35.583778 546
BT Equity 500 Index Fund Account 54 13.147788 715
BT Small Cap Index Fund Account 7 10.526480 78
BT EAFE(R) Equity Index Fund Account 1 13.154856 12
---------
Net assets $ 3,124
=========
</TABLE>
See accompanying Notes to Financial Statements
48 A
<PAGE>
VARIABLE UNIVERSAL LIFE INSURANCE SEPARATE ACCOUNT OF USAA LIFE INSURANCE
COMPANY
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Variable Fund Accounts (In Thousands) Year Ended December 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
USAA Life USAA Life USAA Life Growth USAA Life
Money Market Fund Income Fund and Income Fund World Growth Fund
Account Account Account Account
---------------------- ---------------------- ---------------------- ----------------------
1999 1998* 1999 1998* 1999 1998* 1999 1998*
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Investment income (loss):
Income
Dividends from investments $ 9 $ - $ 11 $ - $ 4 $ - $ - $ -
Expenses
Mortality and expense risk charge 1 - - - 1 - 1 -
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net investment income (loss) 8 - 11 - 3 - (1) -
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net realized and unrealized
gain (loss) on investments:
Net realized gain (loss) on sale of
investments - - - - 5 - 1 -
Capital gains distributions - - 3 - 23 - 7 -
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net realized gain - - 3 - 28 - 8 -
Change in net unrealized
appreciation/depreciation - - (15) - (20) - 1 -
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net realized and unrealized
gain (loss) on investments - - (12) - 8 - 9 -
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Increase (decrease) in net assets
resulting from operations $ 8 $ - $ (1) $ - $ 11 $ - $ 8 $ -
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
USAA Life Diversified USAA Life Aggressive USAA Life International
Assets Fund Account Growth Fund Account Fund Account
--------------------- -------------------- -----------------------
<S> 1999 1998* 1999 1998* 1999 1998*
---------- --------- --------- --------- ---------- -----------
<C> <C> <C> <C> <C> <C>
Net Investment income (loss):
Income
Dividends from investments $ 5 1 $ - $ - $ - $ -
Expenses
Mortality and expense risk charge - - 1 - - -
---------- --------- --------- --------- ---------- -----------
Net investment income (loss) 5 1 (1) - - -
---------- --------- --------- --------- ---------- -----------
Net realized and unrealized
gain (loss) on investments:
Net realized gain (loss) on sale
of investments (1) - 7 - - -
Capital gains distributions 26 1 29 - - -
---------- --------- --------- --------- ---------- -----------
Net realized gain 25 1 36 - - -
Change in net unrealized
appreciation/depreciation (27) (1) 107 - 1 -
---------- --------- --------- --------- ---------- -----------
Net realized and unrealized
gain (loss) on investments (2) - 143 - 1 -
---------- --------- --------- --------- ---------- -----------
Increase (decrease) in net assets
resulting from operations $ 3 $ 1 $ 142 $ - $ 1 $ -
========== ========= ========= ========= ========== ===========
</TABLE>
* Variable fund accounts commenced operations August 31, 1998.
See accompanying Notes to Financial Statements
49 A
<PAGE>
VARIABLE UNIVERSAL LIFE INSURANCE SEPARATE ACCOUNT OF USAA LIFE INSURANCE
- --------------------------------------------------------------------------------
COMPANY
-------
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
Variable Fund Accounts (In Thousands) Year Ended December 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Scudder VLIF Capital Alger American Growth BT Equity 500 Index
Growth Portfolio Fund Account Portfolio Fund Account Fund Account
----------------------------- ------------------------ --------------------
1999 1998* 1999 1998* 1999 1998*
---------- ----------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Investment income (loss):
Income
Dividends from investments $ $ $ $ $ $
- - - - 4 -
Expenses
Mortality and expense risk charge 1 - 1 - 2 -
----------- ----------- ------------ ---------- ---------- --------
Net investment income (loss) (1) - (1) - 2 -
----------- ----------- ------------ ---------- ---------- --------
Net realized and unrealized
gain (loss) on investments:
Net realized gain (loss) on sale of
investments - - (3) - 8 -
Capital gains distributions 9 - 7 - 2 -
----------- ----------- ------------ ---------- ---------- --------
Net realized gain 9 - 4 - 10 -
Change in net unrealized appreciation/
depreciation 38 1 53 - 46 -
----------- ----------- ------------ ---------- ---------- --------
Net realized and unrealized
gain (loss) on investments 47 1 57 - 56 -
----------- ----------- ------------ ---------- ---------- --------
Increase (decrease) in net assets
resulting from operations $ 46 $ 1 $ 56 $ - $ 58 $ -
=========== =========== ============ ========== ========== ========
<CAPTION>
BT Small Cap Index BT EAFE(R)Equity Index
Fund Account Fund Account
-------------------------- ------------------------
Net Investment income (loss): 1999 1998* 1999 1998*
Income -------- ------- ------- -------
Dividends from investments
$ - $ - $ - $ -
Expenses
Mortality and expense risk charge - - - -
----------- ---------- --------- ---------
Net investment income (loss) - - - -
----------- ---------- --------- ---------
Net realized and unrealized
gain (loss) on investments:
Net realized gain (loss) on sale of
investments
Capital gains distributions 1 - 1 -
- - - -
----------- ---------- --------- ---------
Net realized gain 1 - 1 -
Change in net unrealized appreciation/
depreciation 3 - 1 -
----------- ---------- --------- ---------
Net realized and unrealized
gain (loss) on investments 4 - 2 -
----------- ---------- --------- ---------
Increase (decrease) in net assets
resulting from operations
$ 4 $ - $ 2 $ -
=========== ========== ========= =========
</TABLE>
* Variable fund accounts commenced operations August 31, 1998.
See accompanying Notes to Financial Statements
50A
<PAGE>
VARIABLE UNIVERSAL LIFE INSURANCE SEPARATE ACCOUNT OF USAA LIFE INSURANCE
COMPANY
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Variable Fund Accounts (In Thousands) Year Ended December 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
USAA Life USAA Life USAA Life Growth
Money Market Fund Account Income Fund Account and Income Fund Account
------------------------- ------------------- -----------------------
1999 1998* 1999 1998* 1999 1998*
--------- ------- ------ ----- ------ -------
<S> <C> <C> <C> <C> <C> <C>
From operations:
Net investment income (loss) $ 8 $ - $ 11 $ - $ 3 $ -
Net realized gain - - 3 - 28 -
Change in net unrealized
appreciation/depreciation - - (15) - (20) -
-------- ----- ----- ----- ------ ------
Increase (decrease) in net assets
resulting from operations 8 - (1) - 11 -
-------- ----- ----- ----- ------ ------
From policy transactions:
Purchases and transfers in 2,623 48 122 - 325 3
Monthly deduction charges (13) (1) (1) - (6) -
Other redemptions (2,280) (46) (1) - (57) -
-------- ----- ----- ----- ------ ------
Increase in net assets
from policy transactions 330 1 120 - 262 3
-------- ----- ----- ----- ------ ------
Net increase in net assets 338 1 119 - 273 3
Net assets:
Beginning of period 1 - - - 3 -
-------- ----- ----- ----- ------ ------
End of period $ 339 $ 1 $ 119 $ - $ 276 $ 3
======== ===== ===== ===== ====== ======
Units issued and redeemed
Beginning balance 1 - - - 1 -
Units issued 3,043 46 9 - 14 1
Units redeemed (2,768) (45) - - (3) -
-------- ----- ----- ----- ------ ------
Ending balance 276 1 9 - 12 1
======== ===== ===== ===== ====== ======
</TABLE>
* Variable fund accounts commenced operations August 31, 1998.
See accompanying Notes to Financial Statements
51A
<PAGE>
VARIABLE UNIVERSAL LIFE INSURANCE SEPARATE ACCOUNT OF USAA LIFE INSURANCE
COMPANY
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Variable Fund Accounts (In Thousands) Year Ended December 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
USAA Life USAA Life Diversified
World Growth Fund Account Assets Fund Account
------------------------- ---------------------
1999 1998* 1999 1998*
------- -------- ------- -------
<S> <C> <C> <C> <C>
From operations:
Net investment income (loss) $ (1) $ - $ 5 $ 1
Net realized gain 8 - 25 1
Change in net unrealized
appreciation/depreciation 1 - (27) (1)
----- ----- ----- -----
Increase (decrease) in net assets
resulting from operations 8 - 3 1
----- ----- ----- -----
From policy transactions:
Purchases and transfers in 47 - 125 37
Monthly deduction charges (1) - (3) -
Other redemptions (3) - (21) -
----- ----- ----- -----
Increase in net assets
from policy transactions 43 - 101 37
----- ----- ----- -----
Net increase in net assets 51 - 104 38
Net assets:
Beginning of period - - 38 -
----- ----- ----- -----
End of period $ 51 $ - $ 142 $ 38
===== ===== ===== =====
Units issued and redeemed
Beginning balance - - 2 -
Units issued 2 - 7 2
Units redeemed - - (2) -
----- ----- ----- -----
Ending balance 2 - 7 2
===== ===== ===== =====
</TABLE>
* Variable fund accounts commenced operations August 31, 1998.
See accompanying Notes to Financial Statements
52 A
<PAGE>
VARIABLE UNIVERSAL LIFE INSURANCE SEPARATE ACCOUNT OF USAA LIFE INSURANCE
COMPANY
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Variable Fund Accounts (In Thousands) Year Ended December 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
USAA Life Aggressive USAA Life International
Growth Fund Account Fund Account
------------------- -----------------------
1999 1998* 1999 1998*
------- ----- --------- -------
<S> <C> <C> <C> <C>
From operations:
Net investment income (loss) $ (1) $ - $ - $ -
Net realized gain 36 - - -
Change in net unrealized
appreciation/depreciation 107 - 1 -
----- ----- ----- -----
Increase (decrease) in net assets
resulting from operations 142 - 1 -
----- ----- ----- -----
From policy transactions:
Purchases and transfers in 365 - 6 -
Monthly deduction charges (5) - - -
Other redemptions (47) - - -
----- ----- ----- -----
Increase in net assets
from policy transactions 313 - 6 -
----- ----- ----- -----
Net increase in net assets 455 - 7 -
Net assets:
Beginning of period - - - -
----- ----- ----- -----
End of period $ 455 $ - $ 7 $ -
===== ===== ===== =====
Units issued and redeemed
Beginning balance - - - -
Units issued 20 - 1 -
Units redeemed (3) - - -
----- ----- ----- -----
Ending balance 17 - 1 -
===== ===== ===== =====
</TABLE>
* Variable fund accounts commenced operations August 31, 1998.
See accompanying Notes to Financial Statements
53 A
<PAGE>
VARIABLE UNIVERSAL LIFE INSURANCE SEPARATE ACCOUNT
OF USAA LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Variable Fund Accounts (In thousands) Year Ended December 31,
================================================================================
<TABLE>
<CAPTION>
Scudder VLIF Capital Alger American Growth BT Equity 500 Index
Growth Portfolio Fund Account Portfolio Fund Account Fund Account
----------------------------- ---------------------- -------------------------
1999 1998* 1999 1998* 1999 1998*
---------- ---------- ----------- -------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
From operations:
Net investment income (loss) $ (1) $ - $ (1) $ - $ 2 $ -
Net realized gain 9 - 4 - 10 -
Change in net unrealized
appreciation/depreciation 38 1 53 - 46 -
--------- -------- --------- --------- ------- -------
Increase (decrease) in net assets
resulting from operations 46 1 56 - 58 -
From policy transactions:
Purchases and transfers in 379 4 578 - 851 3
Monthly deduction charges (5) - (6) - (10) -
Other redemptions (39) (2) (82) - (187) -
--------- -------- --------- --------- ------- -------
Increase in net assets
from policy transactions 335 2 490 - 654 3
--------- -------- --------- --------- ------- -------
Net increase in net assets 381 3 546 - 712 3
Net assets:
Beginning of period 3 - - - 3 -
--------- -------- --------- --------- ------- -------
End of period $ 384 $ 3 $ 546 $ - $ 715 $ 3
========= ======== ========= ========= ======= =======
Units issued and redeemed
Beginning balance 1 - - - 1 -
Units issued 13 1 18 - 73 1
Units redeemed (2) - (3) - (20) -
--------- -------- --------- --------- ------- -------
Ending balance 12 1 15 - 54 1
========= ======== ========= ========= ======= =======
</TABLE>
* Variable fund accounts commenced operations August 31, 1998.
See accompanying Notes to Financial Statements
54 A
<PAGE>
VARIABLE UNIVERSAL LIFE INSURANCE SEPARATE ACCOUNT OF USAA LIFE INSURANCE
- --------------------------------------------------------------------------------
COMPANY
-------
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Variable Fund Accounts (In Thousands) Year Ended December 31,
================================================================================
<TABLE>
<CAPTION>
BT Small Cap Index BT EAFE/(R)/ Equity Index
Fund Account Fund Account
---------------------------- -----------------------------
1999 1998* 1999 1998*
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
From operations:
Net investment income (loss) $ - $ - $ - $ -
Net realized gain 1 - 1 -
Change in net unrealized
appreciation/depreciation 3 - 1 -
-------- ------- -------- --------
Increase (decrease) in net assets
resulting from operations 4 - 2 -
-------- ------- -------- --------
From policy transactions:
Purchases and transfers in 84 - 14 2
Monthly deduction charges - - (1) -
Other redemptions (10) - (5) -
-------- -------- -------- --------
Increase in net assets
from policy transactions 74 - 8 2
-------- ------- -------- --------
Net increase in net assets 78 - 10 2
Net assets:
Beginning of period - - 2 -
-------- ------- -------- --------
End of period $ 78 $ - $ 12 $ 2
======== ======= ======== ========
Units issued and redeemed
Beginning balance - - 1 -
Units issued 8 - 1 1
Units redeemed (1) - (1) -
-------- ------- -------- --------
Ending balance 7 - 1 1
======== ======= ======== ========
</TABLE>
* Variable fund accounts commenced operations August 31, 1998.
See accompanying Notes to Financial Statements
55 A
<PAGE>
LIFE INSURANCE SEPARATE ACCOUNT OF USAA LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
-----------------------------
December 31, 1999
1) ORGANIZATION
The Life Insurance Separate Account of USAA Life Insurance Company (Life
Insurance Separate Account) is registered under the Investment Company Act of
1940, as amended, as a segregated unit investment account of USAA Life Insurance
Company (USAA Life), a wholly owned subsidiary of the United Services Automobile
Association (USAA). The Life Insurance Separate Account commenced operation
August 31, 1998.
The Life Insurance Separate Account is divided into twelve variable fund
accounts, each of which invests in a corresponding fund. Units of the Life
Insurance Separate Account are sold only in connection with the Variable
Universal Life Policy.
The fund accounts available within the Life Insurance Separate Account include:
the USAA Life Money Market Fund Account, USAA Life Income Fund Account, USAA
Life Growth and Income Fund Account, USAA Life World Growth Fund Account, USAA
Life Diversified Assets Fund Account, USAA Life Aggressive Growth Fund Account,
and USAA Life International Fund Account; the Fund Account of the Capital Growth
Portfolio-Class A shares of the Scudder Variable Life Investment Fund (Scudder
VLIF Capital Growth Portfolio Fund Account); the Fund Account of the American
Growth Portfolio of the Alger American Fund (Alger American Growth Portfolio
Fund Account); and the Fund Accounts of the Equity 500 Index Fund, Small Cap
Index Fund and EAFE(R) Equity Index Fund, which are funds of the Bankers Trust
(BT) Insurance Funds Trust series (BT Equity 500 Index Fund Account, BT Small
Cap Index Fund Account, and BT EAFE(R) Equity Index Fund Account).
The assets of the Life Insurance Separate Account are the property of USAA Life
and are not chargeable with liabilities arising out of any other business of
USAA Life.
2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Security Valuation
Investments in mutual fund securities are carried in the Statements of Assets
and Liabilities at net asset value as reported by the fund. Gains or losses on
securities transactions are determined on the basis of the first-in first-out
(FIFO) cost method. Security transactions are recorded on the trade date.
Dividend income, if any, is recorded on ex-dividend date.
Distributions
The net investment income (loss) and realized capital gains of the Life
Insurance Separate Account are not distributed, but instead are retained and
reinvested for the benefit of unit owners.
Federal Income Tax
Operations of the Life Insurance Separate Account are included in the federal
income tax return of USAA Life, which is taxed as a "Life Insurance Company"
under the Internal Revenue Code. Under current federal income tax law, no income
taxes are payable with respect to operation of the Life Insurance Separate
Account.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
may affect the reported amounts in the financial statements.
3) RELATED PARTY TRANSACTIONS
During the year ended December 31, 1999, advisory and administrative fees of
approximately $989,000 were paid or payable to USAA Investment Management
Company (USAA IMCO) by the funds of the USAA Life Investment Trust (the Trust).
USAA IMCO is indirectly wholly owned by USAA. The funds' advisory fees are
computed on an annualized rate of 0.20% of the monthly average net assets for
each calendar month of each fund of the Trust except for the USAA Life
Aggressive Growth Fund, which accrues at an annualized rate of 0.50%, and USAA
Life International Fund, which accrues at an annualized rate of 0.65%. The funds
are an investment option for both the
56A
<PAGE>
Variable Universal Life Policy and the Flexible Premium Deferred Combination
Fixed and Variable Annuity Contract. Administrative fees are based on USAA
IMCO's estimated time incurred to provide such services.
4) EXPENSES
A mortality and expense risk charge is deducted by USAA Life from the Life
Insurance Separate Account on a daily basis which is equal, on an annual basis,
to 0.75% of the daily net assets of each variable fund account. The mortality
risk assumed is that insureds may live for a shorter period of time than
estimated. Thus a greater amount of death benefits than expected will be
payable. The expense risk assumed by USAA Life is that the costs of
administering the policies and the Life Insurance Separate Account may exceed
the amount recovered from the policy maintenance and administration expense
charges. The mortality and expense risk charge is guaranteed by USAA Life and
cannot be increased.
The following expenses are charged to reimburse USAA Life for the expenses it
incurs in the establishment and maintenance of the Policies and each variable
fund account. On the policy's effective date, and each monthly anniversary
thereafter, certain monthly charges will be deducted by USAA Life through a
redemption of units from the cash value of the policy. The monthly deduction
will include cost of insurance charges, which includes charges for any optional
insurance benefits provided by rider, an administrative charge of $10 during the
first twelve policy months, and a recurring maintenance charge of $5. These
charges totaled approximately $32,000, $13,000 and $6,000, respectively, for the
current year.
A transfer charge of $25 will be deducted for each value transfer between
Variable Fund Accounts in excess of six per Policy Year. For each partial
surrender of cash value, a charge equal to the lesser of $25 or 2% of the amount
withdrawn will be deducted. This charge is also referred to as an
"administrative processing fee." For full surrenders, the amount of the
surrender charge will equal a percentage of the Annual Target Premium Payment
specified in the policy. The number of years the policy has been inforce at the
time of surrender determines the applicable percentage.
A 3% premium charge is deducted from the policyholder's premium to compensate
USAA Life for sales charges and taxes. The charge will be deducted from the
policyholder's premium payments until the policyholder's gross amount of premium
payments received exceeds the sum of the policyholder's Annual Target Premium
payments payable over 10 years.
57A
<PAGE>
VARIABLE UNIVERSAL LIFE INSURANCE SEPARATE ACCOUNT OF USAA LIFE INSURANCE
COMPANY
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(Continued) December 31, 1999
- --------------------------------------------------------------------------------
5) UNIT VALUES
A summary of unit values and units outstanding for variable universal life
policies and the expense ratios, including expenses of the underlying funds,
for each period is as follows:
<TABLE>
<CAPTION>
USAA Life Money Market USAA Life Income USAA Life Growth and Income
Fund Account Fund Account Fund Account
Year Ended December 31, Year Ended December 31, Year Ended December 31,
1999 1998 (a) 1999 1998 (a) 1999 1998 (a)
------------------------------ ------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
At end of period:
Accumulation units (000) 276 1 9 - 12 1
Accumulation unit value $ 1.227534 $ 1.178565 $13.262741 $14.089499 $23.296591 $20.468785
Net assets (000) $ 339 $ 1 $ 119 $ - $ 276 $ 3
Ratio of expenses to average
net assets (b) 1.10% 1.10% (c) 1.10% 1.10% (c) 1.10% 1.10%
Ratio of expenses to average
net assets, excluding
reimbursements 1.31% 1.55% (c) 1.43% 1.30% (c) 1.12% 1.12%
</TABLE>
<TABLE>
<CAPTION>
USAA Life World Growth USAA Life Diversified Assets
Fund Account Fund Account
Year Ended December 31, Year Ended December 31,
1999 1998 (a) 1999 1998 (a)
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
At end of period:
Accumulation units (000) 2 - 7 2
Accumulation unit value $23.209674 $17.860722 $19.192009 $17.974654
Net assets (000) $ 51 $ - $ 142 $ 38
Ratio of expenses to average
net assets (b) 1.40% 1.40% (c) 1.10% 1.10% (c)
Ratio of expenses to average
net assets, excluding
reimbursements 1.50% 1.41% (c) 1.25% 1.20% (c)
</TABLE>
<TABLE>
<CAPTION>
USAA Life Aggressive Growth USAA Life International
Fund Account Fund Account
Year Ended December 31, Year Ended December 31,
1999 1998 (a) 1999 1998 (a)
------------------------------ ------------------------------
<S> <C> <C> <C> <C>
At end of period:
Accumulation units (000) 17 - 1 -
Accumulation unit value $26.991318 $13.993064 $13.269162 $10.417977
Net assets (000) $ 455 $ - $ 7 $ -
Ratio of expenses to average
net assets (b) 1.45% 1.45% (c) 1.85% 1.85% (c)
Ratio of expenses to average
net assets, excluding
reimbursements 1.69% 1.59% (c) 2.04% 2.10% (c)
</TABLE>
58 A
<PAGE>
VARIABLE UNIVERSAL LIFE INSURANCE SEPARATE ACCOUNT OF USAA LIFE INSURANCE
-------------------------------------------------------------------------
COMPANY
-------
- ------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
(Continued) December 31, 1999
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Scudder VLIF Capital Growth Alger American Growth BT Equity 500 Index
Portfolio Fund Account Portfolio Fund Account Fund Account
Year Ended December 31, Year Ended December 31, Year Ended December 31,
1999 1998 (a) 1999 1998 (a) 1999 1998 (a)
------------------------- ------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
At end of period:
Accumulation units (000) 12 1 15 - 54 1
Accumulation unit value $32.816021 $24.448446 $35.583778 $26.806157 $13.147788 $11.003536
Net assets (000) $ 384 $ 3 $ 546 $ - $ 715 $ 3
Ratio of expenses to average net assets (b) 1.24% 1.26% (c) 1.54% 1.54% (c) 1.05% 1.05%
Ratio of expenses to average net assets,
excluding reimbursements N/A N/A N/A N/A 1.16% 1.94%
</TABLE>
<TABLE>
<CAPTION>
BT Small Cap Index BT EAFE(R) Equity Index
Fund Account Fund Account
Year Ended December 31, Year Ended December 31,
1999 1998 (a) 1999 1998 (a)
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
At end of period:
Accumulation units (000) 7 - 1 1
Accumulation unit value $10.526480 $8.825971 $13.154856 $ 10.386978
Net assets (000) $ 78 $ - $ 12 $ 2
Ratio of expenses to average net assets (b) 1.20% 1.20% (c) 1.40% 1.40% (c)
Ratio of expenses to average net assets,
excluding reimbursements 1.86% 2.33% (c) 1.83% 2.41% (c)
</TABLE>
(a) Variable fund accounts commenced operations August 31, 1998 with the
following initial unit values per unit:
USAA Life Money Market Fund Account $ 1.162018
USAA Life Income Fund Account $ 13.766435
USAA Life Growth and Income Fund Account $ 16.937712
USAA Life World Growth Fund Account $ 14.981795
USAA Life Diversified Assets Fund Account $ 16.007256
USAA Life Aggressive Growth Fund Account $ 9.446371
USAA Life International Fund Account $ 9.285968
Scudder VLIF Capital Growth Portfolio Fund Account $ 18.614844
Alger American Growth Portfolio Fund Account $ 19.521151
BT Equity 500 Index Fund Account $ 8.561922
BT Small Cap Index Fund Account $ 7.048653
BT EAFE(R) Equity Index Fund Account $ 8.920584
(b) The information is based on actual expenses to the policyowner for the
period, including the expenses of the underlying fund, after giving effect to
reimbursement of fund expenses by USAA
(c) Annualized. The ratio is not necessarily indicative of 12 months of
operations.
59 A
<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.
/s/ KPMG LLP
San Antonio, Texas KPMG LLP
March 17, 2000
60A
<PAGE>
USAA LIFE INSURANCE COMPANY
Consolidated Balance Sheets
December 31, 1999 and 1998
(Dollars in Thousands, Except Share Data)
<TABLE>
Assets 1999 1998
- ------ ---- ----
<S> <C> <C>
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>
61A
<PAGE>
USAA LIFE INSURANCE COMPANY
Consolidated Statements of Income
Years ended December 31, 1999, 1998, and 1997
(Dollars in Thousands)
1999 1998 1997
---- ---- ----
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
========= ========= =========
See accompanying notes to consolidated financial statements.
62A
<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.
63A
<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.
64A
<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.
65A
<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.
(Continued)
66A
<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.
(Continued)
67A
<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.
(Continued)
68A
<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.
(Continued)
69A
<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)
70A
<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
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Debt securities
---------------
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
============ ============ ============ ============ ============
<CAPTION>
Available-for-Sale
------------------
--------------------------------------------------------------------------
Gross Gross Estimated
Amortized unrealized unrealized fair Carrying
cost gains losses value value
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Debt securities
---------------
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies $ 22,000 480 (416) 22,064 22,064
Obligations of states and political
subdivisions 42,420 80 (960) 41,540 41,540
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)
71A
<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
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Debt securities
---------------
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
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Debt securities
---------------
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
------------ ------------ ------------ ------------ ------------
$ 5,273,815 194,989 (13,198) 5,455,606 5,455,606
Total debt securities ============ ============ ============ ============ ============
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)
72A
<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)
73A
<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.
(Continued)
74A
<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.
(Continued)
75A
<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>
(Continued)
76A
<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 3,691,016 3,691,016 3,773,742 3,773,742
contingencies
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.
(Continued)
77A
<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)
78A
<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)
79A
<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>
80A (Continued)
<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:
Future policy
benefits
---------------------------
1999 1998
---- ----
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
============ ===========
Insurance in force
--------------------------
1999 1998
---- ----
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
============ ===========
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.
81A (Continued)
<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)
82A
<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)
83A
<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)
84A
<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.
85A
<PAGE>
We have not authorized anyone to give any information or make any
representations other than those contained in this Prospectus (or any sales
literature we approve) in connection with the offer of the Policies described
herein. You may not rely on any such information or representations, if made.
This Prospectus does not constitute an offer in any jurisdiction to any person
to whom such offer would be unlawful. This Prospectus is valid only when
accompanied or preceded by the current prospectuses for the Funds described
herein.
86A
<PAGE>
_________________________________________________________________
USAA LIFE INSURANCE COMPANY
To discuss your Variable Universal Life Policy,
call an Account Representative toll free
1-800-531-2923
(282-3460 in San Antonio)
___________________________________
If you wish to discuss your particular policy,
transfer money from one fund account to another or select a
payout option
call a Service Representative toll free
1-800-531-4265
___________________________________
www.usaa.com
________________________________________________________________
[LOGO APPEARS HERE]
1
<PAGE>
PART II
INFORMATION NOT REQUIRED TO BE FILED IN A PROSPECTUS
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
UNDERTAKING PURSUANT TO RULE 484(b)(1)
UNDER THE SECURITIES ACT OF 1933
Rule 484(b)(1) under the Securities Act of 1933 requires a description of
"[a]ny provision or arrangement ... whereby the registrant may indemnify a
director, officer or controlling person of the registrant against liabilities
arising under the [Securities] Act." Registrant, the Life Insurance Separate
Account of USAA Life Insurance Company, does not, as a technical matter, have
any directors or officers. Nevertheless, Registrant, pursuant to Section 13 of
the Amended and Restated Distribution and Administration Agreement, may
indemnify, albeit indirectly, directors and/or officers of its depositor, USAA
Life Insurance Company ("USAA Life"), as follows. Section 13 of such Agreement
provides that Registrant shall indemnify the employees of USAA Investment
Management Company ("IMCO"), Registrant's principal underwriter. To whatever
extent any director or officer of USAA Life may be deemed to be an "employee" of
IMCO, Registrant may be deemed to be permitted to indemnify such person pursuant
to such Agreement, which is filed as Exhibit 1.(3)(a) to this Registration
Statement and is herein incorporated by reference.
Additionally, there are certain other provisions or arrangements whereby
USAA Life, and/or certain of its affiliated persons, may be indemnified by
parties or entities other than Registrant. Such provisions or arrangements are
incorporated herein by reference, as follows: to Article IX of the By-Laws of
USAA Life, filed as Exhibit 1.6(b) to this Registration Statement; to Section 9
of the Amended and Restated Underwriting and Administrative Services Agreement,
filed as Exhibit 1.(8)(a) to this Registration Statement; to Section 12 of the
Transfer Agent Agreement, as amended, filed as Exhibit 1.(8)(c) to this
Registration Statement; to Section 6(b) of the Reimbursement Agreement, filed as
Exhibit 1.8(d)(iii) to this Registration Statement; to Section 12.2 of the
Amended Participation Agreement, filed as Exhibit 1.8(e)(i) to this Registration
Statement; to Section 7 of the Participation Agreement, filed as Exhibit
1.8(f)(i) to this Registration Statement; and to the Expense Allocation
Agreement, filed as Exhibit 1.8(f)(ii) to this Registration Statement.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
Registrant pursuant to the foregoing provisions, or otherwise, Registrant has
been advised that in the opinion of the Securities and
<PAGE>
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Registrant
of expenses incurred or paid by a director, officer or controlling person of
Registrant 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, Registrant will, unless in the opinion of its
counsel the 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 Act and will be governed by the final
adjudication of such issue.
REPRESENTATION REGARDING THE REASONABLENESS OF AGGREGATE FEES AND CHARGES
DEDUCTED UNDER THE POLICIES PURSUANT TO SECTION 26(e)(2)(A) OF THE INVESTMENT
COMPANY ACT OF 1940
USAA Life Insurance Company ("USAA Life") represents that the fees and
charges deducted under the Policies, in the aggregate, are reasonable in
relation to the services rendered, the expenses expected to be incurred, and the
risks assumed by the Company under the Policies. 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 Policies 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 Policies 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
Policies or prospectus, or otherwise.
S-2
<PAGE>
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement contains the following papers and documents:
The facing sheet.
Reconciliation and tie between items in Form N-8B-2 and the Prospectus.
Prospectus consisting of 86 pages.
Undertaking, pursuant to Section 15(d) of the Securities Exchange Act of 1934 to
file reports.
Undertaking pursuant to Rule 484(b)(1) under the Securities Act of 1933,
regarding indemnification.
Representation regarding the reasonableness of aggregate fees and charges.
The signatures.
Written consents of the following persons:
Dwain A. Akins, Esq., Assistant Vice President and Assistant Secretary,
USAA Life Insurance Company (filed as Exhibit 2)./4/
KPMG LLP, Independent Auditors (see Exhibit 6). (Filed herewith.)
James C. Hackard, ASA, MAAA, Associate Actuary, USAA Life Insurance Company
(filed as Exhibit 9)./4/
The following exhibits:
1. Exhibits required by Article IX, paragraph A, of Form N-8B-2:
(1) Resolution of Board of Directors of USAA Life Insurance
Company establishing Life Insurance Separate Account of USAA
Life Insurance Company. (The resolution is filed in lieu of
a trust or indenture creating a unit investment trust.)/1/
(2) Not applicable.
(3)(a) Amended and Restated Distribution and Administration
Agreement by and between USAA Life Insurance Company and
USAA Investment Management Company, dated December 16, 1994
and amended and restated, to encompass variable universal
life insurance, March 30, 1998./4/
(3)(b) Not applicable.
S-3
<PAGE>
(3)(c) Not applicable.
(4) Not applicable.
(5) Revised Form of Variable Universal Life Insurance Policy
(Policy Form No. VUL 31891TX), including riders./4/
(6)(a) Articles of Incorporation of USAA Life Insurance Company, as
amended. (Filed herewith.)
(6)(b) Bylaws of USAA Life Insurance Company./4/
(7) Not applicable.
(8)(a) 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 16, 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./7/
(8)(b)(i) Investment Advisory Agreement by and between USAA Life
Investment Trust and USAA Investment Management Company,
dated December 16, 1994./2/
(8)(b)(ii) Amendment to Investment Advisory Agreement by and between
USAA Life Investment Trust and USAA Investment Management
Company, with respect to Funds added to Trust, dated
February 7, 1997./3/
(8)(b)(iii) Second Amendment to Investment Advisory Agreement by and
between USAA Life Investment Trust and USAA Investment
Management Company, to encompass variable life insurance,
dated February 18, 1998./2/
(8)(c)(i) Transfer Agent Agreement by and between USAA Life Investment
Trust and USAA Life Insurance Company, dated December 15,
1994./2/
(8)(c)(ii) Letter Agreement by and between USAA Life Investment Trust
and USAA Life Insurance Company, appointing USAA Life as the
Transfer Agent and Dividend Disbursing Agent for Funds added
to Trust, dated February 7, 1997./2/
(8)(c)(iii) Amendment to Transfer Agent Agreement by and between USAA
Life Investment Trust and USAA Life Insurance Company, to
encompass variable universal life insurance, dated February
18, 1998./2/
S-4
<PAGE>
(8)(d)(i) Amended Participation Agreement by and between Scudder
Variable Life Investment Fund and USAA Life Insurance
Company, dated February 3, 1995, as amended May 21, 1998./6/
(8)(d)(ii) Amended Participating Contract and Policy Agreement by and
between Scudder Investor Services, Inc. and USAA Investment
Management Company, dated February 3, 1995, as amended April
29, 1998./6/
(8)(d)(iii) Amended Reimbursement Agreement by and between Scudder
Kemper Investments, Inc. and USAA life Insurance Company,
dated February 3, 1995, as amended May 21, 1998./6/
(8)(d)(iv) Amended Letter Agreement by and between Scudder Kemper
Investments, Inc., Scudder Investor Services, Inc., Scudder
Variable Life Investment Fund, USAA Life Insurance Company
and USAA Investment Management Company, dated February 3,
1995, as amended March 16, 1998./6/
(8)(e)(i) Amended Participation Agreement by and between The Alger
American Fund, Fred Alger Management, Inc., Fred Alger &
Company, Incorporated, and USAA Life Insurance Company,
dated December 16, 1994, as amended March 16, 1998./4/
(8)(e)(ii) Amended Expense Allocation Agreement by and between Fred
Alger Management, Inc., Fred Alger & Company, Incorporated,
and USAA Life Insurance Company, dated December 16, 1994 as
amended March 16, 1998./4/
(8)(f)(i) Participation Agreement by and between BT Insurance Funds
Trust, Bankers Trust Company and USAA Life Insurance
Company, dated April 30, 1998./4/
(8)(f)(ii) Expense Allocation Agreement by and between Bankers Trust
Company and USAA Life Insurance Company, dated April 30,
1998./4/
(10)(a)(i) Revised Form of Application for the Variable Universal Life
Insurance Policy filed as Exhibit 1.(5)./4/
(10)(a)(ii) Form of Application for Variable Universal Life Insurance
Policy Change./4/
(10)(b) Section 1035 Exchange Form./4/
S-5
<PAGE>
Other Exhibits
2. Opinion and Consent of Dwain A. Akins, Esq. Assistant Vice
President and Assistant Secretary, USAA Life Insurance Company,
as to the legality of the Policy interests being registered./4/
3. Not applicable.
4. Not applicable.
5. Financial Data Schedule. (See Exhibit 27 below.)
6. Consent of KPMG LLP, Independent Auditors. (Filed herewith.)
7. (a) Power of Attorney for Robert G. Davis./1/
(b) Powers of Attorney for James M. Middleton, Bradford W. Rich,
Josue Robles, Jr., Michael J.C. Roth and Larkin W. Fields. (Filed
herewith.)
8. Revised form of illustration showing cash values, cash surrender
values, and death benefits, based on annualized rates of return
of 0%, 6%, and 12%, and based on current and guaranteed Policy
charges. (Filed herewith.)
9. Opinion and Consent of James C. Hackard, ASA, MAAA, Associate
Actuary, USAA Life Insurance Company, as to the methodology for
computing cash values, cash surrender values, and death benefits
as described in the form of illustration filed as Exhibit 8./4/
27. Financial Data Schedule. (Inapplicable, because, notwithstanding
Instruction 5 as to Exhibits, the Commission staff has advised
that no such Schedule is required.)
__________________
/1/ Previously filed on January 30, 1998, with the initial filing of this
Registration Statement.
/2/ Incorporated herein by reference to Post-Effective Amendment No. 6, filed
on March 2, 1998, to the Form N-1A Registration Statement (File No.
33-82270) of USAA Life Investment Trust.
/3/ Incorporated herein by reference to Post-Effective Amendment No. 3, filed
on February 14, 1997, to Form N-1A Registration Statement (File No.
33-82270) of USAA Life Investment Trust.
/4/ Previously filed on May 15, 1998, with the Pre-Effective Amendment to
Registrant's Form S-6 Registration Statement.
/5/ Incorporated herein by reference to Post-Effective Amendment No. 7, filed
on February 26, 1999, to the Form N-1A Registration Statement (File No.
33-82270) of USAA Life Investment Trust.
S-6
<PAGE>
/6/ Previously filed on February 26, 1999, with the Post-Effective Amendment
No. 1 to Registrant's Form S-6 Registration Statement.
/7/ Incorporated herein by reference to Post-Effective Amendment No. 8, filed
on April 28, 2000, to the Form N-1A Registration Statement (File No. 33-
82270) of USAA Life Investment Trust.
S-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant,
Life Insurance Separate Account of USAA Life Insurance Company, has duly caused
this amended Registration Statement to be signed on its behalf by the
undersigned thereunto duly authorized, and its seal to be hereunto fixed and
attested, all in the City of San Antonio, and State of Texas, on this 26th day
of April, 2000.
Signature: Life Insurance 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 Vice President and
Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed below by the following persons in the
capacities and 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, as Attorney-in-fact.
S-8
<PAGE>
EXHIBIT INDEX
Exhibit Page No.
- ------- --------
1.(6)(a) Articles of Incorporation of USAA Life Insurance Company,
as amended.
6. Consent of KPMG LLP, Independent Auditors.
7.(b) Powers of Attorney for James M. Middleton, Bradford W. Rich,
Josue Robles, Jr., Michael J.C. Roth and Larkin W. Fields.
8. Revised form of illustration showing cash values, cash
surrender values, and death benefits based on an annualized
rates of return of 0%, 6%, and 12%, and based on current and
guaranteed Policy charges.
S-9
<PAGE>
EXHIBIT 1.(6)(a)
Amended Articles of Incorporation
of USAA Life Insurance Company
<PAGE>
EXHIBIT 1.(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>
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. C-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>
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/ 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>
96-0920
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 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
BY: /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 10th 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 6
Consent of KPMG LLP, Independent Auditors
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors of USAA Life Insurance Company
and Policyowners of the Life Insurance Separate Account of
USAA Life Insurance Company:
We consent to the use of our reports included herein and to the reference to our
firm under the heading "Independent Auditors" in the Registration Statement and
related prospectus.
/s/ KPMG LLP
San Antonio, Texas
April 25, 2000
<PAGE>
EXHIBIT 7
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 8
Form of Illustration
<PAGE>
USAA LIFE INSURANCE COMPANY
Variable Universal Life PROVIDED VIA DIRECT MAIL BY:
Insurance Douglas Childers, CLU, ChFC
Illustration 9800 Fredericksburg Road, San Antonio, TX 78288
1-800-292-8444 / Local 210/456-9050
Initial Death Benefit: PREPARED ON: 04/12/00
$100,000 REQUESTED BY: INSURED:
Option: A John Doe John Doe
USAA #XXXX USAA #XXXX
The purpose of this illustration is to show how the performance of the
underlying investment accounts could affect the policy cash values and death
benefit. The illustration is hypothetical and is not intended to be used to
project or predict investment results.
- ------------------------------------------
Variable Universal Life Insurance
- ------------------------------------------
Variable Universal Life insurance is a life insurance plan designed to provide
lifetime protection along with the opportunity to invest your premium dollars in
tax-deferred, investment choices. With this product, you can make transfers
among accounts with no immediate tax liability. This policy gives you control
of the investment/cash value portion of your policy. At the same time, you
assume the associated investment risk.
Product Features: Important features include flexible benefits, flexible
premiums, permanent death benefit, cash value accumulation, and investment
options. You can borrow or withdraw cash value from your Variable Universal
Life insurance policy without surrendering your policy. Both loans and
withdrawals can adversely affect future cash value accumulations, premium
payments, and death benefits.
Optional Benefit Riders: Depending on your needs, you may purchase optional
riders: Waiver of Monthly Deduction, Child Rider, and Accidental Death Benefit.
Riders provide additional benefits and might contain conditions and exclusions
that are different from those in your policy. You also receive riders that are
included at no additional cost: Extended Maturity Rider and Accelerated Benefit
for Terminal Illness Rider. Availability of optional benefit riders are subject
to state approval.
More complete information about USAA Life's Variable Universal Life, including
charges and expenses, can be found in the prospectus which preceded or
accompanied this information. Another copy can be obtained from USAA Life at the
above address. Please read the prospectus carefully before sending money. USAA
Life's Variable Universal Life is distributed by USAA Investment Management
Company, a registered broker dealer and NASD member.
- ------------------------------------------
Important Terms in this Illustration
- ------------------------------------------
Guaranteed Expenses: Your policy's values based on the maximum cost of
insurance and expenses and the assumed hypothetical return on your cash value.
The maximum cost of insurance and expenses are guaranteed; however, the
hypothetical values are not guaranteed as they assume a rate of return that may
or may not be achieved.
Non-Guaranteed Expenses: Your policy's values based on the current cost of
insurance and expenses and the assumed hypothetical return on your cash value.
The current cost of insurance and expenses are not guaranteed, as the cost of
insurance and expenses could increase and the hypothetical return might not be
achieved.
Hypothetical Gross Rate of Return: The assumed annual rate of return shown to
illustrate how your policy would perform if it achieved the assumed hypothetical
rate. This rate is before any expenses. This policy does not guarantee any
rate of return. You assume all investment risk for this policy.
Net Rate of Return: The Hypothetical Gross Rate of Return illustrated less
.54000% which represents an average of the management fee and other expenses for
each of the 12 Funds corresponding to the 12 variable fund accounts under the
policy and .75000% which represents the mortality and expense charge under the
policy.
Total Annual Premium: The annualized amount of money you contribute plus any
lump-sum premium payments.
Cash Value: The total value of your variable fund accounts including the
affects of any outstanding loan.
Cash Surrender Value: The maximum amount you would receive if you surrendered
your policy. This is also the amount you may borrow against or withdraw from
your policy. It reflects the deduction of the Surrender Charge and any
outstanding loans.
Cumulative Premium: The total of premium paid into the policy through the
number of policy year ends shown.
Guaranteed Death Benefit: The guarantee that the policy will not lapse during
the first five years and that the death benefit
Page 1 of 10
<PAGE>
will be paid if a sufficient amount of target premium has been paid. (See the
prospectus for details.)
Surrender Charge: The charge based on the Annual Target Premium. The Surrender
Charge declines each policy year until it is eliminated after policy year 10.
- ------------------------------------------
Payments and Expenses
- ------------------------------------------
Payments include the dollar amounts you pay into your policy. Expenses are the
fees you pay to administer and maintain your policy. (See the prospectus for
details.)
Annual Target Premium: An annual amount of premium payment that we establish
when the policy is issued and that is shown on the Policy Information Page. It
is used to determine whether a Premium Charge will be deducted from premium
payments, whether a surrender charge is imposed on a full surrender and whether
the Guaranteed Death Benefit applies.
Tax Guideline Payments: The maximum amounts you may pay into your policy to
comply with Internal Revenue Service limitations. These payments include
Guideline Single, Guideline Annual, and Modified Endowment Contract ("MEC")
Guideline payments.
Expenses: The fees charged against your policy, including:
Premium Charge: A premium charge of 3% is deducted from all premium payments
- ---------------
until the total amount of premium paid exceeds the Annual Target Premium amount
multiplied by ten. For example: if your Annual Target Premium was $1,000, you
are charged a 3% premium charge until you have paid $10,000 in total premiums.
You would not be charged any premium charge for subsequent payments, assuming
you made no changes in coverage.
Maintenance Charge: A $5 monthly charge deducted from the policy's cash value
- -------------------
to cover recurring administrative expenses related to maintaining the policy.
This charge applies for the life of the policy.
Administrative Charge: A $10 charge deducted each month in the first year of
- ----------------------
the contract to cover start-up expenses incurred in issuing this policy. This
charge stops after the first 12 months of the policy.
Cost of Insurance: The monthly charges for life insurance protection including
- -------------------
any Extra Risk Charges for rated policies and any additional cost for optional
benefit riders. Two cost of insurance rates are used in this illustration:
guaranteed cost and projected cost. Whenever Guaranteed Expenses are shown, the
guaranteed cost of insurance is assumed to determine policy values. Whenever
Non-Guaranteed Expenses are shown, the current cost of insurance is assumed to
determine policy values. The guaranteed cost of insurance is the guaranteed
maximum expense that can be deducted from the policy to cover insurance
protection. The current cost of insurance is the cost currently deducted to
cover insurance protection. The current cost of insurance could increase or
decrease based on the company's experience, but it will never be more than the
guaranteed cost of insurance.
- ------------------------------------------
Rate Classes
- ------------------------------------------
Rate classes are groupings of insured individuals who present a substantially
similar insurance risk and are grouped as such for the purpose of setting
premium rates. There are five rate classes offered in this product: Standard,
Standard Plus, Preferred, Preferred Plus, and Preferred Ultra.
- ------------------------------------------
Accessing Your Cash Value
- ------------------------------------------
You can borrow or withdraw the cash value from your Variable Universal Life
insurance policy without surrendering your policy. Both loans and withdrawals
will affect future cash value accumulations, premium payments, and death
benefits. (See the prospectus for details.)
Policy Loans: You may borrow part of your policy's cash value at a 6% interest
rate, paid in advance. Any loan remaining when the insured dies will be
deducted from the death benefit before the beneficiary is paid. The amount of
cash value you borrow will accumulate interest at the guaranteed rate of 4% and
will not participate in the performance of your selected variable fund accounts.
Your policy also offers Preferred Loans; see the prospectus for details.
Policy Withdrawals: You have the option to withdraw from the cash value.
Withdrawals will reduce your cash value and reduce your death benefit. A
partial surrender charge equal to the amount of $25 or 2% of the amount
withdrawn is assessed for each withdrawal. Any gain included in a withdrawal is
taxable. If the total of all withdrawals is more than the total premiums paid
to date, USAA Life must report the amount that exceeds your premiums paid as
gross income to the IRS, making the amount subject to federal (and possibly
state and local) tax. Withdrawals or reductions in coverage made in the first
15 years of policy issue are subject to special tax rules. (See the prospectus
for more information and consult your tax advisor.)
Policy Loans and/or withdrawals may adversely affect your policy and subject it
to premature termination. This is especially true if insufficient premium has
been paid.
- ------------------------------------------
Important Notices
- ------------------------------------------
Underwriting Criteria: USAA Life, at its discretion, may require a medical
examination and answers to medical, avocational, financial, and other questions
to evaluate insurability and rate classification.
Income Tax: Tax consequences may result from the limits and conditions of the
Internal Revenue Code and IRS regulations. USAA Life does not offer tax advice.
Please consult your tax advisor.
Suicide Clause: If death is caused by suicide within the first two years of the
contract, the total death benefit is equal to the premium paid, less any
indebtedness or any prior partial surrenders. This clause also applies to
optional death benefit riders.
Contracts Advertised: This illustration and other enclosed forms are valid only
for the state of [Name], where the assumed Policyowner resides. Form numbers
for the Variable Universal Life insurance contract and any optional riders are :
VUL 31747 ST 2-98, VUL 31837 ST 2-98, VUL 31838 ST 2-98, VUL 31839 ST 2-98, VUL
31851 ST 2-98, VUL 31852 ST 2-98.
Page 2 of 10
<PAGE>
Variable Universal Life Illustration
INSURED: POLICY INFORMATION: BENEFIT RIDERS SELECTED:
John Doe Option: A None
Initial Death Benefit: $100,000.00
Monthly Premium Payment: $100.00
Male, Age 35
Quote Effective Date: 04/12/00
Prepared On: 04/12/00
This notice applies to all hypothetical values for each Hypothetical Gross Rate
of Return shown in this illustration. The policy year-end values shown assume
that planned premium payments are made on the first day of each payment period.
The values for the columns are hypothetical and are not guaranteed. The
performance of your selected variable fund accounts may produce actual values
other than those shown in this illustration. Actual results may be more or less
favorable than those shown. Refer to the introductory information on this
illustration for an explanation of terms used throughout. The hypothetical
values illustrated are based on the Net Rate of Return and reflect the deduction
of the Cost of Insurance, Administrative, Maintenance and Premium Charges. See
the prospectus for further details.
<TABLE>
<CAPTION>
GUARANTEED EXPENSES NON-GUARANTEED EXPENSES
6.00000% Hypothetical Gross Rate of Return 6.00000% Hypothetical Gross Rate of Return
------------------------------------------ ------------------------------------------
(4.70000% Net Rate of Return) (4.70000% Net Rate of Return)
Total Cash Cash
Annual Cash Surrender Death Cash Surrender Death
Year Age Premium $ Value $ Value $ Benefit $ Value $ Value $ Benefit $
- ---- --- --------- ------- -------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 36 1,200 833.04 438.04 100,000 930.24 535.24 100,000
2 37 1,200 1,821.42 1,465.92 100,000 2,024.92 1,169.42 100,000
3 38 1,200 2,846.15 2,530.15 100,000 3,151.92 2,835.92 100,000
4 39 1,200 3,908.44 3,631.94 100,000 4,316.50 4,040.00 100,000
5 40 1,200 5,008.13 4,771.13 100,000 5,526.35 5,289.35 100,000
6 41 1,200 6,146.23 5,948.73 100,000 6,783.92 6,586.42 100,000
7 42 1,200 7,338.67 7,180.67 100,000 8,109.05 7,951.05 100,000
8 43 1,200 8,594.87 8,476.37 100,000 9,510.27 9,391.77 100,000
9 44 1,200 9,893.14 9,814.14 100,000 10,968.79 10,889.79 100,000
10 45 1,200 11,236.46 11,196.96 100,000 12,488.63 12,449.13 100,000
11 46 1,200 12,623.63 12,623.63 100,000 14,074.20 14,074.20 100,000
12 47 1,200 14,057.82 14,057.82 100,000 15,683.65 15,683.65 100,000
13 48 1,200 15,536.19 15,536.19 100,000 17,327.33 17,327.33 100,000
14 49 1,200 17,062.93 17,062.93 100,000 19,022.08 19,022.08 100,000
15 50 1,200 18,638.13 18,638.13 100,000 20,773.70 20,773.70 100,000
16 51 1,200 20,263.38 20,263.38 100,000 22,585.29 22,585.29 100,000
17 52 1,200 21,932.18 21,932.18 100,000 24,462.41 24,462.41 100,000
18 53 1,200 23,648.52 23,648.52 100,000 26,414.70 26,414.70 100,000
19 54 1,200 25,408.36 25,408.36 100,000 28,445.14 28,445.14 100,000
20 55 1,200 27,213.36 27,213.36 100,000 30,558.10 30,558.10 100,000
25 56 1,200 36,868.25 36,868.25 100,000 42,430.47 42,430.47 100,000
30 57 1,200 47,536.86 47,536.86 100,000 56,579.72 56,579.72 100,000
35 58 1,200 59,154.11 59,154.11 100,000 73,693.67 73,693.67 100,000
40 59 1,200 72,224.19 72,224.19 100,000 96,265.97 96,265.97 101,079
45 60 1,200 89,103.12 89,103.12 100,000 125,900.08 125,900.08 132,195
This illustration continues to policy year 66. This illustration continues to policy year 66.
TAX GUIDELINE PAYMENTS $ EXPENSES $ (included in all figures) RATE CLASS: Preferred
Guideline Single: 14,415.69 First-Year Admin.: $10/month
Guideline Annual: 1,256.43 Maintenance: $5/month each year
MEC Guideline: 3,788.25 Premium Charge: 3% of all premiums up to 10 annual target premiums
Commissions: None
ANNUAL TARGET PREMIUM $790.00
</TABLE>
Page 3 of 10
<PAGE>
Variable Universal Life Illustration
INSURED: POLICY INFORMATION: BENEFIT RIDERS SELECTED:
John Doe Option: A None
Initial Death Benefit: $100,000.00
Monthly Premium Payment: $100.00
Male, Age 35
Quote Effective Date: 04/12/00
Prepared On: 04/12/00
<TABLE>
<CAPTION>
=================================================================================================================================
GUARANTEED EXPENSES NON-GUARANTEED EXPENSES
12.00000% Hypothetical Gross Rate of Return 12.00000% Hypothetical Gross Rate of Return
------------------------------------------- -------------------------------------------
(10.70000% Net Rate of Return) (10.70000% Net Rate of Return)
- ---------------------------------------------------------------------------------------------------------------------------------
Total Cash Cash
Annual Cash Surrender Death Cash Surrender Death
Year Age Premium $ Value $ Value $ Benefit $ Value $ Value $ Benefit $
- ---- --- ---------- --------- ---------- ---------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 36 1,200 858.76 463.76 100,000 958.93 563.93 100,000
2 37 1,200 1,929.35 1,573.85 100,000 2,145.10 1,789.60 100,000
3 38 1,200 3,104.31 2,788.31 100,000 3,438.54 3,122.54 100,000
4 39 1,200 4,394.98 4,118.48 100,000 4,855.41 4,578.91 100,000
5 40 1,200 5,810.40 5,573.40 100,000 6,413.27 6,176.27 100,000
6 41 1,200 7,365.19 7,167.69 100,000 8,129.77 7,932.27 100,000
7 42 1,200 9,088.45 8,930.45 100,000 10,039.32 9,881.32 100,000
8 43 1,200 11,007.66 10,889.16 100,000 12,170.53 12,052.03 100,000
9 44 1,200 13,114.42 13,035.42 100,000 14,519.26 14,440.26 100,000
10 45 1,200 15,435.44 15,395.94 100,000 17,115.95 17,076.45 100,000
11 46 1,200 17,989.76 17,989.76 100,000 19,987.37 19,987.37 100,000
12 47 1,200 20,807.85 20,807.85 100,000 23,124.23 23,124.23 100,000
13 48 1,200 23,905.62 23,905.62 100,000 26,556.01 26,556.01 100,000
14 49 1,200 27,326.99 27,326.99 100,000 30,342.11 30,342.11 100,000
15 50 1,200 31,104.07 31,104.07 100,000 34,522.61 34,522.61 100,000
16 51 1,200 35,283.37 35,283.37 100,000 39,149.76 39,149.76 100,000
17 52 1,200 39,887.70 39,887.70 100,000 44,258.53 44,258.53 100,000
18 53 1,200 44,988.35 44,988.35 100,000 49,930.51 49,930.51 100,000
19 54 1,200 50,635.07 50,635.07 100,000 56,224.02 56,224.02 100,000
20 55 1,200 56,905.70 56,905.70 100,000 63,223.64 63,223.64 100,000
25 60 1,200 99,882.50 99,882.50 129,847 111,002.92 111,002.92 144,304
30 65 1,200 170,007.86 170,007.86 204,009 189,263.70 189,263.70 227,116
35 70 1,200 283,305.15 283,305.15 325,801 316,508.09 316,508.09 363,984
40 75 1,200 467,566.60 467,566.60 490,945 524,507.90 524,507.90 550,733
45 80 1,200 770,918.07 770,918.07 809,464 867,811.95 867,811.95 911,203
50 85 1,200 1,253,553.43 1,253,553.43 1,316,231 1,421,282.13 1,421,282.13 1,492,346
55 90 1,200 2,002,697.77 2,002,697.77 2,102,833 2,282,263.85 2,282,263.85 2,396,377
60 95 1,200 3,226,271.52 3,226,271.52 3,226,272 3,683,229.99 3,683,229.99 3,683,230
65 100 1,200 5,369,767.18 5,369,767.18 5,369,767 6,129,266.91 6,129,266.91 6,129,267
This illustration continues to policy year 66. This illustration continues to policy year 66.
</TABLE>
Page 4 of 10
<PAGE>
Variable Universal Life Illustration
INSURED: POLICY INFORMATION: BENEFIT RIDERS SELECTED:
John Doe Option: A None
Initial Death Benefit: $100,000.00
Monthly Premium Payment: $100.00
Male, Age 35
Quote Effective Date: 04/12/00
Prepared On: 04/12/00
<TABLE>
<CAPTION>
GUARANTEED EXPENSES NON-GUARANTEED EXPENSES
0.00000% Hypothetical Gross Rate of Return_____ 0.00000% Hypothetical Gross Rate of Return____
------------------------------------------ ----------------------------------------------
(-1.30000% Net Rate of Return) (-1.30000% Net Rate of Return)
Total Cash Cash
Annual Cash Surrender Death Cash Surrender Death
Year Age Premium $ Value $ Value $ Benefit $ Value $ Value $ Benefit $
- ---- --- ---------- -------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 36 1,200 806.88 411.88 100,000 901.01 506.01 100,000
2 37 1,200 1,715.65 1,360.15 100,000 1,907.16 1,551.66 100,000
3 38 1,200 2,602.63 2,286.63 100,000 2,881.56 2,565.56 100,000
4 39 1,200 3,467.00 3,190.50 100,000 3,827.68 3,551.18 100,000
5 40 1,200 4,308.38 4,071.38 100,000 4,752.97 4,515.97 100,000
6 41 1,200 5,124.72 4,927.22 100,000 5,656.33 5,458.83 100,000
7 42 1,200 5,930.48 5,772.48 100,000 6,555.72 6,397.72 100,000
8 43 1,200 6,730.68 6,612.18 100,000 7,454.70 7,336.20 100,000
9 44 1,200 7,504.24 7,425.24 100,000 8,334.70 8,255.70 100,000
10 45 1,200 8,249.02 8,209.52 100,000 9,193.76 9,154.26 100,000
11 46 1,200 8,962.57 8,962.57 100,000 10,034.50 10,034.50 100,000
12 47 1,200 9,644.25 9,644.25 100,000 10,809.32 10,809.32 100,000
13 48 1,200 10,293.29 10,293.29 100,000 11,532.55 11,532.55 100,000
14 49 1,200 10,906.52 10,906.52 100,000 12,213.89 12,213.89 100,000
15 50 1,200 11,482.74 11,482.74 100,000 12,858.12 12,858.12 100,000
16 51 1,200 12,018.18 12,018.18 100,000 13,462.35 13,462.35 100,000
17 52 1,200 12,509.32 12,509.32 100,000 14,036.43 14,036.43 100,000
18 53 1,200 12,949.79 12,949.79 100,000 14,578.42 14,578.42 100,000
19 54 1,200 13,333.48 13,333.48 100,000 15,089.29 15,089.29 100,000
20 55 1,200 13,654.70 13,654.70 100,000 15,564.74 15,564.74 100,000
25 60 1,200 14,139.58 14,139.58 100,000 17,326.05 17,326.05 100,000
30 65 1,200 11,853.62 11,853.62 100,000 17,118.16 17,118.16 100,000
35 70 1,200 4,488.84 4,488.84 100,000 13,267.98 13,267.98 100,000
36 71 1,200 2,072.34 2,072.34 100,000 11,865.32 11,865.32 100,000
40 75 1,200 0.00 0.00 0 2,716.56 2,716.56 100,000
This illustration continues to policy year 37. This illustration continues to policy year 41.
</TABLE>
Page 5 of 10
<PAGE>
THIS PAGE INTENTIONALLY BLANK
Page 6 of 10
<PAGE>
Variable Universal Life Illustration
INSURED: POLICY INFORMATION: BENEFIT RIDERS SELECTED:
John Doe Option: A None
Initial Death Benefit: $100,000.00
Monthly Premium Payment: $100.00
Male, Age 35
Quote Effective Date: 04/12/00
Prepared On: 04/12/00
================================================================================
Summary Page
This summary gives the cumulative premium projected through the ages requested
and compares three hypothetical gross rates of return for guaranteed (maximum)
and non-guaranteed (current) expenses. The values shown with a 0.00000%
hypothetical gross rate of return are based on guaranteed expenses. The values
for a 6% and 12% hypothetical gross rate of return are based on current expenses
only.
<TABLE>
<CAPTION>
GUARANTEED EXPENSES NON-GUARANTEED EXPENSES
0.00000% Hypothetical Gross Rate of Return 6.00000% Hypothetical Gross Rate of Return
------------------------------------------ ------------------------------------------
(-1.30000% Net Rate of Return) (4.70000% Net Rate of Return)
Cash Cash
Cumulative Cash Surrender Death Cash Surrender Death
Year Age Premium $ Value $ Value $ Benefit $ Value $ Value $ Benefit $
- ---- --- ---------- ------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
5 40 6,000.00 4,308.38 4,071.38 100,000 5,526.35 5,289.35 100,000
10 45 12,000.00 8,249.02 8,209.52 100,000 12,488.63 12,449.13 100,000
20 55 24,000.00 13,654.70 13,654.70 100,000 30,558.10 30,558.10 100,000
35 70 42,000.00 4,488.84 4,488.84 100,000 73,693.67 73,693.67 100,000
</TABLE>
<TABLE>
<CAPTION>
NON-GUARANTEED EXPENSES
12.00000% Hypothetical Gross Rate of Return
-------------------------------------------
(10.70000% Net Rate of Return)
Cash
Cumulative Cash Surrender Death
Year Age Premium $ Value $ Value $ Benefit $
- ---- --- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
5 40 6,000.00 6,413.27 6,176.27 100,000.00
10 45 12,000.00 17,115.95 17,076.45 100,000.00
20 55 24,000.00 63,223.64 63,223.64 100,000.00
35 70 42,000.00 316,508.09 316,508.09 363,984.30
</TABLE>
Page 7 of 10
<PAGE>
Signature Page
CUSTOMER: I have received a copy of this illustration and I understand that any
non-guaranteed elements illustrated are subject to change and can be higher or
lower than the values illustrated. My Account Representative has informed me of
the changing nature of these values.
Signed: ________________________ Date: _____________________
USAA Life Insurance Company certifies that this illustration has been presented
to the applicant and that the applicant has been informed that any non-
guaranteed elements illustrated are subject to change. No statements that are
inconsistent with the illustration have been made by the authorized
representative of USAA Life Insurance Company.
This illustration is based on the options you requested. Because the policy you
purchase may differ from that which has been illustrated, you will be provided
with an illustration that conforms to your policy at the time it is issued. You
will be asked to sign and return the conforming illustration to acknowledge
that, when applying for insurance, you were told and understood that any non-
guaranteed elements illustrated are subject to change and actual results may be
more or less favorable.
__________________________________________ ___________
Arthur E. Settles, , CLU, FLMI, ChFC Date
Vice President, New Member Relationships
Page 8 of 10
<PAGE>
Variable Universal Life Illustration
REQUESTED BY: NAME OF INSURED:
John Doe John Doe
USAA #XXXXX
Prepared On: 04/12/00
================================================================================
Variable Universal Life Guaranteed Annual Costs
(With 6.00000% Hypothetical Gross Rate of Return)
(4.70000% Net Rate of Return)
This table illustrates the guaranteed cost for the base policy and any optional
rider(s) selected based on the mid-point hypothetical gross rate of return
identified above. The cash value and death benefits illustrated on the previous
pages assume that the cost for the options selected have been subtracted from
your total cash value.
<TABLE>
<CAPTION>
OPTIONAL BENEFITS
-------------------------------------------------------
$200,000
Guaranteed Maint. & Extra Waiver $25,000 Accidental Total
Cost Premium Admin.* Risk Monthly Child Death Guaranteed
Year Age of Ins. $ Charge $ Charge $ Charge $ Deduct. $ Rider Benefit Costs $
- ---- --- --------- -------- --------- -------- --------- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 36 171.42 36.00 180.00 0.00 0.00 0.00 0.00 387.42
2 37 178.11 36.00 60.00 0.00 0.00 0.00 0.00 274.11
3 38 187.97 36.00 60.00 0.00 0.00 0.00 0.00 283.97
4 39 198.66 36.00 60.00 0.00 0.00 0.00 0.00 294.66
5 40 210.13 36.00 60.00 0.00 0.00 0.00 0.00 306.13
6 41 223.47 36.00 60.00 0.00 0.00 0.00 0.00 319.47
7 42 237.44 21.00 60.00 0.00 0.00 0.00 0.00 318.44
8 43 251.89 0.00 60.00 0.00 0.00 0.00 0.00 311.89
9 44 266.83 0.00 60.00 0.00 0.00 0.00 0.00 326.83
10 45 283.26 0.00 60.00 0.00 0.00 0.00 0.00 343.26
11 46 302.07 0.00 60.00 0.00 0.00 0.00 0.00 362.07
12 47 321.02 0.00 60.00 0.00 0.00 0.00 0.00 381.02
13 48 341.09 0.00 60.00 0.00 0.00 0.00 0.00 401.09
14 49 363.04 0.00 60.00 0.00 0.00 0.00 0.00 423.04
15 50 385.75 0.00 60.00 0.00 0.00 0.00 0.00 445.75
16 51 410.93 0.00 60.00 0.00 0.00 0.00 0.00 470.93
17 52 439.26 0.00 60.00 0.00 0.00 0.00 0.00 499.26
18 53 471.29 0.00 60.00 0.00 0.00 0.00 0.00 531.29
19 54 507.55 0.00 60.00 0.00 0.00 0.00 0.00 567.55
20 55 546.57 0.00 60.00 0.00 0.00 0.00 0.00 606.57
25 60 769.47 0.00 60.00 0.00 0.00 0.00 0.00 829.47
30 65 1,069.47 0.00 60.00 0.00 0.00 0.00 0.00 1,129.47
35 70 1,380.03 0.00 60.00 0.00 0.00 0.00 0.00 1,440.03
40 75 1,618.25 0.00 60.00 0.00 0.00 0.00 0.00 1,678.25
45 80 1,142.88 0.00 60.00 0.00 0.00 0.00 0.00 1,202.88
50 85 749.70 0.00 60.00 0.00 0.00 0.00 0.00 809.70
55 90 1,419.20 0.00 60.00 0.00 0.00 0.00 0.00 1,479.20
60 95 378.23 0.00 60.00 0.00 0.00 0.00 0.00 438.23
65 100 0.00 0.00 60.00 0.00 0.00 0.00 0.00 60.00
</TABLE>
* This includes a first-year administrative charge of $10 per month ($120),
first year only.
Page 9 of 10
<PAGE>
Variable Universal Life Illustration
REQUESTED BY: NAME OF INSURED:
John Doe John Doe
USAA #XXXX
Prepared On: 04/12/00
================================================================================
Variable Universal Life Current Annual Costs
(With 6.00000% Hypothetical Gross Rate of Return)
(4.70000% Net Rate of Return)
This table illustrates the current cost for the amount of insurance and any
optional rider(s) selected. The cash value and death benefits illustrated on the
previous pages assume that the cost for the options selected have been
subtracted from your total cash value.
<TABLE>
<CAPTION>
OPTIONAL BENEFITS
------------------------------------------------
Current Maint. & Extra Waiver Child Accidental Total
Cost Premium Admin.* Risk Monthly Rider Death Current
-----
Year Age Of Ins. $ Charge $ Charge $ Charge $ Deduct. $ Benefit Costs $
- ---- --- --------- -------- --------- -------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 36 76.62 36.00 180 0.00 0.00 0.00 0.00 292.62
2 37 78.87 36.00 60 0.00 0.00 0.00 0.00 174.87
3 38 97.56 36.00 60 0.00 0.00 0.00 0.00 193.56
4 39 112.93 36.00 60 0.00 0.00 0.00 0.00 208.93
5 40 121.36 36.00 60 0.00 0.00 0.00 0.00 217.36
6 41 130.73 36.00 60 0.00 0.00 0.00 0.00 226.73
7 42 137.27 21.00 60 0.00 0.00 0.00 0.00 218.27
8 43 145.81 0.00 60 0.00 0.00 0.00 0.00 205.81
9 44 152.42 0.00 60 0.00 0.00 0.00 0.00 212.42
10 45 160.39 0.00 60 0.00 0.00 0.00 0.00 220.39
11 46 165.94 0.00 60 0.00 0.00 0.00 0.00 225.94
12 47 216.73 0.00 60 0.00 0.00 0.00 0.00 276.73
13 48 254.25 0.00 60 0.00 0.00 0.00 0.00 314.25
14 49 281.27 0.00 60 0.00 0.00 0.00 0.00 341.27
15 50 303.49 0.00 60 0.00 0.00 0.00 0.00 363.49
16 51 327.28 0.00 60 0.00 0.00 0.00 0.00 387.28
17 52 342.29 0.00 60 0.00 0.00 0.00 0.00 402.29
18 53 357.16 0.00 60 0.00 0.00 0.00 0.00 417.16
19 54 370.41 0.00 60 0.00 0.00 0.00 0.00 430.41
20 55 385.70 0.00 60 0.00 0.00 0.00 0.00 445.70
25 60 472.19 0.00 60 0.00 0.00 0.00 0.00 532.19
30 65 673.13 0.00 60 0.00 0.00 0.00 0.00 733.13
35 70 686.22 0.00 60 0.00 0.00 0.00 0.00 746.22
40 75 290.64 0.00 60 0.00 0.00 0.00 0.00 350.64
45 80 382.27 0.00 60 0.00 0.00 0.00 0.00 442.27
50 85 777.00 0.00 60 0.00 0.00 0.00 0.00 837.00
55 90 1,876.70 0.00 60 0.00 0.00 0.00 0.00 1,936.70
60 95 466.40 0.00 60 0.00 0.00 0.00 0.00 526.40
65 100 0.00 0.00 60 0.00 0.00 0.00 0.00 60.00
</TABLE>
* This includes a first-year administrative charge of $10 per month ($120),
first year only.
Page 10 of 10
